DFW rents stagnating?

Question

I am talking specifically about cities north of Dallas such as Plano, Frisco and McKinney and single family homes in the A and B classes.

Last year I was only able to raise my rents by a nuisance amount and then only on about half my portfolio. This year it looks like I won't be able to raise them at all. I am getting top of the market rent in my neighborhoods already. About 5 to 5.5% cap rates.

Meanwhile the property taxes march higher every year. Roughly 10% last year and 10% this year. My cash flow is getting squeezed out.

It is interesting to note that back in 2012 before this market took off that the rents started increasing significantly before the prices did by about 12 to 16 months. I wonder if stagnating rents are a precursor to stagnating prices at the tail end.

I anyone else getting squeezed by rising property taxes and stagnating rents or is it just me? What kind of cap rates are you guys getting in these cities for these class properties?

Robert Steele · Answer

@Sherry Cabrera "5 different types of flooring". That's a good one. I know what you mean. I've been doing comps lately against my properties and that is exactly what I see. It's different than what I used to see which perhaps indicates the different type of landlord that has entered the market as other have pointed out in this thread. I do wonder about the impact that apartments are having on SFR though. I always thought they attracted a different pool of tenants and thus did not really impact each other that much. The family of 4 with two pets for instance.Thanks to everyone who replied to this thread. The information provided has been valuable.

Ivan Gurrola · Answer

@Michael Biggs Interesting point.. I attended UTD and have lived in the Richardson area for about 4 years now. I have rented a room at about 6 different houses, every owner was asian. I also did door to door sales in Fort Worth at one point and came accross an asian landlord who had over 50 SFR's. Oh, and none of these landlords went to college

Brooke Noth · Answer

Hi Robert,We are seeing the same thing with investments in the Dallas area. I have to agree with Account Closed - I think the apartment and SFR mass purchase boom slowed down rent increases. Hope this helps!Brooke

Account Closed · Answer

@Sherry Cabrera I do think the apartment boom is starting to slow a little. That will help. Of course the population is still sky rocketing so it is expected to catch up with the volume of inventory being dumped on to the market.I should point out, the boom is slowing because cities are wanting it to slow some. It might take a while for things that are already zoned MF to be used up.Raw land in the burbs with current MF zoning is really going up in price. I am seeing deals going ahead at 15% - 20% higher prices than they would have six months ago.

Account Closed · Answer

@Robert Steele Hello, from the other side of the lake. The apartment boom has limited the rent increases. I think it is slowing down a little now. The population growth will take a few months to catch up.When the apartment boom really got going I wondered how many tens of thousands of units that could come on market in the same month and not cause an issue.There are also hundreds of new homes that have been purchased by Chinese investors for rentals. They have flooded the market for SFR.

Sherry Cabrera · Answer

I have lived and worked in Frisco for 17 years and yes, our taxes have increased a lot and the apartment boom that we still have going on has given us more available properties at a lower rental rate. Most of the rental properties I see aren't worth the rental prices they are asking. No updates and most of them have 5 different types of flooring and aren't even clean. There then becomes a line between providing quality housing and greed just because the buzzwords around here are "Toyota" and "5 Billion Dollar Mile.

Bruce Lynn · Answer

I notice lots and lots and lots of rentals now. Everyone from Chinese to Hedge funds, to mom and pop are getting in on the rental game. Some people see to not care so much about rents. I've had overseas investors tell me specifically they don't care about the rent, they just want a safe place to park money. I'm guessing the hedge funds could be in a similar position that they are not buying for cash flow, that they're buying for appreciation.I'm seeing a ton of houses sitting for long time about $2400-$2500/month in rent.Just put one on for $1100 in Irving and phone blows up, so I think it depends on the price.Put one on the market in Anna this week and notice 54 rentals in Anna....2-3 years ago there were probably less than a dozen.I've seen houses where purchase price was something like $400,000, seller moves up, thinks it is a good idea to keep it as a rental and rent for $2400/month or so, because it is paid off???? In a neighborhood that will likely see little appreciation. That's our market now.