Return/areas to aim for in Houston

[Alex T.]

I've been reading Houston threads on this forum for a while trying to see what kind of return rates to expect in Houston. It seemed like 1.3% is doable for rent/price ratio, and some recommend trying to get 1.4%. Talking to an agent in the area, however, she stated that the current ratios are much lower, an example she gave me barely meets 1%, something I would be able to get with a turnkey provider anyway (although it's probably the area I'm paying a premium for).

Could Houston investors advise what kind of return ratio I should be aiming for in today's market? Are there certain areas you recommend for better returns with good tenants? I was advised to stay north of Houston. Spring seems to be a good area, although it sounds like it already appreciated quite a bit, what are some alternatives? Are there nearby areas that would be better for cashflow? I'm not too picky about age of property, do you recommend expanding my search to include older properties, if so, how old? Here in MA it's typical to see 80+ year old properties, it seems like in Houston people don't look at things older than 1980.

Thanks

[Mat Trenchard]

Hey @Alex T.,

I think 1.4 is going to be tough to get. I can tell you first hand that the market (Houston) is flooded with wholesalers (mostly new ones) and consequently the prices are getting driven up. It seems a ton of people are just itching to get deals right now. We (our company rehabs and wholesales) are getting beat out on properties by 10% to sometimes 50%. Just an example, I offered 45k on a property last month (and I was stretching my comfort zone on it). I called the seller to follow up, and she had sold it for 82k! I don't know who is paying for them, but there will be people losing money eventually, and it won't be me. I will not buy a wholesale unless I can sell it to an investor and they will make 10% or better for an all cash purchase. This is after purchase, repair, closing, taxes, and insurance. We typically find that this puts our rent/purchase at 1.15-1.30 ish. The last deal we sold last week was right at 1.25 (109k purchase, 10k in repairs, 1500 in rent). With it getting harder and harder to buy properties because of the huge influx of buyers here, the margins are shrinking for everyone.

As previously mentioned, it is getting crazy here. Last year, I would go to a property and bid against maybe 5 other buyers. Right now, it does not surprise me when the seller tells me they have 20-30 people coming out to look at the property. This is for off-market properties too! MLS is even worse. If you are buying from a wholesaler, please do your own due diligence. I'm seeing a lot of crazy things out there right now.