Beyond its oil heyday: real estate investing in Houston
Written by Tom Brady
Reviewed by Mynd Editorial Staff
Everything is bigger in Texas, or so the saying goes, but take Houston out of that equation and the Lone Star State would be somewhat lonesome.
Just going by the numbers, the city first settled in 1837 and named after American general and statesman Sam Houston carries a reputation much larger than its 655 square miles.
Following decades of robust population growth, it’s the fourth-largest city in the U.S. with 2.3 million residents, behind only New York, Los Angeles and Chicago, and its metropolitan area population of more than 6.6 million people is as diverse as any in the country (145 languages are spoken around Houston, third most of any U.S city and within shouting distance of New York and Los Angeles).
It’s a cosmopolitan place where paychecks stretch far and real estate rental investment opportunities are plentiful. Consulting firm PwC and the Urban Land Institute’s report Emerging Trends in Real Estate for 2022 ranked the city #24 among the country’s top 80 cities for overall real estate prospects, and #11 for homebuilding prospects.
Buying rental property in Houston
It’s also a place where housing costs rose steadily during the Covid-19 pandemic, and one that has shown some resilience as the national housing market has faced headwinds amid higher mortgage rates and inflation that pushed past 9 percent this year.
The median listing price in the Houston metro area was $350,000 in July 2022, up 3.2 percent year over year, according to Realtor.com. (Listing prices have been steady since April.)
That price was up nearly 21 percent in the last three years, from about $290,000, according to Realtor.com.
The median sale price was $348,740 in July, up 12.5 percent from the previous year’s $310,000 price, according to the Houston Association of Realtors.
Rents for single family homes were almost $1,800 as of August, according to John Burns Real Estate Consulting, up 8.1 percent year-over-year.
Total sales have fallen for four months straight through July, current inventory has risen, and the city now has a 2.5-month supply of single family homes, up from a low of 1.3 months in March.
The Houston real estate market is moving toward more balance, with about four months of inventory, and the Greater Houston Partnership predicts the city will near that later this year or early next year.
The city has long been known for its affordability, but the runup in the Houston housing market has altered that. The median household income in the metro area is about $55,000 for a single person, $74,000 for a family.
Wages are lower in Houston as well. Getting a property ready to rent costs about half what it does in Austin.
Houston’s shift from oil alters local economy
Founded at the confluence of Buffalo Bayou and White Oak Bayou (a point now known as Allen's Landing), Houston benefits from its role as a port and in the railroad industry. The construction of the Houston Ship Channel, and the Texas oil boom of the early 20th century, established the city as a major economic player in the South.
Margo Broughton, a senior portfolio manager for Mynd, who has spent 40 years in property management in Houston, said another shift in the city’s economy took place long ago.
“What changed Houston was the incredible focus on the medical industry,” she said. “In the ’80s, it was known as a boom-and-bust town with its focus on oil.”
“I’ve never seen a time in 40 years that houses did not rent,” she said. “There is an influx of people from all over the country looking to rent.”
The median home price is well below the current national median of just under $430,000.
“It is probably one of the best places to invest,” Broughton said. “Home prices are low compared to the rest of the country and the need for rental property is high.” That makes real estate investing an attractive prospect.
Leo Boucher, a 30-year resident, who followed his wife when she came for graduate school at Rice University, had never planned on staying.
Now, he’s a volunteer culture ambassador, which means he helps promote the city and its bigger attractions.
Boucher has worked in the performing arts field for his entire time in Houston, at Main Street Theater, Houston Grand Opera, and now DACAMERA. His wife has worked as an architect, in children’s theater, and as a social worker, and is now a therapist.
“The jobs are here,” said Boucher. “My wife and I have always found great opportunities.”
A growing city, not without its problems
Two aspects about Houston make it unique:
It is crossed by a number of slow-moving, swampy rivers, which drain the region's broad floodplains but also present flood risks (Hurricane Harvey caused catastrophic flooding in 2017). Hence, the nickname the Bayou City.
“Houston does not have zoning but development is governed by codes that address how property can be subdivided,” the city’s website says.
The relative lack of zoning laws means businesses and houses coexist on the same street. Boucher says that many neighborhoods, like his, do have deed restrictions that limit what can be built, and recommends that those interested in real estate investing look into deed restrictions and any other regulations that could affect areas they are interested in.
He has witnessed exponential growth in his time in Houston and said home prices have skyrocketed “inside the Loop,” or Interstate 610, which circles the central business district.
He and his wife bought their first house, in Upper Kirby, 19 years ago for $165,000. Their 1,200-square-foot bungalow built in 1935 would be a “teardown these days,” he said.
Broughton said that information about what neighborhoods are prone to flooding is available, and her advice is simple: “Don’t buy in a flood plain.”
The weather can be hot, and the fact that the state has its own electric grid can present problems when severe weather hits — some 250,000 residents were without power after Hurricane Harvey hit in summer 2017, some for a week or more.
Storms in Texas in February of 2021, and a three-day deep freeze in Harris County, knocked power out for two weeks in some places.
Still, Broughton can’t imagine living anywhere else.
“It’s extremely welcoming and so friendly,” she said.
Ranking high on livability measures
Houston ranked No. 39 in the U.S. News and World Report’s 2021-22 Best Places to Live rankings, down from 27th last year in a drop that likely was influenced by the media outlet’s tweak in criteria and the Covid-19 pandemic.
It checks in at No. 22 in U.S. News’ Best Places to Retire category. Overall, the city received an excellent review for “attracting people with an entrepreneurial spirit and those who want to work at some of the country's largest companies.”
There are a number of first-class cultural venues as well, including the Houston Grand Opera and the Houston Ballet, both housed at the Wortham Center.
“I think it’s surprising to many people who have a view of it as a clichéd oil town,” said Boucher.
In his role as an ambassador, Boucher is charged with getting people more involved with the cultural life of the city.
It is also home to the nondenominational Rothko Chapel, founded by John and Dominique de Menil. The interior serves as a major work of modern art: on its walls are 14 paintings by abstract expressionist artist Mark Rothko in varying hues of black.
DACAMERA, where Boucher works, is a leading producer and presenter of chamber music and jazz, presenting transformative musical experiences in Houston’s Downtown Theater District. The nearby Museum District has four top-notch art museums.
Time magazine recognized the Houston dining scene as one of the world’s greats in 2021, singling out the restaurant Musaafer, and its refined Indian cuisine in the Galleria, as well as Chef Dawn Burrell, the recent “Top Chef” finalist who is opening a new restaurant called Late August this fall. Time also nodded to Post Houston, the redevelopment of downtown’s Barbara Jordan Post Office and its new food market.
Best places to invest in Houston
John Burns Real Estate Consulting ranks Houston as number 4 on its list of 52 metros, and almost half the people in the Houston market are renters. The metro area grew by 1.73 percent this year to surge past 6.6 million, and has seen steady population growth of around 2 percent a year for decades.
There are opportunities for real estate investors all over town, and the city’s economic diversity has helped it grow more resilient since it lessened its dependence on the oil and gas industry.
Todd Franklin, a senior investment advisor at Mynd, notes that the medical industry would do well if a recession does arrive. For his clients looking to invest remotely, he points to Houston. The Texas Medical Center, at 2.1 square miles, is the largest medical complex in the world.
“If you think health care is the future,” said Franklin, “Houston is where you should be."
Broughton recommends that investors considering making a real estate investment in Houston look at these six best neighborhoods.
This area has a good mix of high-rise condos, townhomes and single-family residences amid a neighborhood designed to be walkable that sits within minutes of the Museum District and Uptown-Galleria.
Broughton said the return on investment here is good and appreciation has outpaced other areas in the city.
Median sale prices have fallen from a high of $755,000 in June to $675,000 in July, a dramatic 10 percent drop, according to Realtor.com.
The neighborhood is now a buyer’s market, and average rents for a single-family home in the Upper Kirby-Greenway section are more than $2,500 a month, according to Zumper.com.
This area is popular with renters attracted to mixed-use developments and neighborhoods where a resident does not need a car for most trips. Downtown Houston and the Texas Medical Center are just minutes away.
“It’s super charming with great walkability and lots of restored older homes that are in such demand,” Broughton said. “There’s all kinds of eateries and entertainment. It’s just fabulous.”
That demand has sent the price of little bungalows past half a million dollars, according to Broughton. The median sales price was $392,000 in July, according to Realtor.com.
Median rents, including both homes and apartments, are about $1,700 in Midtown as of August, according to Zumper.com. That is up 6 percent year over year.
This began as a wide-open prairie known as Cane Island, named after a branch of the Buffalo Bayou that ran through the area filled with tall cane. Located about 30 miles west of downtown, this city is now known for having some of the top ranked schools in Texas.
“Prices are unbelievably low here,” Broughton said. “You get a lot of bang for your buck."
Median sale prices in August were $400,000, according to Realtor.com. The average rent on a single family home was around $2,400 in April, according to the real estate site point2homes.com.
The city is a close-knit community with lots of restaurants, Broughton said, and has a very “Austin-ish feel.”
Some of the city’s history as a rice farming community dating to the early 1900s has been recycled for new uses today.
“There’s some very cutting-edge juxtapositions with old rice elevators being converted to microbreweries,” Broughton said.
The city still holds an annual rice festival, and the 2022 edition is scheduled for Oct. 7-9.
Broughton, who has been a longtime resident, vouches for the community’s “high rentability.”
Another city northwest of downtown that Broughton is bullish on is Cypress, which she says has a similar vibe to Katy. It also has some of the best schools in the metro area.
“There are super opportunities for rentability and the ROI (return on investment) is good,” Broughton said.
Cities like Katy and Cypress have stronger homeowner association rules than downtown Houston, and are more conscious of how they want to grow.
Median listing prices in Cypress were $445,000 in July of 2022, up almost 19 percent year over year. But listing prices have been fairly steady for the last four months, suggesting that the big increases are in the past.
Average rent for a three-bedroom home in August was $1,800, while for a four-bedroom or bigger home it was $2,450, according to rentable.com.
Humble (aka ‘Umble)
Located about 20 miles north of downtown Houston, ‘Umble (“The locals will correct you,” Broughton says) has good solid homes and great ROI.
“The area is very family-centric and has great schools,” she said. “And there are lots of parks and recreation.”
The median home price in Humble as of August of 2022 was $348,022, according to Coldwell Banker Real Estate, and some 753 homes were for sale.
Point2homes.com reported that the average home rental price was about $2,200 as of April.