Dallas Investment Outlook
John Larson and the Real Estate Cowboys talk passive income real estate investing.
Hear new episodes every Sunday morning at 8 a.m. The Cowboys talk about the state of the Dallas market and how it affects investors.
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Keith Weinhold: Hey, this is Keith Weinhold from the Get Rich Education podcast. You are listening to my friend John Larson and the Real Estate Cowboys’ Don’t Quit Your Daydream.
Robert Helms: Hey everyone. It’s Robert Helms, host of the Real Estate Guys radio show and you are listening to the Real Estate Cowboys.
Announcer: Have you thought about becoming financially free through real estate investing but don’t have the time or knowledge to get started? Welcome to the Real Estate Cowboys podcast. Each week we discuss passive income investment opportunities in the red hot Texas market. John Larson and the Real Estate Cowboys will show you how to leverage their team to build wealth in real estate through passive investment opportunities. And now here’s John.
John Larson: Hello. This is your host, John Larson. Welcome back to the Real Estate Cowboys. This week we are going to be discussing Dallas. We haven’t really talked much about Dallas lately. We’re going to pretty much provide a market update on the DFW area. As you know, we’ve done many, many single-family homes within the Dallas-Fort Worth area. Of late, we’ve slowed down with that because of the fact that the cap rates have become so compressed due to the rising prices, which are also causing property taxes to rise and rents have started to plateau in certain areas of the DFW region. Basically, those areas that I really like to target, which are those entry-level, middle-class, the true middle-class neighborhoods of DFW, we’ve just kind of ran out of some steam there a little bit because I can’t push the rents any higher than where they’re at. In some of these areas, these tenants, they only make within the median income of the DFW area.
That being said, you can only push the rents so far. Number one, the tenants need to be able to qualify to live in the property by making at least three times the monthly rent gross. Okay? And if they are not able to show that, then we will not lease the property to them. And so I’ve just noticed that some of the true middle-class areas that we’ve invested in for years, since 2011, 2012, it’s got to the point where the values of the homes have risen greatly, but then you know also the rental rates that we’re able to charge and which we’ve been pushing up year over year, have finally started to plateau. So that’s having some compression on the cap rate, which is not making single-family homes as attractive as they used to be.
If you know and you’ve been following us, we’ve been doing more private lending opportunities on multifamily properties, commercial properties. Although those deals are still hard to find and trade at pretty low caps, there is opportunity out there if you can come in as a cash buyer and close quickly, which through our private money lending program, it gives us that competitive advantage to identify properties, close with cash because our clients are coming in as lenders, and invest in cash to the private money lending program, which gives us some leverage and gives us some opportunities to go in and lock up properties and close quickly, and obviously provide attractive offers to these sellers. So that has been a very, very big, big part of our business for the past year and a half. And it’s also been very successful.
Dallas though, it continues to be a strong investment market, even as other regions of the country may be starting to show some signs of weakening. The economic experts out there are still debating whether a recession is in the cards, but there are some signs that some changes could be coming and there are always indicators of economic health that investors can look at to see where it makes sense to invest at any given time. And we’ll go through those. But some experts also say that if you know where to invest, you can make money no matter what the market is doing. Investors use a variety of methods to try and get consistent returns. Whether moving money around among stocks and bonds, investing in real estate, or getting fixed returns through private money lending, there’s a lot of options and a lot of opportunities at your fingertips, right? The main thing is just kind of discovering what your investment goals are and implementing them. Okay.
And so sometimes maybe it’s a good idea to talk with someone like at our company who’s an investment coordinator, who knows about these different opportunities that are available to you, and through a conversation and figuring out what your goals are, we can decide what, what investment opportunities best for you. I mean if you’re just strictly cash flow centric, then I would really recommend the private money lending opportunity because it’s a fixed rate of return and it’s a fixed dividend that is put into your account each month so you know exactly what you’re going to get on your money each month to the penny. Okay.
And Dallas real estate appears to still have a very strong market worth consideration for your investment dollars. So I wanted to provide a market overview of the Dallas, Texas region. So Dallas in history, Dallas has long-played a key role in the overall Texas economy. It’s the third most populated city in Texas, behind Houston and San Antonio. But when you combine the metroplex, which DFW is pretty much becoming a city of its own, I would say, now you’re talking about the most populated Metro in the state of Texas and the third or fourth-largest metro in the entire US. As people seem to kind of be leaving Chicago, Chicago’s population is kind of going down, whereas DFW’s population is continuing to go up. So that’s a good sign. 150,000 people a year moved to the DFW area, so it is projected by 2030 that DFW is going to reach nine million people. The last recording on the actual population of DFW was at 7.5 million, just over that. So Dallas has established itself as an important transportation hub. When railroad construction turned it into an industrial city, that attracted ambitious workers from miles away.
Why invest in Dallas today? That could be a good question. Some people may think, okay, well single-family homes, the cap rates have kind of run low. It’s really tough to get my hands on good opportunities in a market like DFW. Well, that should be a telltale sign that there’s good opportunities out here if they’re tough to find if they’re tough to get your hands on. If it’s easy to find opportunities, then that would give me an indicator that maybe that’s not the market to be in if it’s too easy to go in and gobble up property. That tells me that there’s just not enough attention on that area and these opportunities might not be what the spreadsheet says that they’re going to be because there’s a lot of key factors that play into a good investment opportunity.
It’s not just the cash flow, it’s population growth, job growth, are you going to be able to consistently keep these properties leased out, things of that nature, right? You buy a property in an area that’s not experiencing any type of growth and you have a vacancy, you can be sitting on that vacancy for months, right? I’ve heard horror stories where people are sitting on a vacancy for a year. It’s tough to get a new tenant in the property because there’s no growth there, there’s no new blood moving in.
So with Dallas-Fort Worth, the reason why I moved here is because 150,000 people are moving here a year, so I felt pretty confident. When you’re doing real estate investments, whether it’s on the commercial retail or a single-family side, you need bodies to occupy those spaces and pay rent, right? So I thought, well, why don’t I hedge my bet and moved to the region of the country where some of the most people are moving into on a yearly basis, and it’s been very, very successful.
Why invest in Dallas today? Today, Dallas retains its status as a transportation hub with DFW International Airport that officially opened in 1974. The airport has a total of seven runways and 164 gates and serves 257 destinations according to the airport’s own website. And what’s really amazing too is the fact that every major city in the continental United States can be accessed within four hours of DFW airport. I travel a lot for work. I have a business in Denver. I’m from Michigan and I fly out to Arizona quite often. I fly to California quite often to meet with investors. It’s really, really easy to navigate through the US living in DFW. I will say that. I live about 15 minutes from DFW airport.
I really don’t even leave my house until about an hour before the flight takes off. I get right through security and I can hop right on the plane. And then like I said, I’m wherever I need to be within four hours. So it’s amazing. And that’s a huge benefit for investors, workers, and companies that want to do business in Dallas. And they’re also planning to build an additional terminal, terminal F, which is set to be completed as early as 2025, so they’re expanding on this already gigantic airport, which is larger than Manhattan. So that’s another fun fact for you.
But another thing is jobs are plentiful here. The unemployment rate in Dallas is only about 3.6% which is slightly lower than the national average of 3.9%. Anytime you’re in an area where the unemployment rate is below the national average, you know there’s jobs there, there’s things moving.
Over the past year or so, the job market in Dallas has seen an increase of about 3.3%. Businesses are continuing to move here because of the business-friendly climate, the no state tax, and tax incentives that are offered to some of these companies to move into Texas and DFW, specifically. I throw this out quite often, but DFW is home to the most corporate headquarters in America, so that’s something that you really need to pay attention to. A predicted job growth over the next decade is expected to hover around 45% which is amazing and that’s significantly higher than the national average of 33.5%.
Some of the large employers here include Southwest Airlines, American Airlines, AT&T, Kimberly Clark, Amazon, Google, Texas Instruments was right here by my office, Dr. Horton, and many, many others. Dallas has no income tax, state tax. When you compare that to the US average of 4.6% and it’s evident that it’s likely a big reason why millennials and other skilled workers are flocking to the Dallas region.
Income tax rates weigh heavily on a city’s comparative cost of living and Dallas. stacks up very well to other large cities like San Francisco, Los Angeles, Boston, and New York. Those areas, there’s jobs there, there’s opportunity there. These are the areas where there’s a lot of job growth as well, but it’s just far more expensive to live there. And Dallas, like other Texas cities, is considered a landlord-friendly state. The laws favor landlords when it comes to tenant/landlord disputes. Me coming from Michigan, Michigan is by far more tenant-friendly than landlord-friendly. So this has been a pretty good experience, especially on the management side. When you do have to conduct an eviction or anything like that, the process can start very quickly. We can have those tenants, delinquent tenants out of the property within 30 days. And if you’re using a property management company out here, you don’t even have to deal with the eviction process. The property management company handles that for you.
Median home prices out here in Dallas are hovering around 200K compared to the US average of about 202,000, so you’re kind of right in line with the national average. And this adds to that affordability of Dallas and likely contributes to the popularity of thousands that move to the DFW area every day. It’s the affordability, and the opportunity and no state tax, right? So although passive income investments are still possible in Dallas, it seems like it’s getting harder to find cash flowing rental properties as we discussed, but there are still deals out there. Medium rents for a three-bedroom rental are over $1,600 at this point, whereas the rest of the nation is a little bit over 1,400 so you’re seeing higher rents here too compared to the national average. This means that landlords can charge more in the beginning and increase rents as leases come up for renewal, which is going to consistently help with cash flow.
Now you are going to have to combat with the fact the prices of the properties are rising, which are also increasing property taxes. And some of my investors are starting to run into situations like that. But what I tell them is, “Look, if the property taxes are rising, that means the value of your property is rising.” And you should know if you’ve listened to the show, real estate pays you in up to six different ways. And one of those ways is appreciation. And really the appreciation, when you buy a single-family home at the right time, maybe just coming out of a recession or a dip in the market and you ride that wave where it gets back up to where we are today, you could be sitting on a ton of equity in that property and that equity far outweighs the cash flow that you’re going to earn from sticking a renter in there, right?
My belief truly is that you buy rental properties at the right time. You stick renters in there to pay the bills as the property appreciates, right? Then you sell that property off and you cash in on the appreciation, cash in on the equity. So property values have been consistently increasing in DFW over the last six years or so. In 2012, median home values hovered around 125,000 in the metro area. Median values have continued rising each year to where now they consistently sit at just below 200,000. So imagine if you bought a property back in 2012, in a good Dallas suburb, you bought it for 125,000, 130,000, there’s a good chance that that property is now worth 190,000 to 200,000. That’s huge, huge gains in equity.
Real estate investors, like I said, in Dallas, can not only enjoy cash flow or could enjoy cash flow, but they can look forward to having their properties appreciate more dramatically compared to the national average. Right? Property values have gone up here just like they have gone up in a lot of other areas, like California and things like that, to where you’re seeing a substantial amount of appreciation. Okay. Dallas rents are definitely on the rise as well. Although like I said, some of the areas that we’ve invested in, I’m starting to see them plateau. The fact they’re rising faster than other US rental markets, it’s highly unlikely that the real estate investors in Dallas would have to lower rents.
Although we have seen some situations where we’ve had to lower rents just because of the fact we want to get tenants and quickly, we don’t want to see extended vacancies. Let’s say even if there was a full-blown recession that does affect the rest of the nation at some point, I don’t really expect it to affect Dallas. If you look back at the last recession and the history of the last recession, DFW really wasn’t affected by that recession. You didn’t see a steep decline in property values just because of the fact that the economy is so healthy here.
That’s another thing as an investor, it’s kind of a way to mitigate risk by investing in a market with a very diverse economy. Right? And since 2012 median rents for a three-bedroom rental in Dallas grew by a whopping 26%. That’s amazing. That has got to be higher than anywhere else in the country. Also, over the years where I have been investing in Dallas, Forbes and other major media outlets have voted Dallas at the top of their list for best cities to buy housing, fastest-growing US cities, best cities for families, best cities for jobs, best place for business and career, best places to live, and more. So when you have these big publications that are ranking Dallas at the top of these lists or near the top of these lists, that’s something that I pay attention to as an investor, for sure.
I kind of want to be hanging around and putting my dollars in areas where I’m seeing other publications, respected publications, are putting these same areas on their radar, right? These lists can be sometimes they can be subjective and they do reach millions of readers who take the information into consideration when choosing a new job location, a place to raise a family and to build a business. People will take attention to that, for sure.
But there are many reasons to invest in real estate in Dallas, but one of the main reasons, which isn’t always evident when looking at it, is just the facts, with just the facts that support Dallas, and Texas government, and the will of the people themselves. Dallas, Texas politicians have always had the interests of the people in mind when laws are created. Dallas and its surrounding area is made up of people of strength of character and willingness to work hard, and the determination and intelligence to get through the economic challenges that are part of life. It’s one reason why we’re so invested in Dallas and why we continue to do commercial property out here, multifamily property.
So if you’re interested in learning more about the investment opportunities that we have at the Real Estate Cowboys and American Real Estate Investments, you can go to our website, AREIUSA.com or RealEstateCowboysDFW.com. And just put in your information and there’s plenty of free information there on both of those websites, market reports, blogs, things of that nature so you can still educate yourself a little bit more on our investment opportunities in the markets that we are currently invested in.
And even with our CBD business, we also have a 1,800-acre farm that we purchased down in Belize and we are the first hemp farm ever to be approved in the country of Belize. And if you know anything about Belize, if you follow The Real Estate Guys, if you follow Get Rich Education, if you’ve been following me, you know we all invest down in Belize because the laws are so similar to America and the dollar is locked in two to one, which makes us feel pretty safe and confident in that country. And so, there’s more affordable labor there, the land is more affordable, so on and so forth, which made sense for us to go and start a hemp farm down in Belize. And if you’ve seen, Dorian, this hurricane that just came through, that really just pounded The Bahamas and other areas in that region, there was people that were going to Puerto Rico and growing hemp there and I don’t know how that crop withstood that.
But also Belize is protected by a barrier reef down there and is on the mainland, so to speak, it’s not an island. It’s kind of protected from things like hurricanes. Hurricanes can still hit there, but you’re not going to see the same type of devastation that you’re going to see for an area like The Bahamas. And so we feel pretty good about the opportunity that we have down there. We’re just about to start planting 200 acres. We’re actually going to do a raise here to get one of our V2 extractors down in Belize, so we can start processing our own hemp bio-mass down there, which will make it easier to export and import that into other countries to sell the active ingredient, and isolate, CBD isolate or a distillate. So that’s the plan there, but we are about to start our first crop.
And another exciting thing about Belize is that you can have up to three and a half harvests per year because of the tropical climate and the location to the equator. Whereas you can only have one harvest in the US each year, you can have multiple harvests down in Belize. And that’s why a lot of people are going down to Puerto Rico and going down to Columbia to start growing hemp because of those multiple harvests and also because of the affordability.
We’re really excited about the opportunity that we have there. That’s our next raise. That raise, we’ll be paying 15% on your money. So if you’re interested in finding out more about that, go to AREIUSA.com or RealEstateCowboysDFW.com. Put in your information and a member of our team will reach out with more info on this opportunity. We’ll also be sending an email blast out this week that will provide more details on the investment opportunity. So be on the lookout for that. But that’s all we have for this week. This is John Larson signing off. Always remember what’s your return on life? Have a great week, everybody. Thanks.
Announcer: All opinions expressed by the host of the show are the opinions of American Real Estate Investments LLC and do not reflect the opinions of guests or sponsors. No personal or professional advise heard on this program should be considered an endorsement to follow a real estate financing or investment strategy. Before acting on any information seek advice from your financial, Caps, mortgage or real estate advisor as the information is not guaranteed and investment strategies have the potential for profit or loss.