Note: F is the letter I am focused on in my next post in the series The ABCs of Buying, Selling and Investing in Real Estate. In this post, I look at some freaking and strange things going down with real estate in Fort Worth. My account below is pure fiction, which I use to help illustrate my three things.
Frank has been investing in real estate now since the big crash in 2007-2008. He is proud to say that his return on his investments have been really good, making a good secondary income for him and his family. Frank’s wife was recently transferred to Fort Worth so he called me to get an idea of what is what when it comes to real estate in Fort Worth. He wanted to know if there something that would give him a heads up on the competition and allow him to see the returns he was seeing back home.
This is what I told Frank.
Real estate investing (REI) is one of the most exciting, frustrating and down right scary things one can do in their lifetimes. You are talking about large sums of money being brought to the table. If you don’t invest in the right things, or the right area, you could really lose your shirt. I have seen several newbie investors get back out of the game very quickly because of some bad decisions. When it comes down to it, if the numbers work, you do the deal, if they don’t, you walk away. Of course, Frank knew all of this and really wanted to know what was going in the local market. I started with these introductory remarks because I wanted him to know that our market right now for investors is not a healthy one and the usual rules of investing are very difficult to follow. For example, most investors are looking at getting 70% of After Repair Value (ARV) minus the repairs required on the property. In this seller’s market, you get very few options following this scheme. They do exist, but you have to be patient and wait for them to come along. With rentals, investors are hoping to find a property with a rent at least two percent of the property value. This type of return is not possible with real estate in Fort Worth. Frank was dumbfounded. He asked me why it was such a crazy market. I responded by telling him that there are three freaking things about real estate in Fort Worth that lends to the insane deals we are seeing today.
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1. Price Appreciation – Real estate in Dallas-Fort Worth has seen some high appreciation over the last two years. My farm area of Alliance Corridor is seeing a 19% rise in the median home price over the last two years. With this kind of appreciation, it is difficult for investors to find good deals beyond the distressed homes arena. Sellers are really not anxious to sell their homes for rock bottom prices when you have buyers literally lining up outside their homes for a chance to see it. There are a lot more buyers than properties so sellers are getting offers for five to ten thousand above asking. What is driving this appreciation? Demand is a large part of it as we have more than 20,000 people move to Fort Worth in the last year. The whole Dallas -Fort Worth area saw the second largest increase in population with only Houston beating us. Companies love our business friendly climate so they are flocking here and bringing their jobs and employees with them. Supply is the other ingredient for the appreciation pie. Builders are not building fast enough and sellers are happy with their low refinance rates. With no one building and no one selling, the sellers who do put their homes on the market are going to price them at a premium because they know they will get them.
2. Outlandish Offers – Real estate in Dallas-Fort Worth has been red hot seller’s market now for awhile. Because of this, we see some desperate buyers. These buyers will get frustrated time and again as their offers will be lose out to another offer that has something unique about it. I use the word unique here, but I should really lose the PC and say stupid and outlandish. I have already mentioned offers coming in $5K to $10K over asking price and these offers are just not coming from owner occupant clients, but investors as well. You will also see huge earnest funds put on the table to the tune of 10 grand or more. Buyers will pay for their own title policies and offer to pay for the survey. Some agents have gotten smart and started to put in their offers that the buyers will pay the offered price no matter where it appraises. You will see statements like, “Buyers will pay two thousand above appraised value of home..” or “Buyers will pay the offer price of $147,000 despite the appraised value.” All these outlandish items make it very difficult for an investor to find properties that generate the required numbers. If they have to compete at every turn with people willing to do anything to get a house, the frustration will build until they leave the market all together.
3. Too Many Buyers – I have written it a couple of times already, but I will emphasis it again as one of the freakish characteristics about real estate in Fort Worth. There are too many buyers right now. I know it seems strange for a real estate agent to complain about the fact that there are too many people trying to buy a house. In a healthy market, I wouldn’t mind at all because we would have as many homes for sell as we do buyers. In this tight inventory, too many buyers make it all the more difficult for investors to find good deals. I was not joking when I wrote about having to literally wait in line to see a house. I have to do it two or three times a week. I hear that Dallas is even worse right now. There seems to be 20 buyers for every house for sell. Crazy!
In summary, real estate in Fort Worth is facing some freaking things. We are seeing prices continue to appreciate at historical rates. Buyers are desperate so are putting in truly stupid and outlandish offers. Finally, the number of buyers trying to see a house can be a strange sight to see. Despite all of this, I told Frank that he can still move forward with investing in real estate, you just have to plan accordingly and set expectations to meet with the freaky market we are in today.