The DFW market looks different in 2026 than it did two years ago. Builder incentives have shifted the calculus on new construction, the resale market has softened, and investors who underwrite the same way they did in 2022 are going to get hurt. Here is how we think about the two paths — and where each one makes sense right now.
Projected returns are targets, not guarantees. All investments carry risk, including possible loss of principal. This article is informational only — not investment, legal, or tax advice.
How each path works
New construction investing in the residential space generally follows one of two structures. In the first — sometimes called build-to-sell — an operator acquires a lot, contracts with a builder (or acts as the builder), and sells the completed home on the open market. In the second — build-to-rent — the operator holds the completed home as a long-term rental asset. The acquisition basis, the hold period, and the capital structure look different for each, but both paths start from the same place: controlled land cost plus construction cost.
Resale acquisition works differently. An investor identifies an existing home trading at a discount to its as-repaired value (ARV), acquires it, and then either renovates and holds it as a rental — the value-add buy-and-hold — or renovates and sells it, typically called a fix-and-flip. The margin in a resale deal comes primarily from the spread between the acquisition price and ARV, which means finding the right property at the right price is where the work happens.
Neither model is universally better. The right answer depends on market conditions, the operator's cost structure, and what the numbers actually support at the moment of underwriting.
The 2026 supply picture in DFW
DFW issued approximately 52,000 residential permits in 2025 — leading the nation for the ninth consecutive year, according to the Texas Real Estate Research Center at Texas A&M University. That volume has consequences. More completed inventory means more competition among builders for the same pool of end buyers, and builders are responding with a range of demand-support tools: mortgage-rate buydowns (often 2-1 buydowns that reduce the effective rate in the first two years), design upgrade packages included at no added cost, and closing-cost contributions that can run $10,000 or more on a mid-range home (Home Buying Institute; Opendoor).
At the same time, the broader resale market has cooled. The DFW median home price is running around $385,000 — down roughly 1.2% year-over-year — and available inventory has climbed to approximately 3.2 months of supply, according to the Texas Real Estate Research Center at Texas A&M University. That is still technically a seller's market by convention (six months is considered balanced), but the direction matters. A market moving from 1.5 months to 3.2 months in two years is one where pricing power has shifted meaningfully toward buyers, and where exit assumptions need to be conservative.
These two data points — elevated new construction supply and a softening resale market — are not independent. They interact, and understanding how they do is central to underwriting any DFW deal in 2026.
Where new construction tends to win
The build-to-rent model has a structural advantage in this environment that is easy to miss if you only look at construction cost. When builders are competing aggressively for end buyers, an operator who is buying a completed or nearly completed home from a builder — rather than selling to a homeowner — can often negotiate a basis that reflects the builder's desire to move inventory. That basis, combined with the incentives that were already baked in during presale negotiations, can produce an acquisition cost below what a comparable resale property trades for on a per-square-foot basis.
New construction also comes with near-term operating advantages that matter when you are holding a rental. A new home typically carries a one-year builder warranty on workmanship and systems, and a ten-year structural warranty under Texas law. Mechanical systems are at the beginning of their useful life. Energy efficiency standards have tightened substantially over the past decade, so utility costs for tenants tend to be lower, which supports rent levels and reduces vacancy-driven churn. For an operator building a rental portfolio intended to be held for five or more years, lower early-period maintenance costs improve the cash flow picture in the years when debt service is highest relative to rents.
None of this means new construction is a straightforward win. Construction timelines slip. Interest reserves during the build period add to total cost. And if the end-market for renters softens in a submarket that absorbed a large wave of new supply, a projected rent may not clear. The advantage is real but it requires careful submarket selection and conservative rent underwriting.
Where resale and value-add tend to win
The resale model earns its keep through a different mechanism: buying at a discount to replacement cost. In a market where new construction has a defined cost floor — land plus labor plus materials plus builder margin — an existing home that trades meaningfully below that floor offers a margin of safety that a new construction deal cannot replicate.
The forced-equity component of a renovation can also produce a step-change in value that rents or a sale can then capture. A kitchen reconfiguration, a primary bathroom update, or a functional layout correction on a 1970s ranch house can move a property from the bottom of its comparable range to the middle or top — and the spread between acquisition cost plus renovation cost and ARV is the investor's return source, independent of what the broader market does while the project is underway.
EXL has executed this type of value-add acquisition in the DFW market. As one example of the deal type: a Plano single-family rental acquired in 2021 received approximately $55,000 in renovation work that repositioned the property within its submarket and improved both its rental income profile and its long-term hold quality. That is not a projection or a pitch — it is a description of the kind of deal where the resale model works well. The specific return on any given project depends on acquisition price, renovation cost, actual rent achieved, and hold period, all of which vary.
The resale model faces its own headwinds in 2026. With inventory rising and price appreciation stalling, the exit assumptions that worked in 2021 and 2022 — when homes sold over asking in days — are not the right inputs for today's underwriting. Renovation timelines and cost overruns are the other perennial risk. Materials costs remain elevated relative to pre-2020 levels, and contractor capacity in DFW, while better than the tightest periods, is not cheap. A budget that leaves no contingency is a budget that will be wrong.
A risk-adjusted view for 2026
The honest framing for this market is that neither path is a layup. What separates disciplined operators from undisciplined ones is not which path they choose — it is whether they underwrite to where the market is, not where it was.
That means modeling resale exits at current comparable sales with a further discount for additional softening, not at the peak. It means stress-testing rent assumptions against what is actually clearing in the submarket today, accounting for the competition from newly delivered rental homes. It means sizing renovation budgets with a 15–20% contingency rather than assuming the first contractor quote is the final number. And it means being honest about hold period: a deal that pencils only if you sell in 18 months in a market where inventory is rising carries more risk than a deal you can hold for five years and let the cash flow prove out.
EXL's current preference in this environment leans toward build-to-rent over fix-and-flip precisely because a softening resale market compresses flip margins faster than it compresses rental yields. If you are holding a stabilized rental, a 1.2% price decline is largely academic until you sell. If you are trying to flip, that same decline comes directly out of your return — and it compounds with any carrying cost overrun or timeline extension. The build-to-rent model does not eliminate this risk, but it reduces dependence on a specific exit timing in a market where timing is harder to call.
That said, the right resale deal at the right basis still works in 2026. The discipline is in not forcing it. If the numbers require aggressive assumptions to pencil, the answer is usually to pass and find the deal where the numbers work without heroics.
If you want to walk through a specific deal or hear how we underwrite a current opportunity in DFW, we are happy to have that conversation.
Sources: Texas Real Estate Research Center at Texas A&M University (TRERC), Texas housing permit and market data; Home Buying Institute, builder incentive reporting 2025–2026; Opendoor, new construction buyer incentive analysis 2025–2026.