Realtor Insider – Rest in Peace Dallas- Fort Worth Real Estate Investment Market

Realtor Insider explores inside the mind of a Realtor to learn the hidden secrets of buying and selling real estate.

 “Life is stressful, dear. That’s why they say “Rest In Peace.”

– David Mazzucchelli

Time of Death: Second Quarter, 2019

I have been hesitate to write this post for a couple of weeks now. I didn’t want to admit it to myself. Real estate has changed in the Dallas-Fort Worth area causing the slow death of the real estate investment market as we have known it since 2014.

When did this death occur? I really started noticing the lack of good investment properties coming on the market about Mid-April. A slowdown had happened before in my time as a real estate agent. It would occur for a week to ten days, but then come roaring back with vengeance. At first, I thought it was just one of those low points. The wave of new opportunities never arrived, however, and I was left wondering what happened.

For those how don’t read my blog often, a little background might be necessary for you to understand this post.

I became a real estate agent five years ago when I hit a fork in the road with my first career (Library and Information Science). I had done some “house hacking” in my time so I had the real estate bug. It seemed logical for me to make real estate my second act. From the very beginning, I was attracted to assisting investors with buying and selling real estate. I quickly learned the local real estate investment market and was pleased with how fruitful the niche had become for me.

Lately, I have decided to pull away from the niche and focus more on the traditional side of real estate. Why? The real reason is this slowdown in the real estate investment market. I see more opportunity in this broader area than I do in Real Estate investing right now.

For my investor clients reading this post, I will continue to assist you. However, I have decided not to take any more investor clients. With so few properties available today for an investor, I wish to reserve the deals I do find to my current client load.

The real estate market is cyclical so it will come back around. Hopefully, in two or three years, I can jump back into the niche. For now, I am left wondering what happened to cause this traumatic shift in the market here. I have not seen much on the MLS or off of it. In fact, the properties I receive from wholesalers have incredibly tight numbers (with most having some exaggerations on condition and ARV). It is just not a good time for real estate investors in the Dallas-Fort Worth area.

Here is my very unscientific observations about the market forces causing investors heartburn

IBuyer groups cutting into market share – One trend I have noticed recently is the number of Ibuyer companies moving into the North Texas Area. For those who do not know the term, these are the companies flush with cash that are buying properties directly versus selling the properties for home owners. OpenDoor is the first company of a wave of them coming to the area. Keller Williams is even launching their own Ibuyer arm.

According to this Curbed post, we are seeing market share slowly getting eaten up by these Ibuyer companies, and our area is one of two (Phoenix) where all of these companies operate in the market. In order to look into these claims myself, I did a quick search of OpenDoor properties sold on the MLS. A year ago, Opendoor sold just over 600 properties on the MLS within a six months span. Over the last six months, the number has grown to 1700. If you multiply that by the number of Ibuyer companies now operating in the area, you can see that it impacts the real estate investor market. Just picture it: You are a homeowner that needs to sell your as-is house quickly. Do you reach out to the several investors that sent you yellow letters? Or, do you go online, fill out a form, get an offer within 24 hours, and then close within a week? I bet most home owners will take the easy way.

Property Taxes are too high – I hate to write this fact because I am tired of hearing about it from buyers and sellers. However, when it comes down to it, our property taxes are too high. Local appraisal districts are making up for lost time on their appraisals, Instead of raising appraisal values marginally, the appraisal districts have raised prices very quickly over the last few years. I have had investors report to me that some of their tax bills have gone up 100% or more in that span. Luckily, we are seeing some relief from the Texas Legislature, but it is still hurting investors.

In a normal market, I don’t think this would matter as much as it does when the margins are so thin. When you have a single digit cap rate or cash on cash rate, the property taxes tend eat into any profit you might realize on the short term. Property taxes are getting the blunt of the blame right now, but if the other numbers were any better, property taxes wouldn’t play such a large role in killing the real estate investment market here in North Texas.

Sales Prices versus Monthly Rent – The final reason deals with the the large appreciation of sales prices outgunning the rise in monthly rental rates. When my investor clients ask me how much they can expect in cash flow today, I tell them they will be lucky to get $200 a month. Even with the slowdown in appreciation, we have still seen a 3 to 5% increase in sales prices across the area. Rental rates are going up as well, but not as quickly. I am beginning to see more and more homes renting out for $2000 or more, but it is still rare occurrence in most areas.

Do you know what the largest inventory of homes for sale right now in Fort Worth? Homes valued between $200,00 and $300,000. The fewest homes available are homes under $200K so you have to buy something in a higher price point to have any decent options. The rent won’t give you enough monthly cash to pay all the expenses. In other words, if you purchase a house for over $200,000, you stand a good chance of not getting a renter for more than $2000 a month, which results in very little cash flow as most of the monthly rent will go towards paying off the landlord’s mortgage and other expenses.

In conclusion, you can still find the deals in the market, but with so few options, it might be time to put a pin in your investment plans in Dallas-Fort Worth real estate.