The Texas real estate market is booming, and Dallas investment property is looking better than ever.
In fact, the National Association of Realtors (NAR) ranks Dallas-Fort Worth (DFW) in the top 10 most undervalued markets in the country for 2022.
Unlike the expensive Austin real estate market, Dallas still has a relatively low home value-to-income ratio. That means homes are still quite affordable compared to the median family income, with plenty of room to grow.
But that’s not the only reason why people are eyeing Dallas investment properties.
In this guide, we’ll cover:
- Key Dallas real estate market trends for 2022 and beyond.
- Hot neighborhoods and towns ripe with property investment opportunities.
- A step-by-step guide to finding and financing your Dallas investment property.
As you’ll see, Dallas is flying under the radar with huge investment options for a wide range of budgets.
Let’s dive in.
Why invest in Dallas real estate?
According to the U.S. Census Bureau, Texas experienced the largest raw population growth of any state in 2021. A large portion of this influx is heading straight to Dallas.
DFW is now the 4th largest metro area in the country, led only by New York, Los Angeles, and Chicago.
The metroplex tacked on 1.2 million residents between 2010 and 2020. And according to Zillow, it led the country in net inbound moves in 2021.
If trends continue, the population of DFW could balloon by another 17.9% by 2029, topping 9 million residents.
Of the thousands of new residents migrating to DFW each week, many are Millennials looking for big city living and job opportunities in America’s top job market. This higher-than-average Millennial demographic means a strong workforce with residents entering their highest-earning years.
Speaking of work, it’s not just individuals who are flocking to Dallas — huge corporations are setting up shop as well.
Dallas is home to an impressive list of Fortune 500 company headquarters, including McKesson Corporation, AT&T, and Southwest Airlines.
And they keep rolling in. In 2021, over 21 companies relocated to North Texas, including engineering giant, AECOM. Texas Instruments is also planning four new semiconductor chip manufacturing plants in Sherman, just north of Dallas. This project alone is expected to house 3,000 workers when finished.
All of these incoming companies and building projects are expected to boost the economy, attract workers, and drive up property values.
Dallas real estate market trends
According to Redfin, the median sale price for homes in Dallas was $395,000 in December 2021, up over 8% year over year. Competition is also more intense, with houses lasting an average of 27 days on the market, down from 43 last year.
Despite recent growth, homes are still reasonably priced. The NAR considers Dallas one of the most undervalued markets in the country, and Kiplinger ranks it a 5 out of 10 on the affordability index. For reference, Austin is a 9 out of 10, making it one of the least affordable metro areas outside California.
Rental prices are steadily increasing, according to Zumper, with the average 3-bed Dallas apartment going for $2,373, up 32% year over year.
The increase in home value and rental prices is partly fueled by Dallas’ extreme housing shortage.
The latest data available from Texas Realtors shows that the DFW housing supply has shrunk to just 1.3 months of inventory. That means if no new houses were listed for sale, the housing supply would run out in less than six weeks.
A stable market is typically defined as six months of inventory, and Dallas’ shortage should continue adding positive price pressure to the market for the foreseeable future.
Hot neighborhoods for Dallas investment properties
Irving is an inner-ring suburb of Dallas home to eight Fortune 500 global headquarters and 53 offices. Known as the “headquarters of headquarters,” Irving leads the nation with the most corporate headquarters per capita.
These include McKesson Corporation, ExxonMobil, Kimberly-Clark, and many others.
Irving currently does not have the housing supply to support employees from all these giant companies. And as more companies move in, demand for housing heats up. This competition has driven one-bedroom apartment rental prices up by 20% year over year.
Richardson is another landlord’s dream. Home of the University of Texas at Dallas, a steady stream of students sustains demand and keeps vacancy rates low.
Richardson is also fairly close to two major companies — the Toyota plant in Plano and the new AECOM global headquarters in Far North Dallas.
The average rent for a one-bedroom apartment in Richardson is $1,546 in February 2022, up 4% in just the past month.
Frisco is a family-friendly suburb directly north of Dallas. Ranked one of the best places to live in DFW, Frisco topped the list of fastest-growing Texas cities from 2010 to 2020.
This growth has caused rental prices to soar, with one-bedroom rents up 27% year over year and 7% month over month. As of January 2022, Frisco is ranked as the most expensive city to rent a one-bedroom home in DFW,
If you’re willing to look even further north, Texas Instruments plans to build four new semiconductor manufacturing plants in the city of Sherman, which could house up to 3,000 workers by 2025.
Munger Place is a historic district in Old East, Dallas, just northeast of downtown.
Established in 1905, Munger Place is a Dallas Landmark District full of beautiful prairie-style houses. The neighborhood was originally home to many of the city’s most prominent citizens. Now, it’s home to many renters.
In fact, renters occupy 77% of Munger Place homes, making it a great opportunity for landlords looking for properties close to downtown.
Euless is located smack in the middle of Dallas and Fort Worth.
The area has seen the highest year-over-year rent increases in all of DFW, up 25% since last year. This can be partly attributed to a recent story published in the New York Times, where readers could take a quiz that matched them with their ideal city.
When the article’s author took the quiz, Euless was his #1 match, shining even more publicity on the rapidly growing city.
In addition to these hot areas, investment properties in nearby Fort Worth are also worth looking into.
How to buy an investment property in Dallas, Texas
The process for investing in Dallas real estate can be broken into five steps:
1. Choose an investment strategy
Before you start scouring the web for properties, narrow down your real estate investment strategy.
Are you looking for a fix-and-flip? Or would you prefer a rental property?
Do you want a turnkey investment? Or are you willing to BRRRR to grow your portfolio faster?
Defining your goals not only makes property hunting easier, but it also helps narrow down your financing options.
2. Determine your financing options
There are several ways to finance an investment property in Dallas, each with distinct advantages and disadvantages.
Your three main options are:
- Conventional loans. Banks and traditional mortgage lenders typically offer the lowest interest rates, but they’re also the hardest to qualify for and longest to close.
- Hard money loans. Hard money lenders in Dallas (or anywhere in Texas) offer loan products designed specifically for real estate investors — namely, they close faster with fewer requirements.
- Joint ventures. If you have a track record of successful projects, you can recruit other investors to pool their money together to finance a more expensive property.
The best option for you depends on your financial history, investment experience, and speed requirements. In most cases, winning a property comes down to speed, which is where hard money loans shine.
3. Search for investment properties
Start by lasering in on a handful of neighborhoods you’re most interested in.
You can get a feel for prices in the area through online research, but for help finding off-market opportunities, network with wholesalers and agents specialized in your area of interest.
Once you find a promising Dallas investment property for sale, do your due diligence. That means looking into:
- Population growth
- The local job market
- Household demographics
- Upcoming construction projects
- Rental prices, growth, and demand
- Information on crime, schools, and public transportation
Don’t forget to do the math. Based on your estimated loan payments, local vacancy rates, and other expenses, what would you need to charge tenants to be cash-flow positive?
4. Finance your project
If everything checks out, you need to act fast. In most cases, the better the opportunity, the quicker it gets snatched up.
Choosing a conventional loan involves piles of paperwork and an underwriting process that can take months. If you’re confident your competition isn’t going to swoop in while you wait, this can be a great option.
But if you don’t want to risk it, you can work with a hard money lender to lock in a bridge loan in as little as 48 hours.
5. Refinance (if needed)
If you go with a bridge loan, you’ll need to refinance within 6 to 24 months. You can refinance with a conventional loan if you meet their strict requirements.
If not, most hard money lenders offer long-term rental loans, which are similar to a conventional mortgage. There are often benefits to sticking with the same lender for both loans.
At Longleaf, we can save you fees by bundling your bridge loan together with your refinance.
Need financing for a Dallas investment property?
Longleaf Lending is a Texas-based private lender and offers flexible loan programs designed for property investors who need to close as fast as possible. If you have any questions about investment property financing, give us a shout at 979-200-2823 or firstname.lastname@example.org.