Little or no cash flow banking on property appreciation

[Thomas Haregot]

Hi Folks,

Very new to the real estate investment world.  My wife and I have been looking at some property near downtown Houston for a first investment, where the market seems to be pretty hot.  The idea had been to rent the property for the first few years and move in ourselves, when we become empty nesters.  We have since abandoned the idea of moving in ourselves, so are looking to just rent and sell ten to fifteen years down the road.

The properties are in great shape and the rental market, while available appears to be low, relative to the price of the homes. I have used the tips I have read hear and listened to on the various pod casts for calculating NOI and cap rates. My best cap rate is 1.75%, with monthly cash flows less than $100 a month. In some cases it is break-even or slightly negative.

My question is whether it is prudent to invest in property assuming that it appreciate a great deal down the road ?

[John Vo]

Thomas Haregot I would suggest you do further research on the Houston housing market and each of the sub-market you're interested in carefully before you buy. Case in point, did you know that Houston overall is approaching 4 months of inventory for the month of July? More sub-markets in July have passed the passed the 4 months of inventory mark than June. The 4 months of inventory point is important because it indicates that the market is turning from a seller market into more of a balance market. Check market updates on HAR.com.

If you're looking to buy in the current market and your strategy is waiting for the property to appreciate 10-15 years down the road, I would advise against that strategy since you're coming in at the top of the market, especially depending on what part of downtown you're looking at.
Don't be sway by people who are saying to buy now cause price will go up later. They're probably trying to unload their non-performing property on you.

Houston is going on its 2nd year of the oil downturn as you know and contrary to what some of these "expert" are saying, Houston is no where near as "diversify" from oil dependence related jobs as they think. Adding to that, oil companies are still laying off their workers quarterly and the benefits for ex-employees who were laid off are coming to an end soon or have already ended. Those trying to keep afloat are finding it tough to get back into the job market because there's simply a lack of high paying job postings at the moment. Which means things will be interesting in the months to come.

Do your market research, get your finances and strategies in order and make very conservative assumptions if you see any opportunities currently offered to you.

Hope I didn't bored you.