Which Market Do I Favor: Denver or Dallas/Fort Worth?

Some people wonder why I have begun investing in DFW (Dallas/Fort Worth) when I already have such a broad portfolio in Denver.  It is because I understand both markets, and I already know how to start an out-of-state investment portfolio.  The truth is, I love both markets.  Denver has taken off, and my property values have skyrocketed.  Nonetheless, I’ll get right to the point and admit DFW is my favored market right now.  Though there are lots of ways to make money in real estate, and some investors are still finding deals, Denver has just become too speculative of a market for me right now.

The DFW market is strong too; however, the cap rates are more favorable, and the cost of entry is significantly lower than Denver for the same class and vintage of property.  Moreover, I see evidence that there will continue to be a demand shortage in DFW while Colorado seems to be balancing out.

LET'S LOOK AT THE NUMBERS...

2015 US Census estimates were recently released:

  • DFW added 148,466 people from 2014-2015.  2.13% growth.  DFW has 7,102,796 people now.
  • Denver added 60,072 people from 2014-2015.  2.18% growth.  Denver Metro now has 2,814,330 people now.
  • The population growth is accelerating in DFW and Denver too

Using ARA’s assumption that 63.6% of the population owns a house (36.4% are renters), and assuming two people per household, that means:

  • DFW needs 27,017 new rental units per year to keep up with demand.
    • According to YARDI Matrix data sources, DFW has 38,995 units under construction.
    • Assuming 18 months for construction 25,997 units will be delivered per annum (supply projected to be slightly under demand).
  • Denver needs 10,933 new rental units per year to keep up with demand.
    • According to YARDI Matrix data sources, Denver has 22,118 units under construction.
    • Assuming 18 months for construction 14,745 units will be delivered per annum (supply expected to outpace demand by 3,812 units).

In reality, it’s safe to assume a much larger percentage of new residents are renters than the 36.4% national average.  Assuming 50% are renters:

  • DFW needs 37,117 units per year to meet demand (shortage of 11,120 units).
  • Denver needs 15,018 units per year to meet demand (shortage of 273 units).

There are a few significant assumptions made in the analysis.  And, some analysts suggest there is pent-up demand from Millennials living in their parents’ basements.  Regardless, this would likely be a factor in both markets.  Meanwhile, it looks like the DFW pipeline is light, while Denver’s is in-line with future forecasts.

STILL NOT CONVINCED?

There are several other benefits of investing in DFW real estate.  Without having to think too hard about it, I choose to concentrate my investment dollars in Dallas/Fort Worth.

  • The population is projected to grow over a million between 2010 - 2020;
  • The GDP is one of the highest;
  • $0 state income tax;
  • Excellent public school system;
  • Lowest unemployment rate in the country (4%);
  • One of the highest salary potential in the country with low cost of living;
  • The DFW Real Estate market was recession-proof during the 2006-2012.

These are a few of the many attractive features of Dallas/Fort Worth.  It's so far been a great place to start out-of-state portfolio.

ABOUT THE AUTHOR
Mark Walker has been an active real estate investor since 2004, so he brought a wealth of knowledge with him when he founded Luxmana Investments in 2011.  Though he started out as a part-time investor—holding a full-time job in high tech—he fully transitioned into his passion of real estate investing in 2015.

Mark now dedicates most of his time helping new and experienced investors build wealth through residential, multifamily and commercial real estate.

Learn more about Mark and Luxmana Investments at www.luxmana.com.