Investor Story 20: An Old Duplex in Garland
This is a Australian client who prefers to invest in duplexes. Duplexes are a completely different type of investment. She was one of my first clients when I started my realtor business. She is in her mid-30s, and she picked Dallas simply because I live here and she trusted my judgement. Below we interviewed her about her experience owning this duplex in Dallas.
Question: Let’s discuss why you invest in Dallas.
Answer: The biggest reason was because you moved to Dallas, otherwise I would have never even heard of Dallas. However, the more I researched Dallas, the more I liked about it. It showed all the positive signs of a fast growing city, stable economy, and lots of new job opportunities. It would become a mega city very soon. Within three years of my first investment, Dallas’ population increased by one million people. That was just amazing, and it formed a very strong base for property appreciation.
Question: Let’s talk about this duplex you bought.
Answer: This was my first investment in the U.S., and to be honest, we never heard of a duplex in Australia—it was impossible to own a duplex in Australia as it would be too expensive. When you brought this opportunity to me, it took me a while to understand that I actually owned two units, side by side, instead of just one unit. The rationale was that I would have two income producing properties under one roof, and that was a very unique concept to me.
Question: Anything you found helpful during the purchase process?
Answer: Yes, thanks for your help. Duplexes actually require two separate inspections, one for each side. This duplex was unique as one side was three-bedroom, the other side was two-bedroom, and both had two bathrooms. We found the roof was very old, and we requested the seller to replace the roof. You had requested them to replace the roof or we would terminate the contract, and they replaced the roof right at 11:50 p.m. on the last day of our Option Period.
Question: Any unique issues with duplexes?
Answer: Yes, it can be both positive and negative. The tenant on one side of the duplex was a very nice family, and they kept the property really clean. But the right side of duplex was not, and in the end, the better side of the duplex left because of their disputes with the next door neighbor. You can’t choose your neighbor when you own a duplex, and tenants can dispute over water usage.
In our case, one neighbor was using too much water as they had six people living inside the duplex. This particular duplex did not have a separate water meter installed, so the neighbors split their water bills. They had been arguing about the water bill every month, and it got to a point where they became enemies. It was a shame to lose that tenant as they were really good tenants.
Question: Why did you decide to sell the property?
Answer: Older duplexes do have certain issues. As you have identified them, this property had multiple. First, this property was located on a creek lot, and while it enjoyed nice creek views, the soil was much softer, and it caused foundation issues. Also, tenant turnover rate was very high for this area—this area was full of duplexes, in fact, the entire street was duplexes. When it comes to resale, we could only sell to other investors, and not to homeowners. We think we can achieve better capital appreciation in investing in areas where there are more homeowners.
Question: Can you explain some hidden costs when investing in a duplex?
Answer: It depends on the area and where you invest. Many duplexes have a much higher tenant turnover rate, and every time they leave, you may need to spend extra money in cleaning and updating again. Also, everything is double the cost—you have two HVAC units to worry about, which means you have two ACs and two furnaces, two hot water heaters, and two times more the appliances to be concerned with.
In one particular year, both dishwashers were broken, and in another year, we had to replace the hot water tank for both sides. Older properties would face more maintenance issues, so it is something you need to factor in.
Question: What did you do after you sold this duplex?
Answer: Thomas did a great job. He was able to find a buyer within one weekend. We had six offers, all from investors. Thomas’ team did a renovation to one side of the duplex right before we listed the property on the market, and he used that side as the “showcase,” so that it would be easy to show the property to buyers instead of waiting for tenants’ approval. On one particular day, he showed 20 people, and buyers were lined up outside the property to see the property.
After we sold the property, we used the funds to buy another property in Burleson. We bought into a nicer neighborhood at around $160,000, and we are still getting $1,600 per month in rent. In terms of rental yield, it may be slightly less than the duplex, but it is a much better neighborhood, much better school, and the quality of tenant is also much better. This tenant is already asking if she can buy this property eventually as she has sufficient income to do it.
Investor Story 21: Investor Story from the Mountain State
About This Client:
This is an interstate client. He started investing in the Dallas area in 2016, and he bought several properties under $150,000. Below he shares his experience investing in Dallas.
Question: Tell us why you are interested in investing in the Dallas market.
Answer: Some of my friends are Clients of Thomas—he had bought properties for a few of them. I also have relatives living in Dallas, and their realtors do not have much experience dealing with interstate investors. They just know one or two areas, so we decided to use Thomas’ team as their speciality and experience is in helping interstate and international investors.
Question: Tell us about the two properties you bought in Dallas.
Answer: Thomas was upfront about the Dallas market. He told us that there are many investors coming to Dallas, and he warned us that it may take several months before we bought our first property due to competition. He suggested Arlington, Mesquite, and Burleson as three possible areas.
Our first property was in the Arlington area but assigned to Mansfield ISD. The assigned elementary school was pretty good. The property was not a big property, just around 1,300 square feet, and it did cause an issue as it was too small—the appraisal value came below our purchase price. Thomas used the appraisal and helped us to save $5,000 on the final sale price.
Thomas leased out the property within 5 days. He recommended leasing to a lady who owned her own business. He checked on her sales receipts and he also drove to her business several times to check on business success. She owns a restaurant business, and Thomas went there and spoke to her customers about the business. This turned out to be a great tenant; she always paid on time, and even replaced carpet with laminate floors herself.
Our second property was in a nearby area as we noticed this area had very strong rental demand. The second property was a similar size, but assigned to a different school district. It was leased out to a couple with very young kids, but they did not care about school district at that moment. They liked the property due to the location to work and also closer to their family. They moved to Dallas recently from the East Coast and really liked the property.
These properties were both built in the early 1990s. We needed to do routine tune ups on HVAC systems, as they were getting old. I hope they can last for few more years. We did need to service the system last year as it was leaking into the hallway.
Question: What will be your suggestions to other investors in Dallas?
Answer: Persistence. It takes 7-10 offers to get one property in Dallas—it is a very tight market, and inventory is very low, especially at this price range. On some of the deals we submitted offers, there were 20 other offers. I needed to rethink my strategy, and Thomas gave me a good suggestion when he said I could either increase my budget level to $175,000, which would open up more opportunities and rent would go to $1,600-$1650, or I could start looking at areas where school districts may not be as good as Mansfield ISD.
I noticed many renters don’t even have kids, so the school district did not matter that much. I also noticed that some areas have new communities, and they are building new schools—these are emerging areas that could see their school ranking improving in the future.
Investor Story 22: Every Investor Has Different Strategies
In our business, we came across different types of investors with different requirements. Some had very unique investment strategies. Below I will outline some of their strategies:
Type 1: Wholesale / double-closing investors only
We don’t work with this type of client anymore as it was too time consuming, but some realtors still work on this type of deal. These types of investors would purchase property, then hold under option period for as long as possible while looking for another buyer at the same time—hence the term “double closing.” This means they would buy and sell the property at same time to the second buyer. It is a very confusing process, and the first buyer would make a quick profit from the difference between the first and second buyer. The majority of these deals fail, as this is a very opportunistic approach, and most buyers find it very confusing.
Type 2: Haunted house investor
I was approached by an investor who was referred to me by an accountant. This was an interesting case. This investor only wanted to buy houses that may be haunted, and he had a very good system in place. He would search for properties that realtors had disclosed there were violent crimes committed previously, and he would also use a website called hauntedhouse.com to find specific properties. It was a novel idea, and he was successful in several states, but I did not take this client as it was a very difficult process. However, I did think he had a very interesting system to identify opportunities.
Type 3: Broken roof, crappy roof
This investor would drive around nice neighborhoods and look for properties that had a broken or crappy roof. His rationale was that in good neighborhoods homeowners usually would replace the roof if there were issues, so if these roofs were not replaced, then maybe the owner was having financial issues and that could be an opportunity. It was an interesting strategy and he did find two opportunities using this strategy—one family was sick and they could not afford to repair the roof at the time, and another family was going through a divorce. However, neither wanted to sell their property. I think he did find a deal after 12 months, but it was a very long process, and I did not take him as my client in the end.
Type 4: Seeking properties with HOA issues
Sometimes homeowners owe dues to the HOA so high that the HOA has a right to foreclose their property. It was a complete surprise to me when I heard about it until I saw one property foreclosed by the HOA as they owed $5,000 in HOA fees. Once again, this was a strategy an investor wanted to explore by identifying owners that may have financial issues. He tried to contact individual HOAs to find delinquent HOA members. The strategy was very similar to the tax lien properties. HOAs do not disclose private information, and therefore, his strategy was not successful.
All these investors have one thing in common: they look for good deals from different angles. They may work sometimes, but it will require a persistent approach. This is basically the same as sending mail out to homeowners and asking if they want to sell their property. They offer a lower price, usually paying in cash or using a hard money loan.
Investor Story 23: A Haunted Property in Garland
About This Client:
This is one of my biggest clients. He has purchased around 20 properties in Dallas to date, and is still adding more to his portfolio. This is a unique case, and I want to share some information about it. As a realtor, I view on average 500 to 600 properties per year, and sometimes I would view 20 properties in one day. Just when you thought you had seen everything, there would be something new that comes up.
About This Property:
The property was located in Garland, a small three-bedroom property. It needed a lot of updates, but the price was 20% below market price, and many buyers wanted it. My client had the property under contract, and he was preparing a renovations estimate. In Texas, we also have an Option Period which is generally 7 to 10 days—you have the right to terminate the contract within this period, and you would lose a nominal option fee, which is generally $100 to $300. This is considered small compared to Earnest Money.
We hired an inspector to check on the property. I had known this inspector for many years, and she had inspected 100+ properties for me. I knew she had this “special ability” as she talked about it before. This was a rather strange experience for both of us. It was a bright, summer day in Dallas, and at 1 p.m., the temperature was already 100°F, a typical hot day in Dallas.
I arrived 20 minutes late, and she had started the inspection at 1 p.m. She called me at 1 p.m. and asked if I was inside the house and around the bedroom area. I told her I was still on my way there. When I arrived, she was waiting for me outside, and she started asked me some strange questions.
“Do you believe in ghosts?” she asked.
I said, “Yes, and I have actually seen them before.”
“Do you know if anyone passed away in this property?” she asked.
I said, “It is an estate sale, so I assumed someone did pass away. I know it was a lady.”
“Was it an old lady?” she asked.
“Yes, she died all of sudden without any warning,” I responded.
She then told me she saw her walking across the walls from the bedrooms and into the garage area. She walked into the walls and came out into the kitchen and looked at her from the corner. She could feel the temperature dropping, and she could see the lady was dressed in a red dress.
This put me into a weird position when I met with my client. We have a disclosure requirement if we know something has happened inside a property. If I have seen a listing disclosure mentioning, “violent crimes occurred in this property five years ago,” then I have a duty to disclose if I know there was a homicide.
In this case, it was a description from my inspector, and the deal was very good, and my clients were excited to renovate this property. What should I do?
On the next day, I decided to tell my clients exactly what my inspector had told me—I told them while I felt nothing was inside the property, there were some odd things that happened to me. Someone had put a clown doll in every room and the garage door, and as soon as you walked into each room, the doll would drop down and it would look at you.
While the husband did not believe in paranormal activities, his wife believed in these activities, and she was very nervous about owning this property. My client was worried that I would be upset if they terminated the contract as it meant I would not make any commission, and my inspector apologized to me that she had told me what she saw. However, at the end of the day, I would not want my clients buying a property they would not be happy in. Later tenants fled the house because it was haunted.
Investor Story 24: Seller Painted All Walls Brown!
About This Client:
As an experienced real estate investor, this was his fourth investment property in Dallas area. This was an interesting case study as he renovated the property entirely. It increased property value and increased the rent substantially.
Below is a Q&A with the Client:
Question: Tell us about your real estate experience in Dallas.
Answer: This was my fourth investment in Dallas—I bought a condo, a townhome, a house prior to this one, and this was my fourth investment property. I really like Dallas as it has all the positive signs for an investor. It has very strong population growth and new jobs created from all the companies moving here. I like Garland as it is close to Plano and Richardson, and I already own a property in Garland that was leased out very fast.
Question: Tell us about this particular property, and anything unusual about it.
Answer: This is a three-bedroom, two-living room, two-dining room, and two-bathroom property. It was built in the 1970s. Back in the 1970s, many homes had two separate living areas (one used as the living room and one used as a family room), and they also had a formal dining room. Thomas showed me a property he sold in the same neighborhood that converted the second living room into a fourth bedroom, which I thought was a good idea.
This property used to be owned by an older lady—she was 82 years old, and she loved dark brown, so she painted all the walls, doors, and trims a dark brown color. She used the wrong type of paint which left a bad odor, and the rain had washed away the exterior paint. We told her not to paint the rest of walls as we needed to repaint them anyway, but she still finished all the painting right before closing. It was unexpected, and luckily, my painter did not charge me extra after I told him what happened.
Question: Tell us about the renovations you completed
Answer: During the first year, Thomas and I discussed if we should create a fourth bedroom or wait and see first. We decided to finish some quick renovations first—we changed carpets to laminate floors in the living room areas, and we repainted walls. We leased the property out right away.
In the second year, Thomas started his own property management and renovation business. We converted the second living room into a fourth bedroom, which was quite an easy job. We also updated our kitchen to granite countertops and added new pot lights to the living room as it did not have lights before. We then marketed this property as a four-bedroom property, and we received seven applications. Thomas was able to sign a three-year lease with rent at $1,600, $1,650, and then $1,700 per month.
Question: Tell us about your financing strategy on this property.
Answer: We used a bridge loan facility for the initial purchase as we obtained a line of credit of $1 million for us to buy properties that needed renovations. This was a good example of how we could use this loan to do it on a short-term basis—we used the facility and refinanced with a conventional loan as soon as the lease was signed. The advantage in using a line of credit was that it allowed us to purchase properties without waiting for an appraisal, and it gave us a competitive advantage in the Dallas market.
The result was excellent from this property as a recent appraisal showed this property is now valued at $230,000 to $250,000. After renovation, he had increased the rent from $1,195 to $1,650 per month, which was an increase of almost $500 in rent. He then used the new valuation to do refinancing and used the additional equity to invest into another property.
Photos BEFORE Renovations
Photos AFTER Renovations
Investor Story 25: Examples How Colors are Important
These are some recent examples where we had repaint the walls. One common problem we found was owners usually had their own personal preference in colors, and they were usually too customized. We recommend our clients paint walls neutral colors. Wall painting is considered as a very good investment as it costs very little and has a very strong visual effect.
Here are three properties we did in October this year:
Property 1: Grand Prairie
This was a beautiful property in the Mira Lagos Subdivision. It had four bedrooms, an open plan layout, and I especially liked the kitchen area which had an island and many shelves. The problem was the wall colors as the previous owner used way too many colors. The fourth bedroom was painted a blood red color, which was just too much for many tenants. The previous owner used this color, and they even painted the ceiling a bright red color. The color was so uncomfortable I advised my client to paint the room a neutral beige color, which really helped with the viewing.
Photos BEFORE Renovations:
Property 2: Mansfield
This was a beautiful four-bedroom property that we sold in October to a Californian investor. It had a nice open plan, and I liked the kitchen design and additional formal dining room. The property was priced well, but it was having difficulty in finding a buyer at the time. It had way too many colors throughout the property—they even painted door frames and doors in different colors. After showing the property to six prospects, we received the same comment that the colors were too much. Additionally, this property used textured paints.
We had a discussion with our client and painter, and we decided to repaint all the walls including all the textured walls—it cost an additional $500 as more work was required for textured walls, and the kitchen walls were painted purple initially. The visual impact was amazing, and we leased out the property immediately to a couple who saw the property the day after we finished painting. Once again, we used a neutral color for all the walls. We did consider painting the fireplace a different color to provide an accent effect but didn’t do that in the end.
Photos BEFORE Renovation:
Photos AFTER Renovation:
Property 3: Arlington
This property had big windows and high ceiling heights, so it was already a nice property with plenty of natural light inside. The problem was the previous owner really liked to burn infused candles, and they had candles in every room. Over time, a lot of ash had built up in the carpet, and it left stains from the smoke. They also moved their furniture a lot, so you could see marks on every wall. We discussed three options with the client when she bought the property:
- Option A was to pick and choose walls to paint—touching up walls where we saw marks and stains. This was the cheapest option, but the problem was once you touched up one wall in a room, the rest of the rooms would look different.
- Option B was to paint all the walls, and then decide whether to paint the trims and doors.
- Option C was to paint all the walls, doors, and trims—this would be the best option but also the most expensive option.
It was a difficult decision, so we advised the client to choose Option B. Once completed, we just needed to repaint the back door as it had many scratches. We picked a slightly darker beige color, so that it blended with the trims and door frames better. This saved the client about $1,500 in painting costs as it was a very big house with 25 doors.
Investor Story 26: My Chinese Investor’s First Five Properties in Dallas
About This Client:
This is one of my portfolio clients. This is a case study on his first five properties in the Dallas area. This investor is adopting what I mention as a High-Medium-Low portfolio approach—a method that mixes high-end, medium-end, and selective lower-priced properties. The lower priced properties are designed to produce a higher rental yield, but they also tend to be more risky.
Below is a Q&A with the Client:
Question: Please let us know why you started to invest in Dallas market.
Answer: We did a lot of analysis on properties in the United States, and Dallas was definitely the best market to invest in as it has very strong economic fundamentals and strong population growth. We did not like Houston as it had no zoning, too many apartments, and its economy was too dependent on the oil and gas sector. Houston also had problems with hurricanes. We went to both cities and Dallas was much more impressive than Houston.
Question: Where did you buy for your first portfolio?
Answer: We bought properties in Garland, Mesquite, and Rowlett, as these were closer to where Thomas lives—that was really the main reason, and Thomas also owned properties in the areas we had invested in. We bought properties in the same neighborhoods where Thomas had invested in as well. He was using his personal experience and knowledge to explain what was needed and what kind of issues we may encounter.
The first property was in Garland—it was near Richardson / Garland. We wanted to buy a property in Garland that was assigned to the Richardson School District, but those properties were very hard to come by. We ended up investing in a 2,000-square-foot property in Garland. It was already a four-bedroom property, and it was easy to lease out as there were very few one-story, four-bedroom properties available in the Garland area.
The second property was in Mesquite near where a lot of Thomas’ clients had invested. This was an interesting property—it had many strong color contrasts with red, purple, and brown walls; almost every room had a different wall color. We painted all the walls the same color as it was too much when we showed prospective tenants. We liked the property as it had a nice kitchen layout, and the master bathroom had a nice layout with a very large walk-in closet and very large shower area.
The third property was back in the Garland area and was closer to the Garland-Plano border. Thomas showed us what had been developing in East Plano, where many insurance companies had established in East Plano, and this property was also very close to Richardson’s Telecommunications Corridor. This was an updated three-bedroom property with a covered front porch. It had a big open living room and a formal dining room. The only disadvantage was that the kitchen was quite small and unable to expand further.
Question: What was your financing strategy after you bought your first three properties?
Answer: We bought properties under an LLC structure. By putting them in an LLC, we were able to discuss a cash-out option with a local bank. Most banks do not lend to foreign nationals, but as an LLC, they would look at cash flows, and based on cash flow, they provided us a loan on 50% loan-to-value ratio. This gave us an additional $250,000 for us to expand our portfolio.
Question: What about your fourth and fifth property?
Answer: Thomas mentioned we should “step up” the value chain and start looking at properties in other areas. Our fourth property was in Plano. It was an older home, and we did updates to the property. It was already a four-bedroom property, with two bathrooms and two dining areas. It was a good investment, and we were able to find tenants very quickly. Rental yield was not that great in the Plano area, but this property was quite close to many employment centers in Plano, so it had good appreciation.
Our fifth property took a while, as we wanted to diversify into another area—we decided to invest in the Rowlett area. It was near Garland and the Firewheel Mall, one of the biggest shopping malls in the Dallas area. It was a nice area for families as it was near lakes. We leased the property out very quickly to a family of three.
We gained a lot of experience from these five properties. This helped us to build our second and third portfolio—we applied the same financing strategy, gradually building up our portfolio to 10 properties, and we are still growing each year.
Investor Story 27: Compare Two Four-bedroom Properties in Arlington
We sold two properties to two investors in October 2018. They were very close to each other and each had four bedrooms—it was quite an interesting comparison, as the layout for both properties were entirely different. We showed the same prospects both properties and received different feedback.
Property 1: Lower Price with Smart Layout
The first property was in Arlington, assigned to the Mansfield ISD. It was the smallest property in the area. My client was an out-of-state investor, and he picked this property as it had four-bedrooms, even though the total size was just 1,450 square feet.
The layout was smart as it did not have a front foyer area. You would walk into the living room as you opened the front door, and the dining area was right next to the kitchen. The kitchen area was an L-shaped area with two processing areas—it was a good design, not wasting any space in the kitchen.
It still has a separate laundry room, and all bedrooms were good sized bedrooms. The master bedroom was a decent sized bedroom, and all rooms were square shaped. There was just one hallway area for the entire house.
The disadvantage was it did not have a separate shower area, even though there was sufficient space to add one—this property was a good example where adding a separate shower area would improve the property value. Another disadvantage was the appliances and faucets were old, but these could be replaced to make the property to look better. This builder did not install a garage opener nor a sprinkler system.
Overall, it was a basic house. It was sold for $172,000, and we leased the property out at $1,590 per month. Several prospects did mention they were disappointed that it did not have separate master shower area, and several mentioned they preferred to have a property with a proper front foyer. Almost everyone was surprised when we I told them this property was just 1,450 square feet, and some thought the property was close to 1,700 square feet.
Property 2: Four bedrooms Plus Two Dining Areas in Arlington
In the same week, I sold another property to an out-of-state investor. This was a beautiful four-bedroom property in the City of Arlington, within walking distance to the high school and elementary school. This was an entirely different type of design. It was $210,000, and we leased out the property at $1,800 per month to a family who signed a two-year lease. They moved into the property on the day this property closed, so my client was able to generate income from day one.
It had a very nice master bedroom, with a nice master bathroom. The master bathroom was the same size as the other property, so it was an interesting comparison for prospective tenants to see the difference.
Interestingly, the master bedroom was also identical in size, and identical in shape. In terms of usable space, I would say both properties were about the same. This property had front entry into the foyer area, then a separate bedroom off the main entrance which was used as a study by the previous owner.
The kitchen was the main selling point—it was an open plan layout, had a nice island in the middle, and a vaulted ceiling for the kitchen area. This property also had many bay windows, both for the living room and dining areas, which was a nice attraction.
My tenants’ budget was $1,600 initially, but as soon as they saw the property, they fell in love with it and decided to increase their budget so that they could get the property.
Investor Story 28: An Australian Investor Buying Three Properties for Her Children
About This Client:
This is an Australian Chinese Investor who had already been buying properties in the U.S. This is her long-term investment plan, will transfer her portfolio to her children when they turn 18.
Question: Tell us why you started investing in U.S. real estate.
Answer: The U.S. real estate market is very attractive—it has a strong economy, consistent population growth, and its prices are very affordable compared to Australia. The U.S. also has very diverse industries, and its real estate market is not speculative. Also, rental yield is much higher in America.
Question: What have you invested in the Dallas area?
Answer: I have invested in three properties in the Dallas area—they include one in Garland, one in Mesquite, and one in Burleson. I am hoping to buy another two properties through financing.
Question: Please let us know about your properties in Dallas.
Answer: One property is a duplex, with both sides producing rental income. The second property is an older property in Mesquite which has a good rental yield—it is a very small property, just around 1,100 square feet, but it does have two bathrooms and a double door garage. The third property is in Burleson, an emerging area with an excellent school district—that was our new acquisition in 2017, and we leased to a senior nurse working in a nearby hospital.
Question: Compared to Australia, what are the major maintenance costs in Dallas?
Answer: Most properties in Australia do not have air conditioning or heaters, even though it is very hot in Australia. The majority of homes in America have ACs and heaters, even cheap, small homes. I have seen a $20,000 home still have a full HVAC system. Americans do use AC and heaters a lot, and when you own multiple properties, the chance to replace a major HVAC system has greatly increased. We have replaced two ACs and two hot water systems already, but they do last long—their lifetime is usually 15 to 20 years.
Question: What kind of rental yield are you getting?
Answer: Rent has been increasing in the Dallas market, so we have been consistently achieving between 10% to 12% gross rental yield for our properties in Dallas. The best yield was for our small property, which we were getting close to 15% rental yield. Our new property in Burleson is getting 12% yield now, and it is also a bigger property, so we are likely to increase rent to $1,650 per month next year.
Question: Where would you buy as your next target?
Answer: We want to diversify and invest into a more growth-oriented area, so we are considering buying a property in the Mansfield ISD area for around $200,000 to $220,000. That area seems to be getting a lot of good attention and is rated as one of the best cities to live in the U.S., with very good schools and also close to many employment centers in the Arlington and Grand Prairie areas.
Question: What is hardest part about buying in Dallas?
Answer: Dallas is a very different market compared to other cities. In some cities, you can negotiate 10% to 20% if you are in a buyers’ market such as Ohio. Dallas is entirely different as it is undersupplied, and its real estate inventory cannot catch up to population growth. The hardest part is competition—multiple offers are very common in Dallas, and you need to act very quickly, usually within first 72 hours, in order to buy a property.
The good thing is Texas does have an Option Period, so once we have a property under contract, we still have 7 to 10 days to negotiate on final terms, and if we do not agree to the terms, we can terminate the contract within this Option Period without losing our earnest money.
Investor Story 29: Chinese Investor Story – How I Grew My Portfolio in Dallas
How I Bought My First 10 Properties in Dallas in 12 Months
This was one of my portfolio clients from overseas. He sold his property in China and bought three properties with cash. He then used refinancing to cash out and used the funds to buy another three properties. He combined the collateral and bought another four properties through refinancing. Some people refer to this strategy as a pyramid—you utilize your assets to build up your portfolio.
Stage 1: First three properties using cash
My client bought his first three properties with cash. His strategy was to build up an initial portfolio, then apply for refinancing to cash out equity from his portfolio for his next purchase. For this purpose, he was picking properties that were in good condition without much repair or renovation needed.
Property 1: This was a newer property in Garland. It was near the Plano-Garland border and was valued around $180,000. We placed a tenant for him at $1,650 per month which provided an immediate cash flow for him. The only update needed was repainting, and we changed some carpets for him.
Property 2: This was a property in the Mansfield area, and he paid $170,000 for this three-bedroom, two-bathroom property. This was leased out at $1,600 per month. It was a newer property built in 2010, and it was leased out within a week.
Property 3: The third property was in southern Mansfield. It was a nice four-bedroom, two-bathroom property with an additional dining room. The biggest advantage was that it was a four-bedroom property, so it was very popular, and we received several applications. We leased out the property at $1,650 per month.
Once these three properties were finalized, he was able to secure refinancing and cash out 50% of the appraisal value. He took out $300,000 from the loan and used that to buy the next three properties.
Stage 2: Second Phase to buy fourth, fifth, and sixth properties
Within three months of Stage 1, my client was looking for the next three properties. He used a similar strategy but bought smaller properties this time as he was looking to increase rental yield for his portfolio.
Property 4: He bought a small property in Mesquite. It was priced around $130,000, and it was leased out at $1,250 a month. It was a much smaller property, only around 1,300 square feet, but we did increase the rent to $1,300 per month in the second year.
Property 5: This was also in Mesquite, and it was an interesting property. It was an older property—the initial design was only 1,000 square feet, but the previous owner added a second bathroom in the garage, so it was three-bedroom, two-bathroom, two-garage property. The additional bathroom was the key feature for this area, and we leased out the property out at $1,000 per month. The purchase price was just around $90,000. The rental yield was good for this property, but it was a very small home.
Property 6: He already used around $240,000 from the $300,000 he cashed out from his first portfolio. He invested another $100,000 and combined it with the rest of his capital. Using this, he bought another property in the Mansfield area. It was very similar to his third property, with a similar layout, but attended a different school. He received similar rental income at $1,600 per month.
Stage 3: Bridge loan to buy his seventh and eighth properties
My client then used the line of credit from a bridge lender to buy properties that required repairs. He was able to get better deals and able to close all four properties within 60 days. You could not do this with a conventional loan. Once the properties were renovated and leased out, he refinanced his bridge loan with conventional loans.
Property 7: The seventh property was a foreclosure property in Plano. It required a new foundation and a new roof. Being a foreclosure property, the seller (the bank) would not do any repairs, so this property was left to either a cash buyer or investors using a bridge loan. He bought the property, replaced the roof, and did a complete renovation inside. The foundation actually turned out to be okay, as my technicians suggested installing a soaker hose and actively watering the foundation first for 12 months. The foundation recovered by about 50%. The total cost was around $200,000 for this property.
Property 8: The eighth property was also purchased using this equity line and he used the bridge loan to buy a property in Rowlett. This property required substantial renovation inside. It needed new flooring, new bathrooms, and a new roof. His total cost for this property was around $180,000.
Stage 4: Final Stage
At the time when Properties 7 and 8 were completed, it was time for refinancing. Here are the numbers:
Property 7 and Property 8 had a combined value of $450,000. He refinanced the bridge loan and was able to extract an additional $50,000 from the lender as he had remodeled both properties extensively.
Properties 4, 5, and 6 had a combined value of around $500,000, and he was able to refinance again and cash out $250,000 equity based on 50% loan-to-value ratio.
This means that through a second refinancing, he was able to cash out approximately $300,000 in new capital for his next purchase.
Stage 5: Properties 9 and 10
This was the final stage to reach his 10-property portfolio. Once again, we picked two properties—one around $180,000 and one around $120,000. The $180,000 property was in a better school district, which we rented out at $1,600 per month, and the smaller property already came with a lease, so the property had cash-flowing from day one. This was actually one of my other clients’ properties.
At the end of this entire process, my client was able to own 10 properties within 12 months, and still have two properties (No. 9 and No.10) available as collateral as they are still free & clear. He used those two properties in his second portfolio which consisted of another six properties, which we will discuss later. He basically applied the same strategy repeatedly and successfully.