Why Investors Should Be Looking at DFW in 2019 and Beyond
John Larson and the Real Estate Cowboys talk passive income real estate investing.
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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 everybody, 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 everyone and welcome back to the Real Estate Cowboys. This is your host, John Larson. This week we are going to be discussing the DFW market and why DFW should be on your radar if you are an investor, a real estate investor specifically. Why DFW should be on your radar here in 2019 and beyond. A lot of exciting things going on in the DFW market. You know, that’s why I started the show Real Estate Cowboys because I really believe in the Texas market and I really believe in DFW and really all the major markets here in Texas, uh, because the economy’s been chugging along now for the past decade. Businesses continue to move into the market and I’m a firm believer in the following jobs and if you follow where the jobs are going, you should have a pretty successful real estate investment experience because for those of you that are out there looking for cash flow, obviously, your property’s not going to cash flow unless you can keep a tenant in place and keep that tenant in place long term.
And I think that DFW just really provides a great solution for that because there’s so many people moving into the market due to the job growth and the fact that there’s already home to the most corporate headquarters in America and just seems to keep growing. Tech continues to grow in this market as well and you got to really relate it to the fact that it’s affordable real estate, centrally located, no state tax. The state of Texas has been giving tax breaks for companies to move into the market so they’re promoting growth. And so that’s something that investors really need to rally behind and, and jump on board. And if you haven’t been looking at the DFW market, I’d definitely recommend you do, even if it’s not on the single-family side. We’ve been talking about some unknowns going on with the housing market. Interest rates have really cooled the buying pattern that we’ve been used to for the past almost decade, it seems like.
And so that’s also kind of having an effect on cash flow. It’s really choking out the cash flow that you can get in the DFW market. But you know, if you’ve been following American Real Estate Investments and what we do at AREI or been following the Real Estate Cowboys, you know that we’re getting more and more involved in the commercial side. We just closed on a 30,000 square foot office building in North Dallas in actually Carrollton right near the Addison airport. That property is already 90 percent occupied. We only have two vacant units left in there and it looks like we’re already going to get them leased up. I’m about to start construction of the building. It hasn’t been renovated since 2005. I’m about to start construction on that building next week and just give it a newer flavor, newer feel on the inside. That building after all of our expenses are paid and everything, it cash flows $16,000 a month. And we got great tenants in there. We all went and personally met each of the tenants, got their feedback, what they like about the building, what they don’t like about the building so we can make sure you know, we can accommodate them and keep them paying rent and hopefully also increased some rents. Some rents are definitely well below what market is right now, so we have an opportunity to increase rents, but I want to keep those tenants if I can. It’s a passive experience in my opinion, on the commercial side, you know, these tenants are only occupying the building 40 hours a week instead of 24/7. Their opinion in terms of what they would like to see changed at the building, they’re very minor things. Something that we could easily fix. You know, I’m just looking forward to buying more and more of these properties in the DFW market because of the fact there are so many businesses here and there’s so much demand for this mixed-use commercial space.
So I’m really, really excited to grow that side of our business. Maybe take a little bit of a break here on the single-family side just because of the fact, like I said, I want to take a wait and see approach really with what we’re going to see with the market starting here in the spring and summer. I know that some of the real estate agents that I work with have been telling me that more and more deals have been hitting the market and I expected that, because of the increase in rates and the slow down in the buying pattern from the retail buyers out there in 2018. I just noticed that the margins really started getting slim even on my retail flip opportunities. I just wasn’t making the money that I thought I was going to make and it’s just a lot of work to make a little bit of money and you know, the commercial side from a cash flow perspective has just been far greater.
The building that I purchased as-is is already spinning off an eight percent return net. So that’s solid, and I expect to increase that cash flow as, you know, we get the other vacant spaces occupied and continue to push up rents, some of the expiring leases that we have coming up here in 2019. So I’m really, really excited about the opportunities on the commercial side. We’re also building two, four-unit, well, one’s a four unit, one’s a three unit and might turn it into just a two-unit office building in South Lake Texas. Uh, we already have a real estate company that wants to lease out the larger unit in the second building that we’re getting ready to start constructing right now. The first building’s almost done. The second building is right behind it, nipping on its heels, and the plans for that one, as of now, are to have one, 3000 square-foot space and two 1500-square foot spaces.
I think I might want to take one of the spaces up there as well, for one of my companies. We have a real estate company that’s already saying that they want to lease out the one side with the 3000 square-feet. And so I might just have them re-do the plans to where it’s two units at 3000 square-feet a piece, but that just goes to show the demand that we have. I mean, these buildings aren’t even constructed yet and I have tenants that are already inquiring, potential tenants, you know, inquiring about the space price per foot, so on and so forth and, and look into possibly just lock it up, lock a lease up on it right now and the building’s not even completed yet. So that just shows the demand that we have in this market. And I just think that there’s a lot of opportunity on the commercial side to really see good cash flow numbers in the Dallas market.
Single-family homes, much tougher, especially when you’re getting a loan on the property, Fannie loan, and where the rates are today. And you know, historically obviously we have higher property taxes in Texas. So that’s really choked out the cash flow. But you can still see good cash flow on the commercial side. The main reason why I think, you know Dallas-Fort Worth is just such a popular market among investors, sophisticated investors that study markets and you know, have been investing in real estate for a long time; it’s a self sufficient economy. It’s a magnet for businesses and families and entrepreneurs and investors. And so you know, no matter what city you’re in, you can see progress and change; whether it’s construction, renovation or a new company that landed overnight. The forward energy is definitely undeniable in the Texas market, in DFW specifically.
Businesses are moving into the market, like I said, because of the affordable real estate, no state income tax and there’s a lot of leniency on new construction as well. It’s pretty. It’s, I wouldn’t say it’s easy, but it’s easier than a lot of other markets that I’ve tried to penetrate to build new construction and things like that. But you know, I’ve been investing in real estate for the better part of a decade and I must say that I’ve found the majority of my success in the DFW market. When it comes to cash flowing real estate investments, obviously you need to keep your property occupied to generate income. And I don’t really know a better market right now outside of DFW when it comes to demand for homes, apartments, and commercial space. It’s a pretty simple formula. Jobs bring in people and people need places to live and work, right? When you have the self-sufficient economy that DFW has, and the growing economy that DFW has, it’s going to continue to bring in new blood.
I come from the Midwest and Detroit where you don’t see a lot of new blood moving in. You don’t see a lot of new businesses moving in. And so it kinda makes the real estate market a bit stagnant. Obviously, the market was still booming. It was booming everywhere in the U.S. because the rates were so low that it was really promoting people to go out and buy homes. And there just wasn’t a lot of inventory on the market because we were still backed up from the last recession. We weren’t building homes there for a few years. You know, it just resulted in inventory constraints, which caused prices to increase. But you know, we’ve talked about this a lot on the show that when the economy takes a dip and we’re start heading into another recession, it’s areas like Detroit in the midwest that really start to see a lot of problems, a lot of job loss, people leaving these cities and moving to other areas like Dallas because there’s opportunity and that starts to cause a free fall in property values, okay?
And the last recession has shown us that DFW was very resilient. You know, a decade ago, the entire country was reeling from the great recession; California, Nevada, Florida. The aftermath was terrible; but not so much in Texas. And why is that? Well, the property values in Texas were much less than the other states that I just named, so they didn’t have as far to fall. Land in Texas is easier to purchase and develop due to the affordability and limited restrictions on use and zoning. And I think that’s really because it’s just a very business-friendly climate here, one. But two, we have a lot of land here. We have a lot of undeveloped land. You know, it’s harder to develop land typically in areas where there isn’t a lot of land or there isn’t a lot of desirable land. And so it just makes it a lot more difficult. You know, I’d say that those two factors played a huge role in the state’s defense against the last recession. Job loss was no stranger to any city during this time, either. The unemployment rate hit its highest point as the recession was nearing its end. It was leaving 8.7% of Dallas residents without a paycheck. Unemployment hit other major metros much harder than that. Atlanta rose to 10.6, Phoenix at 10.4 Chicago over 12%. So you know, those are other major metros across the nation. But those few percentage points kept more money in Dallas, which fueled a quicker recovery here. You know, all I can go off of is history, and I do feel like we’re going to be headed to another recession soon and historically we were not affected in Dallas as much as other areas around the country and I believe that will remain true going into another recession here in the U.S.
So I think that this, because of that, this is a pretty safe market to put your investment dollars in because I believe it’s pretty steady. You know, you’re not going to see huge cash flow numbers here. I think appreciation is definitely going to halt a bit because of, like I said, the rising rates is going to cool the buying pattern, but I think you’re going to be putting yourself in a good opportunity to keep your property leased. Keep it leased long-term. You’re going to have business professional tenants that want to sign seven-year leases, right? I mean that’s still very, very common here because there’s just not a lot of space to choose from. So people are trying to lock in these spaces for seven years, you know, easy. It’s pretty easy to get a seven-year lease from a business here in the Dallas, Fort Worth area. Let’s take a quick commercial break. When we come back, I want to talk more about the DFW market and why investors should be looking at DFW in 2019 and beyond.
And welcome back from the commercial break. This is John Larson and the Real Estate Cowboys. We are discussing why investors should be looking at DFW in 2019 and beyond. Another reason I would say is job creation. So, DFW, like I said many times, already home to the most corporate headquarters in America, but I don’t know if you know this, but Texas creates more jobs than the U.S. by two to one, and it’s done that for the past, almost 30 years. Obviously, the energy sector helps, right? Oil and gas; but technology, trade, business, and healthcare are thriving in Texas. And so this time last year, more than 3.6 million Dallas residents were on the payroll, while the national annual average for job growth is about 1.4%, Dallas’s consistently rolling out more than 2%. I mean, that’s amazing.
That in itself should be why you are looking at this market for potential investment opportunities. That’s why we’re going and buying up commercial space and building new commercial space and giving our investors the opportunity to be the lender on those deals. Because you know, there’s obviously no investment that’s a sure thing, but I believe that this market really puts our investors in a situation to where their money’s working for them in as safe of a manner as it can. Obviously, there’s a huge demand for commercial space in this market and we believe it’s going to continue, uh, that demand is going to continue to grow, uh, or at least hold and even if at least hold, it’s still doing better than the entire nation. And the numbers don’t lie. So if we’re putting our investors’ dollars to use to produce commercial space for businesses that obviously are continuing to move into the area and unemployment and job creation is higher than the national average. Then the demand for this type of space is going to continue to be there.
And so you as a lender on one of these opportunities should feel pretty confident that we’re going to be able to deliver on the investment. We’re going to be able to get the property built, just talked about earlier in the show how Dallas is very easy to work with to develop new construction; office space, housing, so on and so forth. So you know, we’re gonna be able to get the job done there. And then the demand is almost double in terms of job creation from Texas compared to the nation. So you gotta feel pretty good that we’re going to be able to get some businesses occupying these spaces in these buildings that we’re building. And uh, that’s what’s gonna make it easy for us to refinance these buildings and pay you back, right? Or sell these buildings potentially because the cap rates and the cash flow numbers are a lot better on this commercial space than they are on the homes.
And we have funds and institutional buyers that will buy these buildings at a seven percent return all day long. You know, that’s not hard to, that’s not a hard sell; a commercial space with a tenant that’s the only occupying the building 40 hours a week and spinning off a seven percent return. You know, tenants that only occupy the building 40 hours a week, that means less maintenance, right? More passive experience for everyone involved. That’s why we’re leaning more and more in that direction. And you know, the demand is there, so it makes sense. The proof is in the pudding, so to speak. Let’s get back to jobs. Tech jobs specifically make up at least six percent of all jobs in Dallas. These tech companies are utilizing more than 30 percent of office space in the area. So once again, for commercial real estate investors, this is a textbook startup for immediate cash flow and commercial investments are on the rise in this market as well.
From 2017 to 2018, commercial investments in the industrial buildings increased by 30 percent in Dallas, 30 percent in one year. Multifamily and office space investments are steady. Even retail space bumped up two percent last year. Private lending becoming increasingly more popular in this market, uh, since parties, you know, we can customize terms and quickly secure funds. And Dallas investors don’t really have to worry about the increasing mortgage rates because of that, over the course of 2019 and beyond. Because it’s going to happen. And with the huge job creation, we don’t have to worry as much about the vacancies either, as we have explained. You know, Dallas has proved its resiliency following the last recession and it continues to build momentum.
Dallas is projected to grow by almost 3 million people just over 10 years. By 2030, it’s projected that DFW is going to have a population of almost 10 million people. That’s insane. That means at that point Dallas will probably be, or DFW as a whole will be the third largest metro in the nation. It will take over Chicago. That’s something that you as an investor and planning your investment goals for the next 10 years, you should look at deploying some capital into the DFW market. The growth is just, it’s enormous. I have to say that I really have had my most success in this market when it comes to low vacancies and keeping properties cash flowing and you know, keeping businesses in our properties and in our, you know, we have some office buildings up in Frisco as well that we hold in our own portfolio. And all of them are under seven-year leases. It’s been very successful.
So if you’re interested in opportunities in the DFW market, uh, you like what you’ve been hearing on the show, been doing some research on markets in the U.S. and have identified Texas or some city in Texas or Dallas-Fort Worth as a city that you would be interested in putting your investment dollars to work, go to our website, RealEstateCowboysDFW.com. Put your information in, let us know what you’re interested in. We do still provide some single-family rentals in three markets across America. We still have private lending opportunities that are paying double-digit returns to our investors. Fixed double-digit returns. And we have vacation rentals down in Belize, as well. So let us know what you’re interested in. We can help you with self-directing your IRA or 401k, so you can start putting that money to work in a private lending model. So then those dividends are coming back to you monthly, tax-free or tax-deferred. We can talk to you about our upcoming private lending opportunities. We can show you our single-family residential inventory or we can set you up with a Discover Belize tour, to where you can go down to southern Belize, Placencia and check out what we have down there with the private islands and our vacation rentals that are based on a fractional model, which is pretty attractive. You can own a piece of paradise for a fraction of the cost.
We do all these things. So let us know what you’re interested in, what we can help you with, and a member of my team will get on the phone with you and go through a consultation call. Just learn more about you and how we can help you achieve your investment goals. If you’re still hungry for education, still eager to learn more, you can go to RealEstateCowboysDFW.com, and listen to past episodes or subscribe to us on iTunes. You can also go to AREIUSA.com which is American Real Estate Investments website. There’s a lot of information that you can download from that website as well. Or you can purchase my book, which is pretty affordable, I think it’s $5 or less. It’s The Passive Income Guide: What’s Your Return on Life?
And that pretty much sums up everything that we talk about weekly on the show. Gives you some information and gives you some education on how to start earning passive income in real estate. You don’t have to get your hands dirty, you don’t have to go and scrape and claw and try and find deals in today’s world with the internet and low inventory and all these wholesalers out there. You know, we can get you set up with a turnkey product. We can get you double-digit returns through private lending. I know everybody’s looking for as high of returns as possible and it’s tough to get them in today’s market, but we have opportunities on the private lending side that can get you double-digit fixed returns. So if that sounds interesting to you, go to either one of our websites, put your information in and like I said, a member of our team will reach out right away and we can get the process started. So thanks again for listening to this week’s episode. If DFW is not on your radar, I’m telling you, do some research on your own and look into some opportunities out here. You won’t be sorry. And I look forward to having you all back on again next week to listen to another episode of the Real Estate Cowboys. And always remember, what’s your return on life? This is John Larson signing off. Have a great week..
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 advice 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 tax, mortgage or real estate advisor, as the information is not guaranteed and investment strategies have the potential for profit or loss.