High Interest,High Home prices - What you all up to these days?

Question

Howdy Houston REI's,

It's been really too long since I posted or communicated with the group. I also do not see any intriguing posts and it looks like dead zone with our local forum. I know the high rates and high prices of the properties really make the numbers to work for any strategy these days putting hard brake on investment activity. I heard that before rates gone up, institutional investment was almost 50% of the sales in Texas. It has recently dropped to 20% after continuous fed rate increase. It's good for our small local investors and hope it's get better and more supply in the market.

Last few months, I have been busy with lots of Property management activities where owners moving out and renting out the old homes. That activity has increased a lot in Houston. Also I was able to close few wholesale deals for my investors which was really and rare. One deal almost $600k worth with 950k ARV and investor bought it and plan to do house hack and flip it later. Another one is in house transaction which one of my investor unloaded it off market and sold to my other investor and we did rehab and refinanced and end up really good equity on it.  Deals do come like these but too much competition makes prices to raise and screw up the numbers. I advised most of my investors to wait out and raid this tide and get ready for the low ones if we end up going to recession.

What do you all up to these days? BTW, I am planning to bring back Holiday Party which we did in 2019 at Karbach. So do let me know what do you all think about it?

Happy Friday!!!

Vijai

Jeremy Pakalka · Answer

The Houston Forum has been slow and I have been away for awhile...it great to have someone post here again!

I would agree that the market has slowed down but there are still good deals out there. The trick is to make sure you have a realistic ARV when you look at a deal. I think the pending and available listings in each neighborhood tell the current story versus sold listings. 6 months ago the Houston market was still on fire and everything seemed like it sold in days, if not hours. If you solely use those comps to find the resell value when you complete the project, you will be setting yourself up for failure. Also, be careful on current appraisal value vs the market. All appraisals, especially with investment loans, only look at sold comps to find the value so houses will still easily appraise with a lender right nor. However, will it sell for that value when the work is done?

I would also want to point out the variance in sold listings vs active/pending listings differs with different price points. Lower end ARVs (100-150k) will see less of a variance than higher end ARVs (500 to 750K) here in Houston. In other words, the higher end value properties are seeing a larger decline in sales prices than lower end properties. The lower end properties that are not seeing any decline are usually holding values but longer DOMs than months ago.

All of this adds up to longer holding costs for all investors on all properties as well. Most investors have already realized this situation but homeowners (sellers) still think the market is red hot. I can't tell you how many times I have heard a seller say something along the lines of "My neighbor's house is smaller and sold for XXX so I know mine is worth more!" There are deals still out there but you have to be careful when looking at the end value once the project is finished!

Let us know about the Holiday Party! I miss the old days of pre-Covid meet ups!

Jason Hirko · Answer

I have a house under contract for 48% less than their original listing price from Q2 of 2022. I always say it never hurts to make offers and get OK with being told no.

Wale Lawal · Answer

@Vijaianand Thirunageswaram

Higher interest rates and overall uncertainty in the market make all of us nervous about the real estate market.

Deciding how to invest in real estate can be tricky when you see rates rising and hear a constant droning on about slowing sales. Until the housing market cools off more, most of us will continue investing in the stock market while we work to save enough money for a down payment.

It’s difficult to determine what will happen next as we wait to see the results of these constant rate hikes. However, we know that bidding wars seem to be a thing of the past as housing prices are slowly softening.

Good luck!

Owen Hehmeyer · Answer

Thanks for the post. I made an offer on an Opendoor-owned house a couple of weeks ago. It had steady price cuts - the iBuyers are bailing and getting that dead inventory off their hands. Opendoor was cutting price like clockwork, every two weeks. I still didn't get the house though. I just can't bring myself to only get 5% yield on a risky house when my safe bank account now pays 3%. An I-bond gets almost 7% now! Of course, you could use leverage to turn that low yield into a mediocre return - but interest rates have killed that. I think prices will have to come down, rents will have to come up, or both. Since tenants are already at the breaking point (or past) I really hope that prices come down instead. One of my units is turning next month and rent will easily go up 5% since last year based on comps. I just don't see these rent increases as sustainable either. I look in Greater Heights and adjacent and I don't see anything appealing that could produce a cash flow at these rates (with normal down payments). Long term, as commercial office leases roll off, I'm super curious what Houston will do with the office space it doesn't need. Vacancy rate in residential is nearly zero and it is ~30%(?) for offices. Maybe somebody will find a way to turn those offices into apartments?

Eliott Elias · Answer

Seller finance and buying property at 50% of it's value

Victor Rios · Answer

Let them rates go higher so prices can drop more than you can buy and refinance later.

Wale Lawal · Answer

Yes indeed.

Let me know if you need any information on Houston market.

Thank you!

Eric Haque · Answer

@Vijaianand Thirunageswaram

Newbie RE investor in Houston, would love to meet-up with others locally.

I currently own 1 property (primary residence SFH) and have been looking for multi-family deals since 2020. Between 2020-2021 I was priced out during the bidding wars which ultimately led me to purchase a SFH to avoid rent surges. (Like @Wale Lawal suggested) I'm also currently investing in the stock market aggressively and saving funds for a FHA down payment and/or emergency fund.

Looking to learn more in creative financing and finding off-market deals. Regardless excited to see the opportunities that come up next year.

Let's get the meet-ups up and going again - Houston is a strong market!

Henry Lazerow · Answer

Great post thanks for sharing! Its always nice to see insight from active realtors in other markets. We are seeing similar in Chicago. More price discrepancy on larger deals. Low price points have not really fallen especially starter single families those almost feel hotter now likely due to affordability. Lots of sellers who still think their buildings worth more then it really is and very non motivated sellers of rental properties that cashflow.

Chris Seveney · Answer

@Vijaianand Thirunageswaram

We run a mortgage note fund buying distressed notes. So interest rates going up or down really have no correlation to our business, also because our investment to value is lower even real estate prices have very little correlation.

Jobs has the greatest correlation to our business.

High Interest,High Home prices - What you all up to these days?

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