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Updated almost 3 years ago, 12/22/2021
Why Do You Invest in Texas? Specifically in McAllen or Houston?
BiggerPockets! I work at BP and I'm working on building a landing page for Texas and the cities of McAllen and Houston. Would anyone be willing to share why you choose to invest in the city or the state in general? What makes it so wonderful?
I live in McAllen and want to start locally :)
Hi Lauren, While we don't own property in the McAllen or Houston areas, I can tell you why we like Texas. We like Texas because you get a lot of bang for your buck! The suburban areas offer large homes and quality schools for a price of $250K and up. For those interested in new construction it's available at $350K and up depending upon the neighborhood. The northern suburbs offer class A neighborhoods, good schools, and close proximity to the DFW airport. The Texas economy and job market allow us to enjoy a great quality of life. Large companies continue to open offices in Texas. Across the state, there are a wide variety of industries for those seeking employment.
As investors, we've seen tremendous appreciation in the properties we own. While the 1% rule can be a challenge to achieve in the current DFW market, we are starting to see competition slow down a bit. If house hacking is your jam Texas isn't a bad place to get started. There are more small multifamily options on the Fort Worth side. If you want to be in North Dallas, SFH rent by the room is the way to go. Happy to answer any questions! Hope this helps!
@Lauren Hogan I live and invest in Houston as well work in residential land development for master planned communities. I’m more than happy to talk if it helps with what you’re doing.
I can share some offering memorandums that brokers send for their Houston properties. Each broker always puts their same "about Houston" in it. Talks about job growth, why it's so great, etc. codymail at gmail and I'll send you some of them.
@Adam D Rinehart @Cody L. if you guys can share your thoughts or findings on Houston in this thread, I would greatly appreciate it! Even a blurb about why you choose to invest in Houston & what has worked for you would be ideal. Thank you!
So if you just want why I do it, it's because it's the best retrun I can find -- risk adjusted. Meaning I can get a good return while still investing in a huge city that has major growth and likley upside in rents and asset prices.
My alternatives seem to be warzone areas where, while the return is higher, they're not "higher enough". Or A++ areas that offer nearly no return, and don't have much more upside/growth than I see in Houston.
So yeah, Houston checks all boxes for me. Plus it's a red state so, even though Californians keep fleeing to Houston and screwing it up, it hasn't happened yet. So they're still business friendly
I've lived in Houston pretty much all my life except for college and shortly thereafter. Investing where you know is the path I started with, it just happened to be the 4th largest city in the U.S. The BRRRR strategy has worked for me thus far in 5th Ward and Prairie View, TX. 5th Ward is gentrifying with new construction. The area is seeing double digit property value increases YOY and are rents following a similar trend. I've found that prices are still low enough in numerous areas inside the City Limits that the barriers to entry are very low as opposed to the surrounding suburbs or cities like Austin.
Great post! New investor here. For the Houston guys, how do you guys see the market going now with the trend of less jobs in oil and gas?. I am looking to get my first rental property on the next few months as soon as I find a good cash on cash property.
When it comes to Houston ...
There's an infinite amount of skilled labor as far as building homes or doing renovations and a lot of well.. sensible, smart people you can do business with. Moreso than any other place in the South. You can cash flow on pricier properties and there's a lot of international clients, corporate or otherwise, who make good tenants. Houston might be an ugly, traffic congested city without an exciting past so it won't get a lot of hype, but it is the most diverse city , easy to work with regulations and is not going to stop growing in any direction. It's just very easy all around.
Originally posted by @Luis Chug:
Great post! New investor here. For the Houston guys, how do you guys see the market going now with the trend of less jobs in oil and gas?. I am looking to get my first rental property on the next few months as soon as I find a good cash on cash property.
It will be fine, there's a big financial, medical, business and manufacturing sector that operates outside of O&G.
Thank you. This is really encouraging. I am currently contacted and investor agent. I am still looking for a good reliable contractor with investing properties themselves. Any leads? Thank you again for all your support and time.
While I'm a newbie yet to invest, I believe I can shed some light on what makes the Houston market great in my opinion. Having lived there for 4 years, and having most of my friends and family there, it is widely know that Houston has no zoning laws unlike most other cities, but is regulated by city development codes, ordinances, and deed restrictions.
It is well documented about the pros and cons of zoning in reference to Houston. Here is a recent article I found that also includes some pics to give you a bit of an idea of why the lack of zoning is can be great or an issue:
https://kinder.rice.edu/urbanedge/2020/01/09/no-zoning-in-Houston-there-are-workarounds
From my perspective the lack of zoning has slowed the gentrification process in the inner city areas as opposed to the DFW & Austin markets which were very aggressive. The advantage is these inner city areas, such as 3rd Ward and 5th Ward, are now starting to gentrify and creating great investment opportunities for the small investors instead of just big developers. These are just my opinions having lived in the 3 major cities in Texas (Houston, Austin, and DFW). Just google "Houston zoning" and you should get a much better understanding of the potential opportunities. Hope this helps some.
Great article, I had not seen this. I am going to dig in to this a bit more later today. Thanks for sharing.
I believe there are some opportunity zones now as well over on the East side. Will be interesting to see the effect over time that those will have in those zip codes.
@Matthew Myers Excellent article and very informative, thanks for sharing.
@Adam D Rinehart I was looking at some duplex's in 5th ward recently. Most of the units seem to need a lot of work, and I wasn't sure if I would be able to see the returns in rent. Did you do a pretty extensive rehab on your property?
I don't own any property in Houston but I think the general economic stability and growth are some of Houston's greatest strengths. We have a ton of industry beyond oil and gas. There is a lot of diversity in the different markets throughout town and sometimes even within. That creates challenges, but also a lot of opportunities!
Great points by everyone in the thread. I have also considered investing in Houston however I wanted to ask current investors or residents of the city how the potential flooding affects local business and real estate. Is this something that worries you as far as extra expenses?
Originally posted by @Andrew Aladjadjian:
Great points by everyone in the thread. I have also considered investing in Houston however I wanted to ask current investors or residents of the city how the potential flooding affects local business and real estate. Is this something that worries you as far as extra expenses?
Anywhere you have possible hurricanes and flooding you will have some issues to keep an eye out for. However on a positive note, with the historic flooding caused by Harvey it's pretty well known which properties will flood even in a drastic situation. As long as you check flood maps and inspect the property throughly I wouldn't let it scare you away.
Originally posted by @David June:
@Matthew Myers Excellent article and very informative, thanks for sharing.
@Adam D Rinehart I was looking at some duplex's in 5th ward recently. Most of the units seem to need a lot of work, and I wasn't sure if I would be able to see the returns in rent. Did you do a pretty extensive rehab on your property?
I don't own any property in Houston but I think the general economic stability and growth are some of Houston's greatest strengths. We have a ton of industry beyond oil and gas. There is a lot of diversity in the different markets throughout town and sometimes even within. That creates challenges, but also a lot of opportunities!
A few things about my 5th Ward stuff. I currently have 3 properties, 2 SFR's and 1 duplex. The duplex needs work in the form of a modernization rehab, it's just dated. I inherited the tenants on year long leases and have put that project on the back burner until their lease expires. I estimate I can probably rehab both sides for a total of $15,000 and raise the rents $250/mo each side since they are way under market rates currently. I picked it up with seller financing for $100k and collect $500/mo each side with the tenants paying all utilities in their names. A bank bought the note from my seller and did a drive-by appraisal and came back with a $180k estimated "as-is" value. Not too shabby.
My first SFR I did $35k worth of work to it including foundation and sub floor repairs as well as upgrading the electrical system. My value adds to that property were converting the 1/2 back to a full bath and removing the window units and installing ductless mini-split units. 3 of those were half the cost of a low end central unit. That's a 2/2 at 844 sf and rents out at $1,150/mo.
My most recent one is my "unicorn" foreclosure. I say its a unicorn because this house was in damn near pristine condition and is a 4/2 2,300+ sf with an attached garage for $150k. The owner lost it to a hard money lender when he fell behind doing the work on his primary residence. I picked it up and put $11k into it and it rents for $1,550 mo.
@Adam D Rinehart That's awesome! Sounds like you got a couple great deals. The duplex sounds like an outright amazing deal, especially if you can pull out an extra $500/month with only 15k. I personally think 5th ward is shaping up to be one of, if not the the next "hip and trendy" areas of Houston.
i purchased a 4 plex brand new in edinburg basically McAllen about 2 years ago in November. so far so good. cash flow about 1K
I strongly believe that in Texas, the laws are very fair, and things are very well-managed. In Houston, economic growth is quite stable and we can see a lot of trends that are positive, such as employment and etc. On top of that, many businesses are in Texas and that allows for a very strong economy as well. I think that in the future, based on analysis and investors' predictions, we will see internal migration. Meaning that once Houston or Dallas becomes too expensive, smaller cities like Austin and San Antonio will become more popular for some companies as well as families, because they will move to a cheaper and more affordable area, so I will say that those areas are still developing and ones that you can definitely look into. Other good states are Georgia, Florida, Ohio, and also Hawaii.
Job Growth. The Texas Triangle of Houston, Dallas, Fort Worth, San Antonio and Austin is on fire. Texas is very business friendly. And in Texas everything is bigger. The bbq is pretty good too which is a draw for me, at least.
- Aaron Gordy
Originally posted by @Aaron Gordy:
Job Growth. The Texas Triangle of Houston, Dallas, Fort Worth, San Antonio and Austin is on fire. Texas is very business friendly. And in Texas everything is bigger. The bbq is pretty good too which is a draw for me, at least.
And tacos. All kinds of them. Breakfast tacos are the best thing ever.
You know, this thread has been going for months now, and when it started, I thought it was an odd question - obviously the big market is the better one right?
I am starting think now that these markets are so hot that it almost doesn't make sense to look in the big metro areas - I think the opportunities now might be in the smaller secondary towns. Draw 100 mile circle around Houston, DFW, SA, and Austin, and look for places with decent internet connection and some kind of jobs or economic activity - and heck, if I can work from home, do I need to live 10 miles from my office now? Maybe, maybe not.
I get calls from RE agents, brokers and investors now looking at properties in places like Victoria, Freeport, Huntsville, Sealy, Navasota, and on and on... you get it. I see these little $100K houses cash flowing like champs - like you could find in Houston 3-5 years ago. Sure you want to have a big enough market that you know you could sell it when the time comes, I get that.
But the demand for those little 3/2 1500 sf houses in Houston is just off the charts now - to the point where owner-occupants are outbidding any reasonable investor than can do basic math.
McAllen, and the South Texas "RGV" region, is an attractive area for investors that want a lower entry level starting cost. They will as well save money on labor. It is great for developers because inventory is low, the cost of land is reasonable, and you will SAVE on labor. The climate is temperate all year round so work very rarely has to stop because of weather. Parts of Sharyland, Mcallen, and Edinburg are very hot because of school districts.
@Mark Sewell This is the truest statement I've seen to date on the Houston market. It's absolutely bananas right now.
@Lauren Hogan There are several benefits why any savvy investor will like to consider Houston for their Real Estate Investment. I have been living in Houston for 7-years and I personally invest only in the Houston areas and I have been helping other investors to invest in Greater Houston and surrounding cities. As a Realtor and Investor myself, below are a few reasons why my clients and myself invest in Houston, Texas
#1 Market in the US for Job Creation
- Contrary to what the majority of out of state investors believe, Houston not only have Oil & Gas (Energy), Houston has other job growth in Consulting, Information Technology, Aerospace and aviation, Medical treatment and Research, Goods Distribution, and Manufacturing. The port of Houston on the Gulf of Mexico imports more goods than any other port in the United States.
- 3-year appreciation forecast of 12.5% - We are able to enjoy both appreciation and consistent cash flow.
- Houston is very diversified and friendly so people like it here. Our food, people and culture is what people like about Houston
- The majority also enjoy the weather here.
Texas legislation has provided a great economy for businesses to thrive. Big and small companies alike have chosen Houston for the location of their corporate headquarters.
4th largest city in the US - This has increased the housing demand in the Houston areas and landlords are enjoying low vacancy and rent increase. Even during this COVID-19 Pandemic. I am living proof.
5%-20% below current fair market value - This is gradually changing and the market is very hot right now. Nevertheless, Houston is still a relatively cheap and better use of cash on cash return. Some parts of Houston are seeing around 15% returns consistently.
Houston checks all boxes for me and my investor clients both in-state and out of state investors.
Goodluck!
- Wale Lawal
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