For those of you that do not know. We work with boutique investors who buy distressed multifamily property to be revitalized in up-and-coming neighborhoods. For these types of investors we really like the urban neighborhoods East and West of the Dallas CBD. More specifically -- North Oak Cliff/Bishop Arts and Old East Dallas.

Why these neighborhoods? They provide a value proposition unique to the rest of Dallas. Density. These neighborhoods provide great walk-ability and have unique offerings you cant find in the sprawling suburbs. Density drives rent growth and the limited volume of dense urban neighborhoods enhances the value.  

Both neighborhoods have seen tremendous growth. A large portion of East Dallas is further along in its gentrification growth cycle. Bishop Art's is definitely no secret, but a few years behind.

I always describe the East Dallas demo as being of the 25-32 year old professionals with new puppies and significant others.

Bishop Arts is trendier with unique restaurants, bars and coffee shops/breweries galore. An older crowd but could see that changing with time.

Both neighborhoods are surrounded by high-end subdivisions situated just on their outskirts.

For this research East Dallas consists of Henderson Corridor, Lower Greenville/M Streets, and Old East Dallas. Oak Cliff/Bishop Arts consists of Lake Cliff, North Oak Cliff, Bishop Arts, Kessler and Winnetka Heights.

Onto the numbers (all data is from 2-4 unit investment properties).

                                  East Dallas               Oak Cliff/Bishop ArtsPrice/sq. foot$181/sf$162/sfPrice/unit$205,188/unit$136,750/unitRent (2bd/1ba)$1,598$1,375GRM11.9312.47Cap Rate5.38%5.41%

After reviewing the numbers the neighborhoods stack up evenly on a return basis.

Bishop Arts: ~12% cheaper with more room for rent growth. The city is incentiving growth via opportunity zones and direct capital investment. There is a larger inventory of distressed properties with opportunities to capture forced appreciation.

East Dallas: Less risky, more stabilized neighborhood. Naturally this side of town is going to continue to grow.

Bishop Arts: More risk. Rent growth is expected but difficult to time. A majority of the distressed properties are on rough streets. More difficult to find great tenants.

East Dallas: Costly. As expected, the further along in gentrification, the more competition, the higher the prices. East Dallas has a ton of out-of-state capital circulating. Surge in demand has led to an explosion of supply. There is new development seemingly on every corner.

At the end of the day you have two major question to ask yourself. (1) Is the additional risk worth 12% in purchase price?

Data disclosure:

Access to data here (bishop arts) and here (east dallas)

Comps on 2-4 unit sales in the last 12 months. 30 properties in East Dallas and 22 properties in Oak Cliff. All data came from MLS, CoStar, Hotpads, and Craigslist.