What am I getting wrong? A newbie looking to invest in DFW

Question

Hello everyone,

I recently graduated from college and moved to DFW for the first time to start my first full-time job. When the pandemic hit, I found myself with a lot of free time and discovered real estate investing and BiggerPockets! Despite my excitement, I've been struggling to find any deals after months of searching.

Some background:

My plan moving down here was to save money aggressively for a year and then buy in June - July of this year a duplex/triplex/quad to house hack in the Grand Prairie/Arlington area, somewhere in the $200k - $300k range. I'm looking in Grand Prairie/Arlington since it offers me a reasonable commute to my job in Grand Prairie without the higher costs for homes the closer you get to Dallas or Fort Worth. $200k - $300k seemed like a range that I could afford to put 20% down on without going so low I'd worry about crime or my wellbeing living there. Because I only just started working, I figure that prioritizing cash flow will be safer than relying on appreciation for a property that barely cash flows.

I've given myself a few advantages since I'm new and don't feel like I need a home run on my first purchase, including ignoring forgoing property management and willing to settle for as low as 6% COC ROI since I intend for this to be more of a learning opportunity.

Despite this, I can't seem to find any deals that make sense, which is frustrating since every website in the world lists Dallas or Fort Worth as some of the best places to invest in in the US. Are my criteria too strict? Is it because the market is so hot right now? I'm also trying to avoid any major projects on my first home purchase. Here are my criteria condensed:

Arlington/Grand Prairie region
Duplex/Triplex/Quad
$200k - $300k
6% COC ROI

It's also a possibility that I am misjudging costs for the area. Here's something that meets my criteria I threw together as an example, and here's the property on realtor.com. I would love to hear what you think I'm doing wrong. I'm new so all feedback is appreciated!

Thank you,

Peter Buccowich

Bruce Lynn · Answer

Not a lot of multi-family for sale in my opinion. I look at every multi that comes on the market every day in the 4 counties in DFW and now six counties as I have had to expand north for my clients so recently added Cooke and Grayson. Very few properties, less than 1/2 makes sense financially, but still people buy them. When I say don't make sense, that means $400,000 for a duplex with $1000/month each side rent. Then you think about who sells these....mostly investors who want top dollar and can sit on them if they don't sell....because they are getting paid to rent them. Then you have to find the right deal where either one side is empty or someone is on month-to-month to get owner occupancy financing. I also find a lot of these multis are not in the prettiest of neighborhoods....just kind of is what it is, so then people go look at them and decide where they want to live trumps their desire to get rich. That is what makes it tough, but not impossible.

Rob Lee · Answer

The DFW market has remained hot during the pandemic. We are low on inventory due to a lack of construction during the last recession. The lack of inventory has lead to competition on every deal. When you find a deal that works there will likely be multiple offers. Be prepared to move fast. Many out of state investors have no problem paying cash. The $200k -$300k budget referenced is sufficient for single-family house hacking. Any multifamily in that range is going to require quite a bit of workThe articles you are reading likely refer to the expected continued appreciation. We are one of the few remaining major metropolitans with affordable housing. DFW has a diverse economy and a great job market. New companies and their employees relocate here regularly. Texas has no state tax and the public schools in the DFW are well funded by our high property taxes. Quality renters want the same things homeowners want. Best of Luck,Rob

Jack Szalasny · Answer

Peter, Normally, I would advise against an FHA Loan, but with about 4% total out of pocket for down payment/closing versus the 20% conventional, you can get at least a $550K mortgage for a three unit, and over $685K for a fourplex in the DFW area. These higher priced properties should equate to significantly higher rental income on the other tow or three units, respectively. Keep in mind, you'll be paying a hefty FHA Mortgage Insurance Premium (MIP) in your monthly payment, but if the numbers work, you may find better cash flow with a higher-priced multi-unit when you take into consideration the rental part of the MIP should be tax-deductible, reducing its actual impact significantly. Plus, if interest rates stay low enough and property values continue to increase, you may be able to refi in a year or two conventional and really get a great return. We used an FHA loan for a condo in Baltimore years ago when my wife went through her residency there. It's now a great cash-flowing property that we'll have paid off in 16 years versus the 30 just by paying all the profit into extra principal.

Richard Helppie-Schmieder · Answer

@Peter Buccowich Welcome to DFW! Man, I have seen this conversation had over and over and over again. I think there may be better cost effective ways to house hack and get 20%+ COC returns in your situation. Please shoot me a PM and I would be happy to continue the conversation there or a quick phone call. I live in Grapevine, so I am nearby, but I think I may have a creative solution for ya that I have done a handful of times.

Bruce Lynn · Answer

$200,000 is tough any more. Maybe possible, but tougher. I think $300K is certainly doable...that's on a duplex. Not many 3doors and 4 doors will probably be priced higher than that. You're including what you would pay for rent in the unit you live in right? I don't think you can make those numbers working on a 2 unit with only one side rented, and calculating no rent for your side. You might look at HEB area as well, and maybe Irving and Mansfield as well.

Nicki Shelton · Answer

@Richard Helppie-Schmieder what is an ideal layout to consider? Just trying to get an idea. I also want to clarify this is different from renting out the rooms in a property or is it the same?

Richard Helppie-Schmieder · Answer

@Nicki Shelton I wish there was a certain size requirement, but there really isnt. For some house hacks I have done in the past, the most important thing for me is a layout requirement.

Nicki Shelton · Answer

@Richard Helppie-Schmieder hi there if you were going to house back what size of a property would you recommend?

Harrison Sharp · Answer

Most new investors come to me wanting to get a duplex or MF in DFW for under 300k. There just isn't inventory and if something reasonable hits the market everyone wants it. And you aren't going to hit your return numbers. I'd recommend renting by the room on a 4/2 or looking for a house that has an ADU in which you can live in the back house and rent out the main house to get owner occupied status. Just got a new build in Rockwall under contract for a client for 300k with an ADU with separate kitchen/bath/living room that would be perfect for something like this but these are rare and also tough to find. Good luck!

Gonzalo Gaston · Answer

I have lost over 10 bids in the last month for 2-4 units. Most of them had between 20 and 30 offers, some lost to cash offers despite offering over asking price and low contingencies (except appraisal). Appraisals for MF in DFW are a mess. Most are gone within days.