Multifamily Investors Finding Big Money Outside Of Big D

June 6, 2019, Jack Stone, DMagazine - “I need a good deal.”  Those are the words I hear every day.  As a multifamily broker in one of the hottest markets in the country, good deals are becoming more difficult to find.   Dallas-Fort Worth has added more than 160,000 jobs in the past year, leading the nation in job growth, and the region adds 360 residents per day–all of whom need somewhere to live.

But with close to a decade of unprecedented growth and national and international buyers flooding into the market, investors are finding it more difficult to make the returns they’ve become so accustomed to.  Over 25,000 units were delivered last year in DFW. 

Many of these brand-new properties are having to offer two months of concessions just to compete with each other.  Those concessions have also put pressure on B class properties susceptible to losing tenants to new construction offering heavy discounts.

There are also fewer “value-add” opportunities.  Buyers have historically made impressive returns on “value-add” B and C class assets.  But there are fewer properties left that haven’t already been picked over.  Don’t get me wrong, Dallas is still hot and continues to offer tremendous opportunities, but with new construction and fewer “value-add” deals left, investors are seeing less returns.

There’s big money to be made just outside of Big D, in secondary markets.  In addition to DFW, my team specializes in secondary and tertiary markets where the cash-on-cash  is often north of 13 percent.  To put this in perspective, the average cash-on-cash for an A class multifamily asset in Dallas is 3 percent and for a B or C class asset is 8 percent (with interest only debt). In other words, in a world where cash flow is king, buyers don’t have to just look at Dallas.

This leads me to El Paso.  That’s right. El Paso.  I recently closed on three B class assets totaling over 780 units there.  El Paso is the 18thlargest city in the country, the 3rd safest, and incredibly well-diversified–yet, it’s under the radar.  And El Paso isn’t alone.  There are plenty of other markets outside of Dallas that offer attractive alternatives. 

Markets like Midland and Odessa have made national news with average rent prices increasing by 30 percent last year.  Denton has added close to 25,000 residents over the last year and has seen a surge of development.  Tyler, the largest growing market in East Texas, attracts more than 3,000 residents a year and, with a diverse economy, it’s poised to have positive growth. 

Just north of the border, Oklahoma City has diversified its employment base outside of energy.  The city continues to invest in its urban core and multifamily sales volume surpassed $400 million for the second year in a row, attracting many out-of-state investors.  Finally, Waco is expected to grow by 22.4 percent and double its population by 2040.

Here’s the takeaway: Next time someone tells you they need a “good deal,” tell them to jump in the car and take a road trip.  There’s plenty out there.  You just have to look.