If you’re looking for returns over the long term, a residential rental property investment might be right for you.
When learning how to invest in rental property, you’ll come across a lot of options. The residential real estate market includes:
- single-family homes
- condos
- townhouses
- duplexes
- fourplexes
- co-ops
Before deciding which type of property to buy, there’s a psychological hurdle to cross. Can you see yourself as a landlord? You need to take a hard look at all it entails.
You’ll be responsible for paying the following:
- mortgages
- property taxes
- insurance
- maintenance costs
You’ll be responsible for finding tenants. You’ll also have to deal with whatever problems might arise, such as a broken air conditioner in the middle of a heat wave.
On the positive side, residential property usually requires only 20 to 25 percent down. It’s usually easier to find tenants for a residential property than it is for commercial property.
On the negative side, you need to choose between appreciation or cash flow. Traditionally, higher appreciation means a reduced cash flow.
Major repairs like that fictional air conditioning unit also have the potential to cut into cash flow. However, there are ways to offset the risk by purchasing a home warranty policy to cover such eventualities.
Bustling DFW
If you’re feeling good about the “landlord” title and the mix of pros and cons, let’s look at what makes Dallas-Ft. Worth attractive to your potential renters.
It’s a happening place with a growing population. According to census data, there are approximately 7.1 million people in DFW. That makes it the fourth largest metropolitan area in the country.
According to DestinationDFW, a relocation guide, jobs are a prime driver. The region’s unemployment rate is generally lower than Texas as a whole and the nation.
DestinationDFW also reported that more than 20 companies were included in the Fortune 500 list for 2018. Dallas-Forth Worth hosts more than 10,000 corporate headquarters, which makes it the largest concentration of headquarters in the country. American Airlines, Exxon Mobile, and AT&T all call the metropolitan area home.
How to Invest in Rental Property in Dallas
Dallas’ hard-charging economy will continue to attract executives and workers to the city. The good news is those people will need places to stay. The bad news is that type of demand will drive up prices. Understand this type of tradeoff as you investigate the possibility of buying your own rental property.
According to realtor.com, the median home price in Dallas is $467,000 and that’s a median cost of $252 per square foot. It was a seller’s market in August 2022 with more people looking to buy than those looking to sell.
The analysts at redfin.com agree that Dallas is a very competitive market, but they report a median sale price of $420,000, which is an increase of 8.8 percent since 2021. The average home sells within 19 days of being listed and usually for about 1 percent above the list price.
When real estate is involved, location is a big factor. The team at rentcafe.com reports rent to be $3,166 a month in high-end neighborhoods, such as:
- Brighton Lofts South
- Brighton Lofts North
- Grammercy Place
In the less expensive areas, including Arbor Springs, Casa Loma Estates, Garden Heights, Hickory Creek, and Highland Estates, rent is $926 a month. That’s well below the average Dallas rent of $1,568 as reported by Rent Cafe.
If you would like to game out the math, PadSplit, a housing marketplace that connects property owners with pre-screened residents, has created its PadSplit Earnings Calculator to help you gauge the numbers involved.
It has settings for different cities, including Dallas. It allows you to input specific zip codes and the price of the property then you can experiment with different levels of rent.
The calculator is a tool to help you discover your price point to enter the market. Unless you have deep reserves, your comfort level and your loan officers will need to align.
Location (Again)
When diving into the world of rental property, money isn’t the only topic to consider. Renters will want more than a place to sleep. They want a place to live, and that includes the surrounding environment.
Questions to consider include:
- Is the house close to work?
- What public transportation options are available?
- Are there shops and restaurants nearby?
- Is it in the heart of the city or out in the country?
- How safe is the neighborhood?
- What is the school situation?
A good real estate agent can help answer those questions. But that creates another question: How do you find a good agent?
It’s important to find someone who’s been at the job for a while and works full time. They need to know where most of the buying and selling is happening to give you a good lay of the land.
You might want to find someone who has firsthand experience in how to invest in rental property. You can ask them about different renting options, including traditional single-family rentals, short-term vacation rentals, and new approaches, like PadSplit.
And it’s always a good idea to check an agent’s references to see how well they served other buyers.
Now Rent It
Let’s say you find a fantastic agent who directs you to a solid neighborhood with great amenities. You find a house for a price that works for you.
What now?
It’s a brand new, digital world. For instance, you found this article online rather than in a magazine or newspaper.
There are a variety of digital options designed to match renters with landlords. The right rental technology for you depends on your preferences. Do you envision long-term rentals or would vacation rentals be more your thing?
Single-family rentals require fewer cleanings and guest preparations than short-term vacation rentals through VRBO or Airbnb. Traditional rentals also involve more one-on-one contact with the residents.
PadSplit, which launched in 2017, offers another option. It blends some of Airbnb’s convenience with the stability of traditional rental methods.
PadSplit is a trailblazer for co-living arrangements. It employs a rent-by-the-room strategy that can increase profits for Hosts and reduce turnover thanks to pre-screening potential Members.
When Brittany and Derrick were figuring out how to find rental property investment opportunities in Atlanta, they were interested in making money for themselves. However, they also wanted to provide quality, affordable housing for as many Atlanta residents as possible.
They decided to experiment with PadSplit.
“To be honest, we were a little hesitant at first,” Brittany said with a laugh. “We had gotten our feet wet in the co-living realm, and the management fees felt high compared to what we’d pay a traditional property management company. But, we took a chance and switched one of our properties to the PadSplit model. The rest is history.”
When COVID-19 hurt the pair’s Airbnb business, they converted more houses to the PadSplit model. They currently have 11 properties on the platform.
Big Step
If you’re curious about how to invest in rental property, it means you are interested in building your financial future. You have a lot of details to consider and plenty of learning ahead of you, but you also know that other investors started out just like you and managed to make it work.
To see if the PadSplit model could work for you, visit padsplit.com/hosts to learn more.
