Oil Prices Dropping!!!!!

[Steve Rozenberg]

With the price of oil dropping, who thinks  it is a good or bad idea to invest in Houston? I have my opinion living here in Houston but am curious what others think that are not here.

[Joel Owens]

Every state has it's issues and not one is perfect.

The reason everyone is focused on oil is before there was a wait period of about 3 months to see if the reduction in oil prices was a long or short term thing. When third world countries said they were not going to slow down production of oil that created even more of a drag on the market.

So now the view is the oil drag will be more long term for 12 to 18 months. Oil is not the only thing in Houston. I do not think it compares to North Dakota and  how they are set up. There are a lot of tech companies in Texas that do not thrive or die based on the oil industry. Many years ago the landscape in Texas during the last downturn everything was more centered around oil. Today everything is more diversified.

The energy corridor and city center are backed by very large players and are not going away. Many areas of Texas have been over strong for many years and tops in the country so even when you take a slight downturn their economy is much better than many places in the country. People were so used to get amazing returns any reduction makes them pessimistic.   

Biggest thing I see a glut of in Houston is large office buildings. I personally wouldn't be touching any of that for investment. You can buy those really cheap if you want to sit on a property and wait out for the next cycle. I like medical for office and that is about it. Office people can pull up a truck and move in the middle of the night practically.

Just recently the top 5 nationally 18 hour cities came out.

1. Dallas - Fort Worth

2. Austin

3. Atlanta

4. Charlotte. NC

5. I can't remember - lol  ( I read so many things daily please forgive me...... : )    )

There is a lot of investment still going into Texas because of the no income tax state. You have to watch out as the property taxes are very high. With retail strip centers you get the tenants there to pay the property taxes through CAM reimbursements. 

We have discussions with lenders based on this oil topic but it's regarding large commercial properties of 3,5,10 million etc. and whether they survive and thrive in those markets.    

[Lyall Storandt]

I think others have already stated this well, but here's some additional perspective: the sky isn't falling.

As @Steve Rozenberg stated, folks will always need a place to live. And, as long as that's the case then there will be money to be made by investing in real estate.

As @Joel Owens stated, any dips in sales volume or prices need to be taken into account along with the historic run-up of sales volume and prices over the past several years. I'd add that the same logic needs to be applied to any job cuts in the area. What you will hear on the news is the big number of lay-offs, but you will not hear them counter these numbers with the huge boom in hiring in the years prior.

Whenever the "market" goes left, the real buyers, who are well capitalized, are chomping at the bit to go right. Like Steve said, when the market is down, real estate goes on sale compared to the recent historically high prices.

What I would love to see, as an active player in the Houston investment market, is a drop in the percentages that we're able to acquire and sell deals at. When I started in real estate back in 2011, we were doing deals in the low-to-mid 70%'s and it hasn't been uncommon to see investors paying 80%+ in certain areas over the past 2+ years. I'd love to see those percentages come back down to the 75%-range. I think it'd be good for everyone involved except the current owners of distressed properties.

The advice I typically give to investors is that as long as you're buying right for the current market conditions, you will be fine. Bonus points if that house you were planning to flip could also work well as a rental. Extra credit if you can owner-finance it.

The last thing I'll say also echoes one of Steve's points: when the market is "up," flips are better because it's a seller's market; when the market is "down," rentals are better because it's a buyer's market.

Here's the link to the Greater Houston Partnership's latest Economy At A Glance for anyone interested in the actual data surrounding the health of the Houston economy: http://www.houston.org/pdf/research/quickview/Economy_at_a_Glance.pdf

[Account Closed]

@Lyall Storandt,

The sky isn't falling............yet.  The Houston housing market has been on a tear for the last 3 years.  However, it seems like the market has turned the corner in the recent months due to continued low oil prices.  It's too early to make any predictions, but if history is any indication, there's a high probability that the market will give back some of those gains in the coming months and possibly years.  Will let these graphs do the talking.   

To put things in perspective for my fellow San Francisco Bay Area real estate investors especially Mr. Optimist @Amit M., if we were to shed 38% of tech jobs from the Silicon Valley, what do you think would happen to our real estate market?    

[Lyall Storandt]

@Account Closed What's the percentage of total jobs that are in tech in silicon valley vs. the percentage of total jobs that are in oil & gas in Houston?

Did you read something that said Houston lost 38% of its oil & gas jobs?

[Amit M.]

@Account Closed I don't know where you get the mr. Optimist moniker from. Realist is more like it :)

We're all reading the same things in the valley. The headwinds are: overvalued tech unicorns, slow down in VC investing, very high rents,  RE prices topping off, unknown interest rate hikes 2016...

Personally, from my corner of the market (SF proper) I see appreciation slowing in 2016. Maybe a few percent increase over 2015 at best. At worse, a slight drop in prices. Nothing radical. I don't think tech will implode in 2016. There will be more liquidity events (public offerings and mergers), but I also think valuations will be more realistic. VC money will still invest, but more selectively. Large firms (goog, Apple, FB, etc.) will still be hiring. 

Personally, I have my hands full with my current projects bringing them to highest and best use over the next year or two. My financing is already set for that. The goal is $500,000 in yearly rental income, net about half of that. Then I'm basically done, the wife can retire, and we can entertain a fancy expansion of our current home as the crowning jewel. (Talk about the rich getting richer btw, we don't really need a bigger, fancier place, but I'd actually increase my net worth by about $1 mil by doing a high end remodel here, spend $300 PSF to gain $1000 PSF in value; this city is so crazy, it's sick ;)

Of course who knows what the hell 2017 onwards will bring to derail my great plan. I'm mostly concerned about tech crash, unemployment, and rent decline. And a black swan event of course.  Calculating potential rent declines is a very local/micro analysis, and I think even if we hit the sh*ts, my rents won't decline more than 20% at the most. Rent control alone prevents everyone from leaving all at once, and SF is still a great place to live, even if tech takes a big hit, so those elements alone buffer me. Plus my units are not the overpriced luxury condos. Nice and practical high value rental units always suffer less in a crash. It's the airbnbs, Corp rentals, and fancy $7000 for a 2BR condo towers that nose dive.  Practical, high value $4000 2br rentals?  Eh, maybe drop to $3500. I can deal with that. 

Bottom line from my neck of the woods:  2016 steady as she goes. 2017 who knows?