Low interest rates, a stock of foreclosures, and the proliferation of short sales in the Dallas-Fort Worth area have created an excellent environment for investors looking to add single-family homes to their rental property portfolio.
Unlike multifamily rentals, single-family rents increased during the recession, according to a recent MarketPulse report by CoreLogic. In fact, the single-family rental market accounts for 21 million in rental units, or $3 trillion in revenues, the report states.
CoreLogic analyzed Multiple Listing Service (MLS) data for 26 geographically diverse metropolitan areas, including Dallas-Fort Worth, together with the capitalization rates to determine the profitability of investment properties in each area. (The cap rate measures annual cash flows from renting a property, adjusted for expenses, relative to the acquisition price.) As of January 2012, West Palm Beach, Florida, had the highest cap rate at 12.4 percent, followed by Cleveland (12.3 percent) and Fort Lauderdale (12.0 percent). Cap rates for the single-family market nationwide averaged 8.6 percent, according to the report, indicating that timing is good for investors to earn strong positive cash flows from single-family rentals.
In our estimation, about 50 percent of short sales in the DFW area are being bought by investors who recognize the opportunity to generate a positive return on their investment in single-family homes offered below market value. The large number of REOs and short sale properties in north Texas presents an excellent investment scenario for those with available funds to build their portfolio.
Savvy investors should look at neighborhoods that have experienced big price drops or been hit hard by foreclosure to find single-family homes that they can rent out. These rental homes can generate regular income while the housing market slowly recovers, and when prices stabilize, the option of offering a lease-to-own arrangement for renters presents a possible exit strategy.
Three million former homeowners are now renters as a result of foreclosures over the past five years, the CoreLogic report states. With the economy continuing to slide sideways and housing starts still sluggish, the timing is right for investors to look for distressed or short sale single family homes that can be converted to rental properties. If we can help you find a short sale property or answer any questions about the foreclosure or short sale process, please call our office at 972-342-0011 for assistance.