Peace of Mind Investing

Some think of real estate as a long game … and it is. But does that mean you should devote your energy to a tricky investment for years?

It can be a smart choice to pick investments that will give you the life you want WHILE you’re managing your investment … not just after the fact.

There’s a cost for any investment … the cost of learning how to manage your investment. The question is whether you want your learning curve to be steep or gently sloping.

In this episode of The Real Estate Guys™ show, we chat with return guest John Larson about what criteria investors should look at to reduce trouble and toil. We’ll also chat about Dallas … why it’s a great market for peace of mind investments, and whether it’s too late to buy there.

Listen in! You’ll hear from:

  • Your dazzled-by-Dallas host, Robert Helms
  • His dallying co-host, Russell Gray
  • Eight-decade investor Bob Helms
  • Turnkey real estate provider John Larson

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Is it too late to invest in Dallas?

Dallas is a shining star. Job markets have demonstrated incredible growth. Expense ratios are down because of rising rents, and the potential for appreciation is going up.

The city is also attractive to both international and local investors. When people who actually live in a market want to work with investors, you know it’s a hot market.

Dallas has been on our shortlist of great investments for a while, but with its recent growth, some investors are asking themselves whether it’s too late to invest in the city.

John Larson is a managing partner at American Real Estate Investments (AREI). These days he spends a lot of time in Dallas, one of AREI’s top markets.

We asked him whether it was too late for investors to get in on this Texas hot spot.

John told us, “The window is closing, but there’s still opportunity.” John thinks Dallas is still an affordable market … for now.

What happens if investors don’t get in now? It really might be too late, John says. It’s not that depreciation will continue, but that the rent numbers won’t work because of the discrepancy between the cost and the rate.

The A-class strategy

In John’s view, buyers should prioritize good neighborhoods, solid properties, and responsible demographics. The challenge with dying markets is that there are many additional expenses and responsibilities … filling frequent vacancies, doing frequent upkeep, and evicting tenants and finding new ones.

In the same vein, rental properties simply won’t perform if there isn’t anyone to move in. Although properties in better neighborhoods may cost more, vacancies will be far lower. And in general, Dallas is far and away less expensive than most other major U.S. cities.

Your goal shouldn’t be to invest the absolute least amount of dollars possible, but to get the best return. John’s trick for finding worthwhile properties is to look for an after-repair value of $300,000 or more.

Investors benefit from higher rents for higher value properties because they will not only get positive cash flow, but they won’t be likely to get tenants who will have to be evicted or who run out without paying rent.

Because of economy of scale and efficiency, businesses like AREI can provide deals that would be hard to find elsewhere in a popular market … off-market deals that can be offered at reasonable prices.

We asked John what an ideal investment looks like. John specializes in single-family rentals and sees a lot of potential with these properties. He told us he’d zoom in on three things:

  1. Start with the market. John wants to see a growing, diverse economy that doesn’t rely on one industry for jobs.
  2. Look at the median home price. The national median home price is about $250,000. The ideal market should have home prices in line or below the national average … otherwise, investors won’t find affordable properties.
  3. Look at rental rates. Investors should look for strong rental prices and high demand. Tenants paying the median rent should be solidly middle class.

Investments that fit these criteria are low-risk because they provide a good cost-to-return ratio and offer stable, predictable returns. Go lower, and you’ll never get a passive investment because there is too much upkeep and unpredictability.

Investors from high-cost markets like California looking for a place to park their money are flocking to Dallas because it offers both good cash flow and the potential for continued appreciation.

Designing your personal investment philosophy

As the Real Estate Guys™, our investment philosophy has changed a lot over the years. In the beginning, we were drawn toward fantastically priced properties in lower class neighborhoods.

We had to get our heads around the fact that crap happens in poor properties in bad neighborhoods … even with overwhelmingly fabulous managers.

On paper, great properties in nice neighborhoods don’t sizzle as much in terms of returns, but they make life much more enjoyable and perform more consistently.

Want a relaxing retirement? Don’t get headache properties. We’ve learned it really is true that you get what you pay for.

The properties you invest in should be properties you’re comfortable holding forever … properties you’d be comfortable having your children manage.

Many new investors start out looking at lower-priced, lower-class properties, and then move to the A- and B-class properties like we did.

We think perhaps investors should turn that paradigm around and start with the low-hassle, low-risk properties, then work their way to the harder-to-manage lots.

Choosing a successful market

John strategically picked the Dallas market to invest in. So, we asked him what other markets he’s doing business in, and why.

John started out in Kansas City and St. Louis with AREI, and he says that area is a solid place to make an investment, especially in B-class properties. Because property taxes are lower, investors may see a higher rate of return as well … although the area is not experiencing the same exponential growth as Dallas.

John’s goal is to stay out of C-class properties, although investors who already have a few properties in their portfolio may want to consider investing in different types of properties to get nice blended returns.

Dallas will eventually top out and get too expensive. John thinks when that happens, investors will see secondary markets start to explode … which is why he is always on the lookout for the next best place to invest.

Get educated

We loved having John on the show because Dallas is absolutely on our short list of great places to park your money.  

With solid A- and B-class neighborhoods, high-caliber tenants, increasing demand, and a diverse job market, we’re not the only ones interested in Dallas. Now is the time to get in, while you can.

But investors new to Dallas need more than a good property … they need boots on the ground. A solid market plus a solid team is a killer combination.

Interested in seeing how John and his team acquire and rehab properties? Check out AREI 101, an education series by AREI chock-full of helpful information. And listen in to the show to get access to a special report John’s compiled just for our listeners.

Whether Dallas is the market for you or not, we hope we got you thinking about the difference between a property with the best possible cash flow on paper, and a property with more modest returns and significantly less headache.

Want to see Dallas for yourself? Get on the advance notice list for our Dallas field trips here so you can be the first to know about upcoming trips with The Real Estate Guys™.

Like we always say, effective action requires education.


More From The Real Estate Guys™…

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources to help real estate investors succeed.

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