Why would people buy condos/SFH in Texas?

Question

Why would people buy condos/SFH in Texas if they wanted to live there for work?

Let's say someone wants to live in Houston, TX near the medical centers for work. Would it be a logical argument that renting is almost always better than buying a condo/SFH? The property taxes alone are more than the rent so how can it even make sense money wise to buy? What would be the reasons to buy, and how would they beat the low rent prices in Houston, TX?

Again, I am not sure why people would buy condos or SFH if they were single and needed to work/live in Texas. Let's say there is a 1-bedroom, 1-bath condo in Texas selling for $200,000 in downtown Houston. The property taxes would be a little over $5,200/yr (2.6%) and the HOA fees might be something like $500/month*12 months= $6,000/yr. That's already $11,2000/yr. Together with mortgage interest and closing/selling costs and repair costs, maintenance, etc., why would someone buy a condo in Houston, TX *versus* renting a 1-br, 1-bath for $700/mo? It wouldn't even make sense financially if they paid all of the mortgage off right? I see condos as money sinks in all of the large Texas cities. Doesn't the property tax alone wipe out any financial advantage of owning a home in Texas?

Nick S. · Answer

@Bryan Tasumi A few things could be happening here:

1) They bought on a mortgage when the prices were significantly less than $200k

2) They bought with all cash, so there is no mortgage payment

3) They used to live there and have moved and are holding on, possibly hoping for appreciation and living with no or negative cash flow

Remember there are 4 aspects of buy and hold investing to consider, and cash flow is only one of them: Appreciation, cash flow, mortgage paydown, and depreciation. After considering all 4 aspects of a buy and hold investment, sometimes it's still a net positive to hold a property even if the cash flow is low or negative. I'm not saying I would invest in one of those condos, but someone else might be doing OK with one of the 3 scenarios above.

Effram Barrett · Answer

You're not going to find too many 1b 1 bth for 200k in Houston. There may be 2-3 bd for that price but these are also inside the 610 loop.

Also, from what i've seen, property taxes are much cheaper inside the city and closer to downtown. It's when you start getting outside the city and into the suburbs where the taxes start reaching past 5k a year.

To your point if someone is renting a 1bd condo for $700 a month then the value of that condo is not going to very high. For example my condo rents for $750 a month at 773 sq ft and it's valued at 60K, and this is a good location 10 minutes west of the galleria. I also lived in it before leasing it out.

I think your projections are on the extreme side personally, and I would own a condo over rent any day in Houston.

Jasmine B. · Answer

For Houston: Most condos/townhomes are inside the city. Not in the suburbs. People that buy in the city want to experience urban living. Are you suggesting that they aren’t maximizing their buying power?

It’s all relative. I’d argue that most condo/townhome buyers prioritize their lifestyle over anything else. Being able to afford more land/space is not a driving factor for these folks. Being able to save money buy owning another type of property in most cases is not even on the radar.

Scott L. · Answer

I don’t think you’re likely to find a 1br/1ba condo in Houston selling for anywhere close to 200k. For point of reference you can buy a 3br/2ba SF home for under $150k in parts of Dallas and Houston is said to be cheaper. That said if there is a 200k 1br/1ba condo for sale in Houston it would have to be a luxury property to have anything close to 500 in condo fees and would likely rent for $2000+ a month. Bit your not going to find such an animal in Houston. Anybody with 200k to spend could easily get a 2-3br.

Bryan Tasumi · Answer

@ Nick S.  Okay what I don't get is why the owners would want to rent the condo units out at a loss. For example I am looking at the Mosaic luxury apartments and they are renting them out for 1.3k, 1.5k.

http://www.har.com/mapsearch/?map_tools_nwlat=29.7...

If you buy the condo at $200,000 (they are actually going for more) with 20% down at 4.267% interest rate 30 year fixed, with 2.6% property tax and $500 HOA dues, the monthly payment comes to $1,789/mo if you buy. Why would the owners rent for cheaper than 1.7k per month then? I am assuming they have paid off their mortgage already or can't sell. There are a whole bunch for rent on Har.com for 1.7k or less.

Nick S. · Answer

@Bryan Tasumi I agree with your analysis. You can rent near the medical center for cheaper than you can buy a condo, even after considering everything like opportunity cost of capital, appreciation, and loan pay down. If you want to live in the med center and still invest in real estate, it would make sense to rent close to where you want to live and then invest in cheaper properties that cash flow outside of the inner loop.

Omar Khan · Answer

@Bryan Tasumi Don't know about your #s but the reason why you see those types of rent near the medical center is because of the sheer number of transient medical professionals who prefer to be near the hospital.

The medical center has an army of residents completing their medical training. Residency pays less than minimum wage (if you include all the hours) and the hours are brutal. Not many people stick around the same place after residency. Hence, you have a steady stream of people who, because of the long working hours, prefer to pay a higher price and live near the medical center. A lot of these people have no intention of living in Houston after residency.

Similar things apply for visiting doctors, nurses, healthcare executives and other folks who show up to do business in/around Houston's medical center.

Why would people buy condos/SFH in Texas?

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