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Updated about 8 years ago, 09/13/2016
Houston - Property prices
Hi,
I'm a new member to BiggerPockets, joined with the intent to take benefit of collective wisdom and knowledge to build a rentals RE business. Im a beginner to RE investing and would highly appreciate your advice.
Tried reviewing few potential properties in HAR.com and find the steep increase in property appraisals between 2014 and 2015 (almost 26% in most cases for under $150k properties). Is the market overpriced? with the O&G industry under recession should the prices be under strain? Im also seeing the sale prices are also shown as 5-10% discounted too (still very high compared to 2014 appraisal). I'm wondering if the high tax appraisals one of the reasons people are willing to get rid of their rental assets? Im also seeing rental prices/month are also going down.
Would appreciate advice from experts on is this a good time for Houston investment or is it highly speculative right now. My thought is for rentals it is better to go for properties that are more or less stable in prices, isnt it?
Appraisals aren't a good indication of market prices. Market is what people are actually paying, appraised is for tax purposes. Appraisals will always lag and people protest their taxes.
Do some comps for the areas your looking for or have your RE agent give you an idea of what things in your area have been selling for in the past 3-6 months. The property I bought back in January had a super high appraisal price, a bunch more than I actually paid for it. Had to fight the tax man.
When looking at a property be more concerned with the return on equity if you're doing rehab and the CAC for the rental rate. (I aim for over 20%) Give yourself some good cushion. Cash flow is what you should be looking at mostly in the Houston market. If you're trying to Flip, whole other way to look at it and should always be buying really low.
@Sanjay Aluri what part of sugarland are you in? i work in the town center let me know if you would like to chat one of these days.
Nick - good to be connected. Sure lets catch up sometime. Im @ Riverstone subdiv. cusp of Sugar land and Missouri Ciy. Friday eve's work best for me.
Sanjay - Welcome to BP.
You are absolutely correct. There has been a steep increase in the tax appraised value of property since 2014. There has also been a steep increase in rents that have gone up with those increased tax values.
There have been many discussions in regards to the state of the Houston real estate market on BP. I suggest you do a search of some of the previous threads, there is a lot of good info in there.
Prices are under strain in the higher end homes. The market for homes over $500k has been suffering for over a year. Places like Katy and the Woodlands have been more effected than places Sugar Land or Pearland for example. Homes under $250k have still been selling at a good pace. This has more to do with FHA financing requirements being eased and the affordability factor. I have said it before, and will again, you can not have the higher end falling and the lower end rising at the same time for a prolonged period of time.
As to the rents - they are down in the higher end homes for sure. The lower end homes are still renting at a good pace. Houston is very diverse and the rents will vary greatly based on what part of town you are in. If rents are softening in an area you are looking to invest in, then make sure you buy at levels that make sense at the lower rent levels. If you can still achieve your desired outcome at a lower rent than today's price, then buy. If it doesn't pass the stress test, wait for the next one. There will always be a next one, so long as you continue to actively look.
A lot of people look at the market and question prices and values. There are always homes for sale, and you can buy anything you want, pretty much whenever you want. On the flip side, you can also always find a reason not to buy, no matter the market cycle. People will always find a reason to disqualify a deal. So, the question to you is not what you think of the market right now, but what are you looking to achieve from investing in real estate. If you create an investing box, and a deal falls into that box, will you have the courage to buy it. If you create the box, are you willing to wait until a deal meets that criteria, or will you jump in because you are frustrated that nothing seems to fit your criteria at the moment.
Jon,
Very good insights thank you so much. I'm fine taking the leap but like you said in your email struggling to create right metrics for the 'investment box'. I'm trying to get my head around to understand what makes sense for now and for future (go fwd as well). I'm fine going for the leap but struggling to get to terms with cash-flow vs valuation (present & future - which may eat into the ROI because of high present valuations). For instance im looking at some properties in copperfiled area which are quoted at $125k but 1-2 years back they were valued at $84k, which sounds scary - 50% increase ! with such high rise in valuation I can only imagine them to fall from these levels. Thats the reason I was pointing to my thought - maybe the current owners are unable to mange the escalating taxes hence selling.
@Sanjay Aluri @Jacob Voncannon is exactly right appraisals and tax values mean nothing to what your actual value is. Cash flow and equity are what you should be looking for in a property.
If you have a property for 125k in copperfield let me know and we will likely buy it, because right now there is nothing listed in copperfield for anything less than 140k.
- Trey Watson