Best neighborhoods to invest in Houston for cashflow

[Randy Nguyen]

Hello, I would like to know which neighborhoods in Houston has the best cashflow for rental properties(SFR). I don't want a fixer, I want the house to be finished so I can live in it then will rent it out later on for some cashflow.

[Cody L.]

Rule of thumb:  The less desirable the area, the more cash flow (measured by the more renal income you'll get per $ of property bought).   

There are some exceptions but not many. 

The reason is pretty simple:  If two areas have the same cash flow (not absolute $, but per unit of purchase price), then why buy in the less desirable area as it'll be 1) harder to manage, 2) give your portfolio less 'halo' effect, 3) have less chance of appreciation).

So the market will slowly raise the price (relative to rent) in 'nice' areas and discount the 'bad' areas until it his an equilibrium where the perceived risk of the bad area is made up for enough by extra cash flow. 

My #1 property by a long shot (in terms of cash that comes in -- absolute amount -- and in terms of % returned on my down payment) is in a C- area.   Bought it for $6m.  Put down $1.4m.  It brought in over $500k after debt service in 2020.  So greater than 35% cash on cash.

Know how many people said "omg why would you buy that?  The area sucks".  A lot.  Yeah, I know the area sucks.  I wasn't buying the building to live in it.