The Dallas, Texas, area is quickly becoming one of the most popular regions in the entire United States. Dallas itself is the ninth largest city in the U.S., and the Dallas-Fort Worth Metroplex, as it’s called, is the fourth most populous metropolitan area in the country.
Residents are flocking to Dallas and North Texas in general as the economy continues to boom, with new jobs added every day. Dallas is one of the fastest-growing cities in the country, and the DFW metro area had the second largest population increase among metro areas in the U.S., with a total recorded population of 7.23 million as of 2016, an increase of 807,000 people since the 2010 census.
The Dallas metro region is so attractive because of its diverse economy, with strong employment in the sectors of defense, financial services, information technology, telecommunications and transportation. Because of this diversity, Dallas is less susceptible than some other regions in Texas to downturns in commodities, as some other regions in the state rely heavily on oil production.
To see the true economic impact of the DFW region, one needs to only look at its GDP of $504.36 billion. If the Dallas-Fort Worth region were a state, it would rank ninth among all other states in the country in terms of total GDP. The region is host to the headquarters of major companies such as AT&T, Exxon Mobile, American Airlines Group, Southwest Airlines, J.C. Penney and Frito-Lay. It is also home to six major professional sports franchises – the Dallas Mavericks, Dallas Cowboys, Texas Ranges, FC Dallas, Dallas Stars and Dallas Wings.
All this growth and stability in the economy is resulting in explosive growth in the region’s population. This strong job market, along with increasing home prices and interest rates, is creating favorable conditions for the Dallas rental market, especially in the low- and mid-tiers of the real estate market.
Dallas Is an Attractive Place to Live and Work
The DFW metro region has always been a boom town since its founding in the mid-1800s. By the end of the 19th century, the region became a significant business and trading center with the construction of railroads that ran through the city. As a major industrial city, workers from all over Texas, the South and the Midwest flocked to Dallas to earn a living.
By 1900, Dallas became the largest inland cotton market in the world, driven by the cotton gin machinery manufacturing. In 1914, the city was chosen as the seat of the Eleventh Federal Reserve District, proving its power and influence on the national and international stage.
The Dallas region’s current boom in population and economy came with the construction of the Interstate Highway System. There are four major interstate highways that converge on the city, with a fifth interstate loop around it. This helped Dallas enter the fray as a major transportation hub, and its Dallas/Fort Worth International Airport is one of the largest and busiest airports in the world, handling more than 67 million passengers in 2017, ranking it 12th on the international list.
The population continues to grow in the Dallas metro region every year. Between 2010 and 2015, the population grew by 10.5%. Since 2010, the metro region added more jobs than any other metro in the U.S., according to Bloomberg, with 661,000 new jobs created in that time. The region also leads the way in percentage payroll growth since 2008.
Other economic highlights of the DFW region include:
- It is home to 22 Fortune 500 company headquarters, second most in the nation
- It’s a leading international distribution and logistics center
- Forbes ranked Dallas the #1 city for jobs in 2017
More positive signs for real estate investors are that this growth in jobs isn’t projected to slow down any time soon. Projections have the Metroplex adding 80,000 jobs in 2018, which would lift payrolls by 2.2%. Other major planned developments and investment in the region include:
- Lockheed Martin plans to hire 1,800 additional workers by 2020 to support production of the F-35 in West Fort Worth. That would be in addition to the 1,300 workers it currently has.
- The Texas Rangers baseball team will be moving into a new home for the 2020 season. Its soon-to-be home at Globe Life Field in Arlington is a $1.1 billion construction project.
- Howard Hughes Corp. has plans to build a 240-acre mixed-use development in Allen that will include high-rise office buildings, apartments, hotels and retail space.
- Charles Schwab is moving to a 500,000-square foot campus in 2019. With it, the firm plans to move 350 workers from a temporary location and expand to 2,600 workers total.
The Dallas region’s stable and diverse economy is resulting in more and more investment in the area. Unlike other major metro regions in Texas, Dallas is more insulated from downtowns in the economy because of this diversity. A strong economy leads to an increase in jobs, which in turn affects housing overall and the opportunities for real estate investors.
Young People Are Flocking to Dallas
The growth in population in the Dallas region has been a godsend for investors in the real estate rental market, because much of this growth has been in younger demographics. Between 2001 and 2016, the 20- to 34-year-old age range increased 8.8% in Dallas, which is almost double the national pace of growth. In Fort Worth, this cohort increased 9.4% during that same time period.
Younger people, especially those new to a city, are largely renters in the real estate market, both in single-family rentals and in the multifamily sector. In addition, the rental market is expanding to other age groups as well. As home prices continue to rise, more people are having trouble coming up with a down payment to purchase a home, so they are staying in their rentals longer.
In 2017, developers pulled an annualized 33,800 permits in the single-family space during the fourth quarter. At the same time, permitting activity for apartment construction declined 22% year over year. Single-family rental investors are competing with new homes and apartments being built, and as a result, vacancy is expected to increase by 20 basis points to 7.3% at the end of 2018. Still, average rents are expected to increase by 1.9% over 2017, reaching $1,692 per month on average.
Single-family rentals are particularly strong in working class neighborhoods, where supply shortages are more pronounced. Overall, the median investment home price increased almost 10% last year to $200,000. This is a trend that the Dallas metro region has been experiencing over the last six years, with median home prices increasing about 12% annually on average. First-year returns in Class A neighborhoods hover in the high-4% range, while the same returns in Class C neighborhoods are close to 8%.
Other highlights in Dallas’ real estate market include:
- 26% of the population earns an average salary of $100,000
- CNBC ranked the region the #2 healthiest housing markets in the nation in 2017
- It also ranked as the #1 metro area for skilled talent in 2017
Where to Invest in Dallas
With all the factors above, it’s clear that now is a great time to invest in the Dallas housing market. There are plenty of options to invest inside the city limits and in the suburbs as well. However, with the attractive opportunities for single-family rental properties, it may be a great idea to turn to the suburbs for investment opportunities, away from the hustle and bustle of downtown Dallas.
Here are a few prime investment opportunities in single-family homes in the Dallas suburbs.
Royse City is a suburb of Dallas, located approximately 32 miles northeast of downtown. This four-bedroom, two-bathroom home has 2,101 square feet of living space. A purchase price of $234,900 and an investment of $68,272 could result in a projected rent of $1,950 per month. That would mean a 9.96% gross yield and $11,373 in net operating income.
Fort Worth is the second major city within the DFW metro area, and is located about 32 miles due west of downtown Dallas. This four-bedroom, three-bathroom home has 2,825 square feet and was built in 2003. An investment in this home could result in a 10% gross yield and $10,794 in net operating income with a purchase price of $255,000 and an investment of $82,900. The projected monthly rent is $2,125.
Forney is a suburb of Dallas located approximately 21 due east from downtown. This home on Torrington Lane offers 2,810 square feet of living space with four bedrooms and four bathrooms. A purchase price of $27,990 and an investment of $80,897 could net a projected rent of $2,495 per month. That could result in a 10.69% gross yield and $14,202 in net operating income for an investor.