Location, location, location for my rental

[Taahir Shaikh]

Hey BP family,

In the process of putting in offers for a SFH, with a primary residence loan. Will be my first ever home here in Dallas Fort Worth, but I've lived here all my life and feel that it's my competitive advantage knowing the ins and outs of a majority of the metroplex. My plan is to buy the home, live in it for a year, before renting it out. Standard 3/2, 1750-2,250 square feet.

I came across a website called Niche.com, and it tells you a little bit more about the demographics of an area, and one thing specifically it told me was about the percentage of people who rent/own in that zip code. This may be a really naive question, but it got me thinking, is it more attractive to a rent a home in an area where most of the surrounding area owns? Or via versa? 

Does it even matter at all? I saw a zip code where almost 85% of people (assuming the data was correct), owned their home and I just wondered if having a rental property in that neighborhood is a good idea. 

Thanks for any help on this! 

[Andrew Postell]

@Taahir Shaikh thanks for the post!  Always great to hear from a fellow Texan.  I love the primary home strategy.  Many people start out that way and would highly encourage someone to go this route if they are able.  It provides so many protections that aren't in place if you buy off market.  Highly suggested.

Now, what type of property should you be targeting?  You should 100%, without hesitation, be targeting a home that fits your personal needs above everything else.  Meaning, do you want need a reasonable commute time?  Do you need a specific school zone?  Do I need to feel safe in this neighborhood?  And maybe you don't need any of things...maybe you have other things?  I have certainly purchase a specific primary home because it was all I could afford. That can be a personal need too!  

Generally speaking, when we target an investment property in the DFW area we are targeting a 3BR 2BA home that is below the median price point.  So, below $350,000.  If you examine a $600,000 home, I will out rent that property with two $300,000 homes.  And significantly out rent it with three $200,000 homes.  So, if your current primary home falls beneath that $350k home then it will rent very well when you move out.  If it's over, I would still encourage you to purchase if it meets your primary needs. Even though there will be less "competition" at that $600k home, there's less renters too.  At the lower price point, that's where people will compete against each other to drive up rents.  And if the economy gets a little dicey (maybe like right now) a $600k renter might downgrade to a smaller home to save $$.  All sorts of reasons to considered homes below that "Median" price point.

Hope all of that makes sense but feel free to ask anything else.  Thanks!