Is BRRRR Possible in DFW?

Question

Is anyone successfully BRRRR'ing here in DFW? If so, curious how you're finding your properties and if you're doing add on's to the property or if you are buying them as they are with no changes other than cosmetic updates. If you are successfully BRRRRing here I would love to talk! Thank you!

Bruce Lynn · Answer

@Kevin Parnella   You have to be very careful looking at these numbers like this.  It's a snapshot.  Some people call and tell me, the price of this home just dropped 20% in this neighborhood.  No...different house....the more expensive one is different quality...all brick, different finishes, different appliances, different lot size, 30 year shingle vs 20 year shingle and so many other details.

Dallas vs Collin County....two very very different places......take places like Frisco for example where most homes have been built in the last 20 years vs Dallas where very few homes have been built in the last 20 years.  Exceptions of course exist, but generally that holds true.

Have seen a stat lately, but still lots of cash buyers out there.  I think the last stat I saw said 30% of the buyers in 4th quarter were cash in DFW area.  They don't care about interest rates....or maybe they do....protecting their assets in real estate.

One thing most people don't look at is where will people live....Very little new apartment construction will start this year and if interest rates hold the next 2-3 years.  Plenty of people still moving here with record low unemployment means wages will rise and the increase in rates is not having the desired affect in our neighborhood.   Gap in affordability should be a perfect storm for rent increases....maybe next 5 years.

While there was a huge runup in prices in DFW area after 2019....where are those people going to move?  Almost impossible....double the interest rate and double the price....will make them stay put, except in the most extreme circumstances.

Eliott Elias · Answer

BRRRR's aren't found, they're negotiated and created. You can find a BRRRR in any market, you have to target distress to get it.

Luka Milicevic · Answer

@Jacob Maes

This depends on your definition for "successful" BRRR?

Cashing out all your money, and cash flowing? That is going to be extremely difficult in a market like DFW, bordering impossible. If you cash out 100% of your funds, you are most likely not going to cash flow with how high the rate would be.

Alicia Marks · Answer

I have and do currently, but it's in the secondaries, look 20-30 minutes outside the metro. Even then it's a lot of searching.

Lucia Rushton · Answer

@Kevin Parnella. Can you please supply statistics and sources. Because from my perspective as boots on the ground, I see a very different picture.

I agree we had a slow Q4 and Jan 2023, but nothing significant to support your claim above.

Thank you in advance for your additional input.

Lucia Rushton · Answer

Curious - please elaborate.

Unless the major businesses in the DFW fold and collapse, I would be interested in hearing why you feel DFW, independent to any other Metroplex would 'decline significantly'. thank you in advance for your candor.

Kevin Parnella · Answer

Yes madame. I looked at it last night and DFW is all over the place- some areas are better than others I used a site called Snapforce that pulls data from Zillow. The data I am looking at is average price reduction from June 2022 through January 2023 and then also looking at where values are today versus January 2019. Let me give you a few examples:

Denton county for example has only dropped 7% from June until now. And it is still 32% above the values from January 2019.  So that according to many is an area where there is going to be significant depreciation. Collin County is even worse. It is also down only 7% from June, however it is 42% above January 2019 numbers. However Dallas county appears to be in better shape than either of these two counties. It is down nearly 9% since June and it's 18% over the January 2019 numbers. So some make the point it doesn't have too much to drop between now and then.

From an economic standpoint, inflation is up again which has again lead to another spike in mortgage rates which is good for nobody. Many people are not going to want to sell their home because their 3% rate is gone pecan and now it will be in the high 6's or 7's. To demonstrate that in January 2019, there were 7,637 active listings in Dallas county. In January 2023, there were only 4,534 active listings - or a 40% drop in listings. I don't see mortgage rates dropping anytime soon either and may actually get worse. Maybe I'm wrong? But I don't think so.

Have a good day.

Bruce Lynn · Answer

@Kevin Parnella @Lucia Rushton

I would agree with Lucia.  As boots on the ground in DFW area, I have not seen any significant pullback in prices over the past year and don't see anything that would slow down growth over the next 2-3 years.  Of course that excludes all the regular risk factors that affect the entire country or the world and real estate anywhere.  Sometimes of course we look at big areas and speak in generalities when there are significant submarkets and price ranges and ages that have different characteristics.   We've seen record sales in the over $10mil market (which I will say is a small market probably compared to NYC, Miami, LA, SFO, SEA).

My thought is the biggest risk seems to be 8+ year and older homes in the suburban markets, that have not been updated and over $1mil.  If they're a little tired and shop worn, then they sit longer and we do see some price reductions.  I would also say that almost every home I've seen with $30-$40-$50,000 price reduction was in this range and many people would agree they were priced high from the start.  So seller's thinking the market is so hot they can price 5-10% above the last sale, then when it sits, they'll take that price reduction.  Seems like most that I see if they get it in the right price range and don't wait too long to get it there, it will then sell.   The other risk I see is if there are layoffs of the middle-management ranks or high tech programmer/analyst type jobs move offshore.

As you move down the price ranges and even on the higher end price ranges, if they are priced right, they get sold, get sold pretty quickly, and still getting multiple offers.   Probably the biggest issue for our market is there are not enough houses for sale.  It's not as crazy as it was 3 years ago.  I feel like the contracts are more balanced and fair now, but deals are getting done.

If your model is using Big Z data, I would not trust that for a second.  Might be fun to look at, but since we are a none disclosure state, it's only looking at listing data, which as describe above is not really market data to depend on and is often skewed.   If you are looking at appreciation I would say that has slowed.  Some areas saw 12-15-16% increases over the last 3-4 years, but we know that is not likely sustainable.  Based on what I see we'll get more like 3-4% this year on single family in most areas.   I personally don't think there will be a huge drop in the mortgage interest rates, but if there was I think we'd see a significant increase in appreciation.

As investors I think we are really looking at the perfect storm here in DFW for increase in rents and appreciation.  Most of the new apartment inventory will come to an end this year.  Still a ton of people moving here.  Many of the announced projects haven't even been completed or just started.  Things like Bank of American building downtown, Goldman Sachs Building downtown, Wells Fargo World HDQ in Irving, Chip Factories in Sherman and 100 or 1000 other moves and projects.  Cities around here are slow to implement the new "modern city" changes you see in other places, like allowing ADUs and eliminating parking requirements.  There are probably 10 other dynamics that will drive that as well.  There are lots of potential projects that haven't been announced or talked about.

You seem to correlate # of listings on the market with appreciation/depreciation.  I would think less listings bud increased demand would lead to higher prices, not lower prices.

Kevin Parnella · Answer

hi Lucia. I'm sorry if I was misleading. DFW is being hit over the past 6 months as one of the worst performing markets in home depreciation in the country. Now with that being said, it is nowhere close to San Francisco and other places that are performing poorly, but it's good either.  On the flip side, Tennessee hasn't lost much value at all, but they are the most overinflated area in the country. I'm going to be looking at the numbers again tonight to get an update.

But DFW depreciation is to be expected due to the massive appreciation over the past couple of years. And you as a realtor remember how it was 18 months ago on how the market was at the time.

Kevin Parnella · Answer

Agree with Luka. In addition, the Dallas market is about to decline significantly. The market is still way overpriced and I would dread of seeing what many of these homes will go for one year from now if i was holding hard money or a HELOC once the market does reset. Some markets have recovered to being at pre-covid levels, but most have not. Dallas has had some downturn, but has a long way to go before it begins to recover.

Is BRRRR Possible in DFW?

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