How to Identify (and Evaluate) a Houston Real Estate Investment
Many markets around the country are reaping the rewards of this booming economy.
The same can be said for Houston, Texas, where many neighborhoods are attracting young families and professionals to their homes.
Our guest today is Shannon Geer, with the Mynd Property Management Houston. Shannon is here to explain what investors should look for when determining which neighborhoods are benefitting from this boom, and how to determine whether the property they are looking to buy will benefit, as well.
What Makes a City Desirable for Investors?
Steve Rozenberg: Hey everyone, this is Steve Rozenberg with Mynd Property Management and I am joined here today with Shannon. Shannon is part of the Houston division of Mynd Property Management. And today we're going to talk about Houston, and whether or not it is a strong market, and what the determining factors to help us understand, any city, how to know is it a strong market or a bad market.
So Shannon, thanks for being here today.
Shannon Geer: You're very welcome. Hi everybody.
Steve Rozenberg: So let's talk a little bit about, obviously you and I both are in Houston, we're from Houston. So we are obviously seeing what's going on. But for people that are watching that don't know, what would you say are some good indicators to know as to whether or not Houston or any city, is a solid, strong market to own rental properties in?
1. Know the Days on Market
Shannon Geer: Certainly. So a couple of things that come to mind immediately.
What are the rental days on market? That's a huge one.
As an investor, you want to be able to make money off of your rental property. So if the days on market are 60, 90, 120 days, obviously that's going to cost you more at the outset than it's going to make you.
So that would be a good strong indicator, first.
What is “Days on Market”?
Steve Rozenberg: And so just for people that don't know, days on market is when you have a vacant property and it's up for lease, now you have to get it leased, and it's going to be vacant for so many days.
That's called days on market.
So, you may have a property that you may be budgeting for 30 days of it being vacant, but maybe because of the time of year, for example, in the winter time, properties are going to sit longer than in the summertime.
So if you were thinking 30 days and you bought the property and put it on the market November 1, it may be vacant until February 1, and now you're looking at a much longer days on market because it's slower.
And because of that, your numbers would be off and you may not have the right amount budgeted. So, days on market is very, very important.
Shannon Geer: In all facets of this process.
2. Know the Inventory in Order to Find the Deal
Steve Rozenberg: Absolutely. Now, before you get two days on market, it's even finding a deal.
Shannon Geer: The property. Exactly.
Steve Rozenberg: Right? The inventory of what's on the market.
Shannon Geer: Exactly. The amount of inventory is very important. It's crucial to understand how much property is available.
Steve Rozenberg: Yeah. Because, it could be a great deal, but if nobody can get the deal, it doesn't matter. Because normally what happens is, if there's one property in a neighborhood and all of these investors are fighting for it, normally what happens is it drives the price up. When the price gets driven up, that good deal now no longer is that good of a deal. So it's something you need to think about when you're looking at a strong market, is what is the inventory?
And then secondary is, what is the days on market?
Shannon Geer: Exactly. And a lot of times with that inventory as well, you're not only competing against other investors, you're competing against homeowner buyers.
Steve Rozenberg: People that want to live in the house. Absolutely.
Shannon Geer: So, you really do need to have a decent amount of inventory.
3. Know the Job Statistics in the Area
Steve Rozenberg: Absolutely. What would be next on the list for people?
Shannon Geer: The amount of jobs in the area. And so, one of the things that has stood out to me, one of the statistics I recently saw from the greater Houston economic partnership, is that the Houston market has added over 65,000 new jobs on average the last three years.
Steve Rozenberg: And that's well above the national average, obviously.
Shannon Geer: Yes. Well above the national average. And that doesn't mean that we had jobs leave and they're just—
Steve Rozenberg: This is on top of jobs that are already here.
Shannon Geer: Yes, this is on top of what we already have here.
4. Account for Transient Tenants
Steve Rozenberg: Right. So a good economy, obviously, is always going to be good for a market because for every two jobs that are created, one house is created, statistically.
So, what that tells you is if you see more jobs being created than are leaving, that is a good sign because most of these jobs that are being created could be from other companies that are coming into the area.
So for example, there have been a lot of companies in the last couple of years who have moved their corporations to Texas—move their headquarters here. And normally when that happens, you're going to get residents that are going to come, maybe they will eventually buy, but what they're going to do is they're probably going to rent first to figure out the area.
And that makes it a strong market because you have an inflow and you're not just regenerating the jobs that are currently existing.
Shannon Geer: Exactly. And when we have those big corporations move their headquarters here, we get what are called the transient tenants.
Steve Rozenberg: A lot of transients. Absolutely.
Shannon Geer: And those are tenants that are coming in, maybe they're coming in from out-of-state, out-of-country, and they're not necessarily going to make their permanent residence here, but they're going to be here for three to five years. They're going to rent more than likely instead of buy. And those are the great tenants also.
Steve Rozenberg: Absolutely. And a lot of times when people hear the word transient, they may think it's a lower level rental.
That's not the case.
When you talk about Houston because of oil and because of the medical industry and the exporting port, there's a lot of drivers in the Houston economy that make it a strong market. Because of that, you have a lot of upper-level jobs. So you have a lot of CEO level, executive-level positions coming into the city. And as you said, they may be here for three years, five years. And if they're out-of-country they are not able to buy a house or they can't buy a house because they're only going to be here for short time, which is great when you have a rental property.
So all of these things, again, are good economic indicators and the data doesn't lie. The data is going to tell you the story. And this is for any city that you look at. But again, this is Houston, because we know Houston. We know it's a solid market.
And Shannon clearly states why Houston is such a solid market and why it is growing so rapidly, and why it's great for owning rental properties.
Shannon Geer: It is. So when you're ready, let us know.
Steve Rozenberg: Yep, let us know. Well, thank you everyone for watching. I am Steve. This is Shannon. If you want to find us online, you can go to mynd.co. So it's M-Y-N-D.co. Or you can find us on Facebook at the MasterMynd Real Estate Investment Club where there's other fellow investors there.
You can join and you can engage in comment and have discussions with people like me and Shannon in the group to talk about investment properties.
We'll talk to everyone later. Bye.
Shannon Geer: Bye.
Bottom Line on Finding a Houston Investment Property
Finding a property to purchase can seem difficult to the uninitiated investor; however, there are indicators that every investor can look for which reveal the desirability and potential profitability of a property.
For example, the number of available properties the Houston market can be the first deterrent or attractor from or to a certain neighborhood. If there are only a few properties being fought over by a number of investors, the prices will inevitably go up. You may also consider nearby suburbs of the city, in this case the Katy and Cypress rental markets may be in line with your strategy and prove to be just as lucrative as the larger city of Houston.
And while that property may be in a great location with enormous potential, losing money at the outset is often a bad idea.
Likewise, the available number of jobs is a clear indication of whether there will be tenants available to rent. As the number of available jobs increase, so, too, do the available number of tenants.
And while these are not the only indicators, looking at the numbers is always a good strategy when determining which property to buy and where.
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