When to Buy a Rental Investment Property in Houston, TX
Everyone knows that the three rules in real estate investing are:
But every real estate investor knows that when they buy a rental property is sometimes as important as, and can even determine, where you buy your investment property.
Our guest today is Shannon Geer, with the Houston Property Management. Shannon is here to explain when the right and wrong times are for a real estate investor to jump into the real estate market, particularly in a city like Houston, and why now is the right time to buy in certain neighborhoods or sections of Houston.
Steve Rozenberg: Hey everyone, this is Steve Rozenberg with Mynd Property Management and I am here with my good friend, Shannon.
Steve Rozenberg: So we are here in Houston property management division of Mynd and people want to know, when is the right time for qualified investors to jump into the market and buy a deal in the Houston real estate market?
Now, Shannon is an expert when it comes to real estate in the Houston,TX property management area.
So, Shannon, what would you say to someone if they're out-of-state or even if they live in the Houston area?
What is the right, and when is the wrong time to get involved and actually jump into this market and make something happen?
Determine Your Real Estate Investing Goal
Shannon Geer: Well, I would have to start off by knowing the client's goal?
Steve Rozenberg: What's the goal? What's the end goal?
Shannon Geer: What's their goal? What's their strategy? What plans have they set in place? And if they haven't, then start working with them on those because each goal dictates a different strategy.
Determine Where in Houston to Buy for Cash Flow
Steve Rozenberg: Right. So let's just say, for example, somebody says, "You know what? I want a basic cookie-cutter property, a three-bedroom, two-bath, basic cash flow."
Does Houston have those, and, if they do, where are they in Houston?
Shannon Geer: Of course we have them. We have them. You're going to want to look in the suburbs. You're going to want to look:
- on the east side of Houston and the Humble area
- Up on the north side in the Spring Woodlands area.
- Out in the west, in Katy.
- Down south in Pearland, Clear Lake.
As long as you stay in outlying areas, you're going to find those great three-two’s. They're going to generate rental income for you and give you-
Steve Rozenberg: Basic positive rental income-
Shannon Geer: -basic appreciation.
Steve Rozenberg: Basic appreciation. That is what would be considered a basic standard rental property. And that could be your strategy to get you to a goal.
Determine Where to Buy for Appreciation
Steve Rozenberg: Now, the next strategy could be, you know what, I want something that's going to go up in value. I just want something. I don't care about cash flow, because, statistically, you're probably not going to get both. You're not going to get an investment property that's going up in value and has strong cash flow, in general. So you're going to pick one and if that one is appreciation, do those exist in the Houston housing market? Number one. And if they do, where can we find these great investment properties?
Shannon Geer: Yes, traditionally, Houston has said anything inside 610 is going to be your appreciation play. But I am seeing that expand outside of 610 to now be inside Beltway 8. So, for those of you that are not in Houston, Houston has rings.
Steve Rozenberg: Two concentric rings. Three now actually. There are three.
Shannon Geer: Oh yes, there's three now. And so the inner circle is 610, the middle circle is Beltway 8, and the outer circle is the Grand Parkway or 99. So, we've seen that those negative-geared properties and the high appreciation plays are moving outside of 610.
Steve Rozenberg: Because they've already built them out.
Shannon Geer: Because we're running out of property. And we're also seeing a lot of re-gentrification happening in the third ward and the fifth ward. A lot of money is being spent in those areas by local government and national government and state government. And so, we're seeing a lot of appreciation plays in those markets.
Steve Rozenberg: Yeah. And you're seeing opportunities zones and those kinds of things where you're getting tax benefits for purchasing in these Houston neighborhoods and helping out the community. So, you're seeing a lot of that.
And, case in point, when you talk about the re-gentrification areas, Pete, my business partner, he bought a house and I'll never forget. This is back in 2005. He bought a house for about $77,000. It was a two-bedroom, one-bath cottage in an area. I was shocked that he told me he wanted to keep this property and that he would build his house on one day.
And I thought there's no way that this is the same area that I'm thinking. But he did. And so, anyways, what he ended up doing was he kept it as a rental for about seven years. Then he ended up tearing the income property down and building a house on it. In the last two years, that house, which he bought for 77, is now worth about $875,000. The land alone is probably worth-
Shannon Geer: I think he said 350. Whenever he tore the initial structure down and started building on his property, the land appraised at 350.
Steve Rozenberg: Right. And so now in that street, in that area, that's all the houses you see. So that's a case in point that he had a goal, he had a strategy, he executed it, and that's how it happened.
So, when you're looking at a city and you're looking at a market deciding if you jump in, it's not necessarily looking at what you're seeing in front of you today. Because I did not see the same vision that he saw. And he clearly had a better vision. He had a better strategy.
And it just goes to show that the information you know of what's coming, just like the Third Ward, and the re-gentrification and the opportunities zones, these are things that could tell you that, hey, you know what? This could match your goal and it could match your strategy. It just depends on what your goals are, what your strategy is, and educating yourself to know that.
Shannon Geer: Education is the key.
Real Estate Education is the Key
Steve Rozenberg: Education is the key. And again, these are just some things you want to think about when you're thinking of the Houston housing market or anywhere else.
Houston we know, and we know, obviously, in the center is where you're going to get high appreciation, expand out. And if you go out into the suburbs you're going to have the standard positive rent cash flow, cookie-cutter-type investment property deals.
And so, if anybody wants to know more about that, you can go to our website at mynd.co. M-Y-N-D.co, or you can find us on Facebook at the MasterMynd Real Estate Investment Club. And there you can talk with people like Shannon, myself, other investors. We're there to converse, engage, and really get into discussions about areas and markets to help you make better decisions.
This is Steve and Shannon. Thank you very much. And we will talk to you guys later.
Shannon Geer: Bye, everyone.
Bottom Line on When to Buy Investment Property in Houston
Location is likely the first factor any buyer looks at when determining which investment property deals to make. And in a dynamic market, knowing when to buy is likely an investor’s greatest tool in determining where to buy.
As prices rise in the center of Houston, young families are moving to locations with more affordable rent. And with the completion of the Grand Parkway, or State Highway 99, the suburbs have become a far more attractive location for renters and investors, alike. And with recent development in more established locations, such as the Third Ward, some locations closer to the city center have become more lucrative, as well.
There are many indicators that the real estate market will be strong in 2021. But as dynamics change over time, neighborhoods can become more or less desirable, even during strong markets. So, knowing when a location such as the Third Ward or the areas around the Grand Parkway are beginning to boom can ultimately bring major returns for any investor in the rental market.
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In the meantime, learn more about ways to start with a smaller downpayment here.