Investing in Katy/Brookshire, TX

[Zach Smith]

Good afternoon,

I am relocating to Katy, TX in the upcoming week and am looking for my first real estate deals.  I've been listening to BP podcasts, reading books, and reviewed this forum.  Currently my strategy is to purchase a 3-4 bed, 2ba home for less than $200k and live in it on a standard 15 year fixed mortgage. I will pay this down with an extra monthly payment towards the principal to build equity. I have never purchased a home, so this will be my first.

I then want to use my savings to purchase a second home, similar value that is new or newer (10 years) for under $200k that is rental ready.  I am seeking lendors in the Houston area that will assist me with this on a 15% or less downpayment, 15 year fixed.

My goal is to then continue adding one property per year (single family), and in 3-4 years look at my first multi-family.  I am 28, and ultimately want to continue the one per year trend to create a nice portfolio and cash flow in 30-40 years for myself in retirement. 

Do you see any red flags or misteps in my high level strategy? 

Any feedback is appreciated. I'm taking the leap forward and am excited, but know that many have done this before I have and have great insights. Thank you everyone!

[Tony Castronovo]

Welcome to Katy and BP!  In general, the strategy seems fine.  Not sure I understand the first property.  Do you intend to rent it at some point....or always make it your primary residence?  Are you looking for a fixer-upper or move-in condition?

Sounds like cash flow is not your goal, but rather equity and wealth accumulation.  Just be careful if you put your rentals on 15-year notes.  It may be tough to cash flow them, especially if you get close to or over $200k as I have found that rents don't usually fit the 1% rule in the area.  I have a home worth $220k in Cypress and can't get much more than $1700/mo (it's flip-quality rehabbed).  You might be able to command higher rents in the Cinco Ranch area, but much harder to find homes at that price point....unless you are willing to take on a flood project.

Even if cash flow is not your goal, you do not want to be dipping into your pocket every month to cover the mortgage, taxes, insurance, etc.  What would happen if you lost your job or encountered a major unforeseen expense?  Cash flow is what allows you to hang onto properties while you are building equity.  At least break even on cash flow....and make sure you deduct for maintenance, vacancy, capex, property management, etc.  My 2 cents.