After a solid ten years of housing appreciation in Texas, there have been some reports that the market may begin to cool and appreciation may not continue its fast-growing pace.
Over the next few years, the housing market may begin to slow down, though this prediction is not a guarantee. It is still expected that the market will continue to grow in 2019, and Dallas-Fort Worth was named “top real estate market to look for in 2019.”
Additionally, if you purchased your house based on cash flow, a recession shouldn’t be a problem.
However, if appreciation values do slow down in the next few years, what could that mean for investors?
Insight #1: Look at the Facts of the Last 11 Years
Dallas-Fort Worth is one of the top-ranking areas in the United States for home growth since the recession in 2008. In fact, Dallas prices have risen 68.5 percent from the bottom-of-the-market prices seen in 2008.
In other words, if you bought a cash flow-positive property in 2007 or 2008, you could expect its value to have doubled by 2019.
Real estate is a physical asset that appreciates over time, and while there will be ups and downs in the real estate market, home values generally continue to rise over time.
One way to look at it is there is not really a bad time to buy real estate, but there may be a bad time to sell. Holding on to an investment property, especially if it is a rental property, is a great way to weather an unsteady market period.
Insight #2: Rentals Are Low Risk, Even in Uncertain Times
The major benefit of purchasing rental properties in all sorts of economic times is that as long as the cash flow is present, your investment should be profitable. This makes them a low-risk investment.
If your goal is to purchase a cash flow property and continue to rent it out to tenants, this should not be negatively affected by a downturn in the housing market.
Your property value may depreciate for a time, but it will not affect your ability to rent it out and continue to stay cash flow positive.
Insight #3: There are Ways to Be Successful No Matter What the Market Looks Like
When looking for rental investment properties, the number one consideration is whether or not it will be cash flow positive. If you’re able to rent out the property and make money beyond your expenses, the market value is not a major concern.
To have a successful cash flow rental, investors should be able to profit even without rent increases. While Dallas rentals saw an apartment rent growth of 1.3%, and Fort Worth saw an increase of 3.1%, a real estate investment should be lucrative even without rate increases.
Don’t purchase a property with the expectation that it will make enough money for you some day. Purchase properties that are profitable from day one.
Insight #4: Rental Rates Often Increase During Recessions
Though it may seem contrary to expectations, during a recession it’s often true that rental rates increase.
According to Jeff Andrews at Curbed, “During the housing bust in 2008, the average fair market rent for a three-bedroom property, as calculated by the U.S. Department of Housing and Urban Development, rose at a steady clip even as home prices cratered. Rents likely rose as homeowners who had to go into foreclosure during the crisis added new demand for rental housing.”
One reason people look for rentals during a recession is that they are less likely to have the financial resources needed for purchasing a home. If the United States were to experience a recession today, there would likely be even more people looking for rentals because it’s now harder to qualify for loans. With a lower percentage of the population having the upfront capital to buy a property, there are more people renting today.
A study by the Department of Numbers shows that rental prices have remained fairly steady in Dallas Texas since 2006, with an increase in 2008 during the recession, and several small decreases between 2009 and 2012. In 2017, the median rate was $987, the highest it’s been in the last eleven years.
Insight #5: There Are More Renters Now Than in the Past Fifty Years
Today there is a high percentage of people renting, the highest it has been since 1965. More people are choosing to rent for a variety of reasons, including lack of funding, student debt, the rise of housing prices, and ease of renting.
This trend is surprisingly not only happening among the millennial generation, but also with baby boomers who want the amenities of renting without the headaches of house maintenance.
DFW has been growing steadily in population due to a booming economy and increased job growth. In 2016, the U.S. Census Bureau reported that 140,000 people moved to the Dallas-Fort Worth-Arlington area — the most of any metro area in the United States.
At 43.8 percent renters, DFW has one of the highest percentages of renters compared to other big cities.
Insight #6: A Market Decline Is a Great Time to Invest in Rental Properties
Fortunately for investors, if the market does decline, it’s usually a great time for investing in a rental property.
Not only will you have an increased likelihood of renting your property at a better rate, but you’ll also likely find a property at a cheaper price.
During a recession, more homes end up on the market as families are no longer able to pay their loans. This means the supply of houses rises, and with fewer people being financially ready to buy, the demand decreases. This causes an increased number of houses on the market for longer periods of time. Sellers will become more motivated to sell and more likely to lower their prices to attract buyers.
Investing in Your Future
If you’re looking for a real estate investment, a rental is a perfect place to start. People will always need a place to live, and the percentage of renters is at a fifty-year high.
If you’re looking for a rental investment property in the DFW area, LEAP Property Management can help you find it. If you’re looking for a qualified property management company for your rental real estate, we’ve got you covered.
With over 15 years of experience in property management, competitive prices, and commitment to our clients, we will handle all your needs so you can rest easy knowing that your property is in good hands.
Contact us today to get more information about real estate investment opportunities in the DFW area, or about our quality property management services.