Renter/Deadbeat Nation: Dallas Fort Worth Rents Have Risen by 4%. Is That Good News for Dallas Housing Sales?

We know one thing for sure: the rental market in Dallas/Fort Worth is heating up. And guess who’s taking full advantage? Apartment landlords.

Steve Brown says (yes, behind the pay wall) landlords are betting that the buying market will stay down long  — or not recover soon enough — to benefit their industry.

“The train wreck of single-family housing over the last few years has given a lot of our residents a second look at buying a single-family home,” said David Neithercut, CEO of nationwide apartment investor Equity Residential. “They are thinking different about homeownership and looking at it as consumption rather than as an investment.”

And they are waiting longer to decide about a home purchase.

“Our residents are marrying later and having children later and getting the financial ability to have a home later,” he said.”

Brown caught this at the recent annual meeting of the National Association of Real Estate Investment Trusts at the Hilton Anatole.

Here are the local numbers:  Tenants have rented more than 40,000 additional apartments in North Texas during the last couple of years. Apartments seem to be going up all around us, looks to be keeping the construction industry alive. And rents are going up up up.

“In downtown Dallas or Uptown you can rent an apartment for $1,500 to $2,000 a month,” said Ric Campo, CEO of Houston-based apartment developer and investor Camden Property Trust.

“You can go to Plano and buy a house for $900 a month.”

It’s a definite choice, says Campo, because though people can better afford a home in the “hinterlands”, they prefer to rent to be close in, because “they don’t want a house in the hinterlands.”

I was in Rockwall looking at property on Wednesday.  I found a 6,000 square foot home LOADED (home theatre, two patios, full outdoor kitchen, 4 bed, 4.5 baths, two studies on a golf course lot) for $894,500. You can have a palace out there for $500,000. Sales are good, but prices down. Urban renters in Dallas who pay high dollar rent prefer the urban lifestyle, less square footage, and will never buy a home in Plano (or Rockwall), say these experts. 

Ironically, rents have risen by 4 percent in D/FW during the last year as home sales prices have contracted in most neighborhoods outside the LBJ Loop. And landlords antipicate even more rent increases, even though it may well be cheaper to buy a home than lease. Hello, lowest mortgage rates ever. In some cases, people who rent like the mobility factor of not having to sell a home, especially when they are besieged with sales horror stories. To be factual, Dallas inventory inside the 635 Loop is still at a balanced 6 months. In some cases, folks who rent do so because they cannot obtain mortgages.  

Of course, more apartments are being built to meet renter’s needs now while the market is tight. But, when there is more lease inventory, will landlords then have to lower rents? As a landlord myself, I would hope not.

Experts say the U.S. home ownership rate will continue to drop. Large companies that moved their headquarters out to suburban corporate campus are now moving their business back downtown, like in Chicago.  Employees like a work/play environment. They also warn that with people living longer, utilizing more health care, more seniors will want apartment rentals, likely in urban areas. (The average urban renter makes $65,000 a year and has good credit.) Boomers will sell their homes and perhaps live off the equity, if, that is, they have not borrowed against it.

Oh, and speaking of landlords, local realtor Mark Kreditor, MPM, of Get There First Realty, CRMC, in Dallas, was recently quoted in a NASDAQ newsletter: “More than 95% of the owners that come to me lose money because they fail to ask the right questions when looking at rental property.”

Kreditor advises you to “check the credit or real rent paid.”  I just LOVE his name.

Too often, says Mark, the seller’s disclosure of what the rent is may be quite different than what is actually collected and reported to the IRS. And do schedule a professional inspection.

“In our market you can buy homes for $30,000 that need $40,000 worth of work. Very often the copper plumbing has been stolen from under the house, and you never know until you try to turn something on,” he says. Therefore, make sure everything works before you buy. Kreditor’s final word of caution is related to tenants. “If you’re in a market where 20% of the tenants skip and often destroy your home,” it can be much more challenging to make money.”

Amen, brother. Kreditor is the guy who told author Ben Fountain, who sometimes writes for the New York Times, that Texans are a bunch of deadbeats. This is an example of one of his rent homes.