A Tale of Two Rental Markets: Metro Detroit vs. Texas Dallas-Fort

Source: Intelligencer and Britannica

Are you a rental property investor seeking your next investment market? Look no further!

With over two decades of experience living as a local and operating a property management company in Metro Detroit, our team is excited to show you the opportunities here that will give you solid cash flow (and some equity gains, too!).

But we understand that you also have other prospective markets, given that there are just so many real estate markets in the nation for your choosing. One of them is Texas’ Dallas-Fort Worth Metroplex (officially Texas Dallas-Fort Worth-Arlington), which also catches the eye of many investors.

Between the two, which one should you choose to expand your rental portfolio? How do the opportunities stack up against each other? Both are popular areas for first-time landlords and investors looking to enter the rental property investment world, after all.

We’ve created this series to compare Metro Detroit rental property investment pros and cons to other “hotspot” markets for rental investors, so you can confidently make the best, well-informed decision. Read through to know the strengths and weaknesses of each location, such as the expected returns (appreciation and cash flow), the ‌tenants to expect, and the ‌management required.

We present all the information as factual as possible, although we’ll admit that we’re biased towards our home market Metro Detroit when it’s a close call.

Overview of Metro Detroit

First, let’s understand the history of Metro Detroit. Back in the 1960s and 1970s, a lot of wealth fled the City of Detroit for the suburbs, resulting in a unique situation where real estate gets more affordable the closer you are to the main city.

Assuming that income corresponds to property prices, the income map below shows how Metro Detroit real estate is cheaper the closer you get to the City of Detroit:

Source: ProximityOne: Patterns of Economic Prosperity by Neighborhood

Fortunately, due to the Great Recession of 2008, the city has since improved in job and population growth, causing property values and rent amounts to skyrocket compared to its surrounding suburbs.

In other words, when the population left the City of Detroit, they simply moved to the greater Metro Detroit area. (We’ve fleshed this out in greater detail in our ongoing Deep Dive series, where we look into the investment potential of each Metro Detroit city and Detroit neighborhood, so check those out, too.)

So instead of only focusing on the City of Detroit, it makes more sense to look at your opportunities all around the greater Metro Detroit area. Here’s a refresher to keep us all aligned:

• - The Metropolitan Statistical Area (MSA) of Detroit-Warren-Dearborn includes the 6 counties of Lapeer, Livingston, Macomb, Oakland, St. Clair, and Wayne.
• - Metro Detroit is the Detroit tri-county area that only includes Macomb, Oakland, and Wayne counties. They cover 3,888.4 sq mi (10,071 km2) and a population of over 4 million—the most populous metro area in Michigan.
• - Within Metro Detroit is the City of Detroit which covers 142.89 sq mi (370.1 km²), is the main city of the metropolitan area, and is the largest city in the state.

Today, Metro Detroit is still the most populous metropolitan area, so we’ll be focusing on this area throughout the article. Within this metropolitan area are 72 cities, which you can see on the map below:

Source: Georgetown Public Policy Review

Now, out-of-state (OOS) investors must realize that there are significant differences between the City of Detroit and the rest of Metro Detroit, so their expectations are properly met. Given that, we’ve also created the term “Ring Cities” for all the suburban cities that border the City of Detroit in a semicircle, as they have a great balance of affordable housing stock without the risks associated with Detroit investing.

The Ring Cities in Metro Detroit are known for having affordable properties, solid rental cash flow opportunities, and impressive buy-and-hold investment potential. You can see these cities highlighted in green in the list below, and they should be what OOS investors focus on when investing in the Detroit market. Any of the names with hyperlinks will also take you to our Deep Dive series:

But what about investing in the City of Detroit itself? Let’s take a look at the main city of Metro Detroit. The City of Detroit is divided into 11 regions, as you can see in the map below:

Source: Wikipedia.com

These regions are further split into 105 neighborhoods in the city, which are listed below. As always, any of the hyperlinks will also take you to our deep dive series, this time for Detroit neighborhoods:

Source: Loveland’s Detroit Neighborhoods Map

The most important thing to know about the City of Detroit is that it used to have a population of around 2 million in the 1950s. However, that number has significantly dropped, with less than half that population still living in the area. As a result, thousands of vacant homes are just sitting around with no people to live in.

Still, some Detroit neighborhoods kept their population better than the rest. So it’s a matter of finding these gems, where there is an ideal balance of supply and demand that keeps property values, and rent amounts relatively high over the years.

Plus, the city government has been aggressively pursuing federal funds to help deal with the vacancies, trying to demolish as many of the buildings as possible to lower the over-supply of homes in many Detroit neighborhoods, subsequently increasing property values and rent amounts all around.

In a nutshell, OOS investors shouldn’t get into Metro Detroit investing just based on a zip code or random neighborhood someone pointed out. They need to partner with a trustworthy expert to conduct a boots-on-the-ground evaluation of the area they’re looking to invest in.

Even the property class (A, B, C, or D) can vary dramatically from one block to another. And we’ve seen countless investors purchase what they thought was a class A or B property, only to realize that it was nothing but a C. You don’t want to go through that!

In Metro Detroit and the City of Detroit, unique challenges come with unique opportunities. As long as you focus on doing proper due diligence and work with an expert, you can navigate the risk and reap the famed returns. If you’re looking for fewer challenges, you can also consider Ring Cities to earn the same gains without the associated risks.

Overview of Texas Dallas-Fort Worth Metropolitan Area

The Texas Dallas-Fort Worth metropolitan area (known colloquially as DFW or Metroplex) encompasses 11 counties in the state of Texas. It serves as the economic and cultural hub of North Texas and covers 8,675 sq mi (22,468 km²). It’s home to over 7 million citizens, making it the most populous metropolitan area in Texas and the 4th largest in the country.

Source: ProximityOne: Situation & Outlook Report

Principal cities in Texas DFW include Dallas, Fort Worth, Arlington, Plano, Irving, Denton, Richardson, and Grapevine, all located in two metropolitan divisions:

Somewhat similar to the trend we saw in Metro Detroit, the properties seem to get more affordable the nearer you get to city centers. We can see this in the chart below, assuming that income relates to property prices:

Source: ProximityOne: Situation & Outlook Report

Nevertheless, it also shows that most Texas DFW residents are relatively wealthy, showing that the property values in most of the metropolitan area are on the pricier end of the spectrum. We’ll see more details about property values in the following sections.

In terms of real estate, Hunt-a-Home shows ‌Texas DFW has many opportunities for investors to enjoy cash flow possibilities and get a substantial return upon resale. Based on their analysis, the best areas for investing in Texas real estate are the following:

• - Dallas: Also nicknamed the Big D, Dallas is home to many established companies and startups. It has one of the lowest homeownership rates, which is good news for rental property investors. Look at properties in White Rock Lake, Oak Lawn, and Uptown areas.
• - Plano: Being the 9th largest city in the state, Plano is a good place to find affordable homes and a large tenant pool to take advantage of. There are also many work opportunities and good schools that attract prospective renters to the area.
• - Frisco: This bustling business center is growing with high-quality schools, affordable homes, and employment opportunities. A Major League Soccer team and the Dallas Cowboys practice in this city as well, making it a booming city in the north of Plano.
• - Mckinney: Located ‌farther out than the earlier two, McKinney has a small-town feel with its downtown area built around a charming square. It’s popular with investors because of its affordability and the quality of schools as well. You can find both older and newer homes here.
• - Richardson: This city is so close to Dallas that you can barely tell when one ends and the other begins. Richardson doesn’t have the best education compared to nearby areas, but many renters are attracted to this place due to its accessibility to President George Bush Turnpike and Dallas North Tollway.

There are also other areas like Allen, Garland, and Mesquite for you to consider.

Moreover, Texas DFW has the highest concentration of universities and colleges in the state, is the second most popular place for mega-churches in Texas, has the largest LGBTQ communities in Texas since the early 2000s and its UT Southwestern Medical Center was ranked #1 in the world against other healthcare institutions in biomedical sciences. These factors can contribute to the overall appeal of the area, attracting tenants left and right.

According to DFW Urban Realty, the housing market in Texas DFW has remained steady over the years, with massive consumer demand and the amount of reasonably priced listings available. Roofstock has also confirmed that home prices in Dallas and the rest of North Texas are growing and inventory remains tight.

Comparing the Real Estate Scenes in Metro Detroit vs. Texas DFW

Now that we have a good grasp of the rental market of both Metro Detroit and Texas DFW, the following sections will detail the key contributing factors that determine the financial viability of your investments. We’ll go through the average rent amounts, house value, and property appreciation, along with the quality of tenants, property conditions, and overall quality of life in both areas.

Here is an overview of the rental properties currently listed on Zillow for the two areas:

Source: Zillow

With that in mind, let’s discuss the differences and similarities between Metro Detroit and Texas DFW, focusing on their house value, appreciation, average rent, and the rent-to-price ratio of homes that are currently listed on Zillow.

House value and appreciation

House Value. Based on Zillow, the median home value in Metro Detroit is $234,015. This indicates a 15.1% growth over the past 12 months, and will likely continue to rise in the coming years:

Source: Zillow

Over in Texas DFW, homes are valued at around $370,501, which is an increase of 29.3% over the past year. The growth also implies future increase:

Source: Zillow

If we are to look at the Zillow listings, we see that most of the available homes for sale are within the City of Detroit or in the Ring Cities surrounding it. It’s here where you can find the famous below-a-$100k properties that the Detroit market is known for. You’ll also see that the housing density is much higher here than in other areas of the country, which is the result of smaller lots:

Source: Zillow

In terms of property appreciation, NeighborhoodScout’s heat map for Michigan proves the general affordability of Metro Detroit while showing the lower prices in the City of Detroit and Ring Cities.

Still, let’s not forget the pro tip mentioned earlier, where the diversity and variation of Metro Detroit create scattered sweet spots for you to find and purchase affordable houses around expensive, developing neighborhoods—potentially giving you more appreciation and equity gains in the future.

Source: NeighborhoodScout

On the flip side of the coin, current Zillow listings in Texas DFW show that property prices increase the nearer you get to the intersection of Wise, Denton, Parker, and Tarrant counties. There are exceptions, of course, but the majority of properties for sale (and for rent) are in this particular area:

Source: Zillow

The heat map from NeighborhoodScout for Texas DFW further shows that the properties in the mentioned intersection tend to be pricier, where the property values slowly taper off the more you move to the east. It’s difficult to generalize, however, as the appreciation rates in Texas DFW seem to be quite scattered:

Source: NeighborhoodScout

Appreciation. In terms of appreciation rates, here are the details provided by Bestplaces:

• Metro Detroit’s home appreciation in the past decade is 143.9% and is up 16.4%.
• Texas DFW home appreciation in the past decade is 104.7% and is up 16.6 %.

In a nutshell, both areas have significant appreciation rates. If we were to compare this to national rates, home values rose to $313,530, which is an increase of 16.1% in the last six months (as of April 2022). This is a significant increase versus the prior six-month appreciation rate of only 13.2%.

The demand continues to be strong, while supply has remained at an all-time low. It also helps that the largest segment of the population (the millennials) is now purchasing homes, and there is a growth in other forms of housing that adds competitive pressure on home prices.

Average Rent

In terms of average rent, Bestplaces provides us with charts that compare Metro Detroit and Texas DFW to their respective larger areas. From this, we can see that both metropolitan areas have higher rent than the rest of their respective states, where Texas DFW rent average is even higher than national amounts:

Source: Bestplaces

If we were to compare these numbers to actual Zillow listings, we see that the numbers are quite accurate, albeit maybe even slightly understated, which means you can likely charge higher than average rent amounts as a rental investor:

BestPlaces also provides us with the following insight into your potential tenant pool size:

• * Metro Detroit’s population has around 27.70% renters.
• * Texas DFW’s population has around 37.40% renters.

Based on these numbers, you’ll have a larger tenant pool to choose renters from in Texas DFW than in Metro Detroit. Size isn’t everything, however, so we’ll have to take a closer look at their demographics and ability to pay rent in the following sections on tenant quality.

Rent-to-Price Ratio

Now that we know the average house value and rent amounts in Metro Detroit and Texas DFW, we’ll use the rent-to-price ratio as a quick indicator of a property’s likelihood to generate positive cash flow. Let’s use the industry standard “1% Rule” as the minimum ratio to determine which area is better, and also to help you shortlist prospective properties.

The mathematical formula goes like this:

Monthly Rent / (Purchase Price + Rehab ) > 1%

Both in Metro Detroit and Texas DFW where the properties are wildly varied and diverse, this ratio is a handy formula for you to estimate your return on investment (ROI) in a matter of minutes.

Side-by-Side Chart

So, let’s pull up current listings on Zillow to see the data in action. After all, this is what you’re going to do once you start getting serious about investing in these areas.

Here are examples of three-bedroom properties in Metro Detroit and Texas DFW. Take a look at how they compare to each other in terms of house values and rent amount:

The listing in Metro Detroit shows a much more favorable rent-to-price ratio, although the one in Texas DFW is not too far off. With both of these opportunities, you have a good chance to have a positive cash flow for significant returns on investment (ROI) within a short matter of time.

Let’s also not forget that both Metro Detroit and Texas DFW have impressive property appreciation rates, which means you can hold on to the property and enjoy equity gains in the long run.

Quality of tenants, properties, and living

Compared to other types of investors, rental property investors like yourself need to consider the quality of tenants, properties, and living you offer to prospective renters. These factors heavily influence your investment success, because tenants are the lifeline of your business. They will determine:

• - The stability of your rental income
• - The property maintenance needs to protect your assets
• - The necessary and possible home renovations and rehabilitations
• - The kind of property management required to handle the tenants

So, the following information is based on multiple research points and our local knowledge. They are meant to guide you and help you assess the individual areas—we suggest that you don’t take them as definitive metrics to make important decisions.

Let’s get started with this map from Roofstock that shows the quality of life around the City of Detroit and the City of Dallas. These ratings are based on home values, employment areas, quality of schools, income levels, and other investment criteria:

Source: Roofstock

Based on the maps above, we see that most of the properties in the City of Detroit are roughly Class C. They’re not ideal for beginner rental investors, as there’ll be more tenant issues and property maintenance requirements with these properties. It’s the same situation in Dallas, where we see that lower-ranking neighborhoods are closer to the city center.

Let’s not forget the other areas surrounding these main cities, however. We’ll discuss the details.

Tenant Quality

Average Income. The average income in Metro Detroit is lower than that of Texas DFW, however, Metro Detroit has a more favorable unemployment rate. On the other hand, Texas DFW has the advantage of having better future job growth that will likely attract more new residents into the area.

As a rental investor, you want the opportunity to charge higher rent whenever possible. But it’s more important to find renters who are financially able to afford the rent each month, which is what stable income and employment can enable. As with anything, ensure that you screen prospective tenants thoroughly in any of the two areas to be confident that your tenant won’t miss any payments.

Moreover, you also want to have a growing job market that will directly increase the population and strengthen the economy of the area—expanding your tenant pool with quality renters. The growth will also impact property values and rent prices in your favor. Luckily, both Metro Detroit and Texas DFW will experience future job growth based on the data.

Educational Attainment. It may come as a surprise, but the educational attainment of residents in Metro Detroit and Texas DFW is pretty much the same. Both areas have many high school graduates, with a good number of them achieving a university degree afterward. This is good news for you because the tenants will have better chances of securing higher-paying jobs:

Source: Bestplaces

Property Condition

Property Age. The median home age in Metro Detroit is 53 years old, while Texas DFW’s is 31. With the industry standard calling 50-year-old homes “old,” you’ll likely run into more old homes in Metro Detroit than in Texas DFW. Old homes aren’t always bad news, it just means you’ll have to prepare for the highest possible renovations and maintenance works throughout your ownership.

Source: Bestplaces

Blighted Areas. To add to property age, both Metro Detroit and Texas DFW are dealing with extensive blight, implementing their own rehabilitation plans to revive abandoned properties and neighborhoods.

Due to race riots and White Flight back in the 1960s to 1970s, the City of Detroit lost a lot of its population and industries. Today, it has a hyper-supply problem, having many empty and derelict houses scattered everywhere. At one point, it had 80,000 blighted homes and beyond 20 square miles of vacant land.

Nevertheless, the City of Detroit is on its way to recovery. It had a blight remediation program that demolished 19,000 homes and rehabilitated 9,000 others and announced that the city sold $175 million in bonds to finance a project to carry on reviving thousands more properties.

Over in Dallas, more than half of the city (60%) experienced moderate to high blight issues just a few years ago. These neighborhoods are filled with abandoned, neglected, and rundown buildings, where the property price plummeted to $79,000 in blighted areas (compared to $236,000 in low-blight areas).

Still, within four years, Dallas demolished 1,600 properties, both residential and commercial. It has also laid out a new roadmap to deal with blight, targeting specific neighborhoods that are deprived of opportunities, have low college-attainment levels, high vacant properties, and low median incomes.

Its goal, much like Metro Detroit’s, is to rehabilitate and expand affordable housing for residents that earn a living wage. It also aims to develop workforce development programs, job training opportunities, and accessible business capital for increased community participation and personal development.

As a rental investor, it’s of utmost importance that you know how to find well-kept properties in improving neighborhoods in Metro Detroit and Texas DFW. You’ll want to prioritize up-and-coming neighborhoods even if they’re not perfect yet, as long as they have the potential to become attractive areas in the next few years. And remember that blighted properties have unique problems, so conduct a thorough property inspection prior to purchase to increase your chance of success.

Home Ownership and Rental. More homes in Metro Detroit are owned (61.7%) rather than rented (27.7%). While this means your tenant pool is smaller (than that of Texas DFW), you’ll likely find most homes well-maintained, as homeowners tend to take care of their property better than renters do.

Texas DFW also has more homeowners than renters, but it offers a larger tenant pool than Metro Detroit, having more than a third of its population being renters. You’ll get to enjoy a larger tenant pool here, but you also might run into poorly maintained homes, as renters won’t treat rental homes as their own.

You’ll have to pay attention to the condition of the home in both locations and even consider hiring a professional inspector if the property in question is on the older end of the spectrum. In both markets, ensure that you run the numbers well and budget accurately for inevitable repairs and vacancies.

Quality of Life

Local Economy. Now, the COVID-19 pandemic has affected Metro Detroit’s economy pretty badly. Its famed automotive and manufacturing sectors remain strong, but smaller businesses and the leisure and hospitality industry were hit hard.

Still, here are some statistics that show promise:

• - In 2020, Michigan’s new business applications saw an increase of 42.2% compared to a year before, the median sales price of single-family homes in Metro Detroit grew by 23.3% to reach a substantial $236,300, and new construction permits reflected pre-pandemic levels.
• - In late 2020, Ford Motor Co. revealed its multi-year plan for a 30-acre “mobility innovation district” that will rise just west of downtown Detroit. The redevelopment will accommodate 5,000 new employees, expanding the job growth in the area.
• - Just this year, Bloomberg announced that Michigan’s economy ranks #1 among 37 other states with a population greater than 2 million, thanks to its tremendous recovery from the pandemic. It’s already making worldwide headlines, along with General Motors’ historic investment to create an all-electric future with 5,000 manufacturing job opportunities in Michigan.

While Texas DFW was not spared from the global pandemic, it’s also showing growth in post-COVID recovery. Here are some news bits that we’ve found:

• - The real estate industry continues to thrive, with real estate recruitment firm RETS Associates recently opening a new office to meet the demands of commercial renting in - Texas DFW. Several CRE firms, including CBRE, have also relocated their headquarters to Dallas.
• - CRE executive Jana Turner also shared, “[Now that] a viable and safe vaccine is being distributed, companies are beginning to see the light and planning where growth opportunities will be for their businesses. We anticipate there will be a renewed call for top candidates to help them realize these opportunities, and we’ve opened this new office to assist in that effort.”
• - Being known for business-friendly policies, Dallas also achieved its seventh consecutive month of job growth in Texas, with a favorable unemployment rate and more companies returning to their offices post-pandemic more than any other city in the nation.

Both Metro Detroit and Texas DFW are showing impressive growth after the unpredictable years of dealing with the deadly pandemic. This is good news for rental investors like you, as both locations will continue to attract new residents seeking greener pastures in terms of job growth and livability.

Safety and Crime. Looking at the crime and safety of these two areas, it seems like Metro Detroit experiences more crime than Michigan, and Texas DFW is safer than the rest of Texas.

Source: Bestplaces

However, let’s not forget that both Metro Detroit and Texas DFW have multiple neighborhoods with widely varying crime and safety rates. In other words, you could find a property that’s completely safe and beautiful to live in just a block away from one that is deemed “unsafe” by evaluations.

Just take a look at these maps and you’ll see how much the crime rates can vary:

As a rental investor, remember that there’ll always be localized crime crimes for every street, neighborhood, and city in Metro Detroit and Texas DFW. So ensure that you conduct thorough research and perhaps even visit the area yourself to see just how safe the area is. Quality tenants will always prioritize safety when choosing their home, therefore, so should you.

Diversity. In terms of racial diversity, here is how the two areas differentiate:

Your goal is to invest in rentals where there’s a tenant pool that is responsible, reliable, and communicative. They should have no problems paying rent, taking care of your assets, and abiding by the lease agreement. Since potential tenants are quite different in Metro Detroit versus Texas DFW, have a self-evaluation of what you want to have as a rental investor before committing to a property.

Liveability. In a nutshell, here’s what to expect when living in Metro Detroit compared to Texas DFW:

Both economies are showing strong growth for tenants who want to have better job opportunities, with many schools for families with young children to consider living nearby.

As always, be careful when choosing your investment area. You’ll want to prioritize those that are in high demand among high-quality tenants, so consider the characteristics of each sub-area, focusing on its demographics and common property conditions. Given this, if you’re an OOS or beginner investor, we highly suggest that you work with expert guidance to go through all the investment factors in full detail.

Conclusion

At the end of the day, every individual needs to conduct a rigorous evaluation of the investment opportunities in Metro Detroit and Texas DFW. These markets have many cities and neighborhoods with their own strengths and weaknesses—all highly dependent on your priorities as a rental investor.

Here’s a summary of all the information we’ve provided in this comparative report:

If you ask us, the two markets are quite similar, making the decision challenging for most investors. But, of course, we’ll put a wee bit of a biased plug here for our home market, and point out that Metro Detroit has way more lucrative opportunities than Texas DFW—we speak with two decades of experience. Just look at how the City of Detroit has come since 2011 and you’ll know what we mean!

Still, money is the root of all investments. So we encourage you to focus on the financial viability of any property you're looking to purchase. Our tip is to find a good balance between cash flow and appreciation for you to generate the most returns, both for the short-term and the long haul.

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Do you need more help choosing a city or neighborhood in Metro Detroit? We have an ongoing that gives you all the information you need. Check those out!

And if you have any other questions relating to Metro Detroit vs. Texas DFW real estate markets, with our property managers or leave a comment below for us to answer. We’re more than willing to help you on your investment journey—one successful property at a time.