Houston Rental Market -- what is it doing?

Question

With all the people displaced by floods, and so many houses still being repaired/rehabbed, it is natural to think that supply is short and rents must be high. And yet, in my part of town, I see vacant houses for rent all over.

My original theory was that most folks here are just flat struggling to make ends meet, and most cannot afford $1200-$1300 to rent a house. Landlords might drop them a bit, but not that far. So I suspect it is the apartment market that is experiencing the inflated demand, and not the SFR rental market.

Today I tracked down the contact details of one of the big national RE investment funds that operates here. To my surprise, I got a polite and timely response a regional manager of sorts.

I was told that they 'are currently not acquiring any additional homes within the Houston Market at this time nor the foreseeable future.'

Hmmm. Are prices finally getting unsustainable for rental properties? They've had enough with local property taxes in Harris County (nobody would blame them)...?

Interested to hear your thoughts.

Account Closed · Answer

I would not say deals are not there. You just have to look closer and more time consuming. I found out hard way that you are definitely going to overbids on deals under 500k around Houston where the sellers have about 15 bids in a matter of days. Rental market is still strong in my area (montrose) I have 96% occupancy. Some of my tenants are replaced post Harvey. Most Harvey people are still rebuilding their home and having a hard time getting their SBA loans approved.

Ryan Terwilliger · Answer

Contrary to what the RE mentors might say, the deals just are not here. Yes you can find some with a lot of time but at the end of the day most working folks do not have the time to dedicate to basically wholesaling. My advice to pick up rentals is to look into growth areas outside the populated areas, even consider new construction, try to network at meetups, find some cash to spend or just wait. Equity is getting hard to come by though.

Dave Chapa · Answer

I talked to my PM about the market in Houston. She said that they have no vacancy with all the properties they manage, a very large portfolio of SFH and small apartments. They are also adding another 30+ homes that are at 100%. All my properties are at 100%. I am also looking at another small apartment outside of Houston that is also at 100%. When we had product sitting it was because of all the rentals hitting the market at the same time. So, I still see opportunity here, it just takes me a little longer to find a RE deal that works. My guess would be that the big national RE investment funds are chasing other markets that are hot.

Dave Fagundes · Answer

Couple thoughts on "deals" in Houston:--The area is huge, so when people talk about the "Houston rental market," that just seems too large for a generalization. For example, in the west part of the inner loop there are mid-rises going up all over the place. I'd be interested to know what their vacancy rate is. My guess is it's pretty low, but I'd need to call to confirm. Would be interested to hear if anyone has info on that. But my point is that the vast area included by Houston has submarkets that likely have very different characteristics in terms of rentals.--A couple in-person observations: I've been down around Brays Bayou a bit and it's surprisingly recovered. Been almost a year since Harvey, but I know several people who lived there and got flooded; they already sold their places to developers who are going to raise the level of the land and re-build. I've also been up in the Heights a bit and the level of construction there is insane. I had to drop something off at someone's house and I couldn't park on his street because of all the construction activity. Housing stock and resident population is still mixed but it seems to me like there should be lots of opportunities there to buy something, fix it up a bit, and rent for a decent return. --In the BP podcast #278 with Charles Roberts, the guest (Roberts) made a good point that the word "deal" is vague and overused. If it means "easy chance to acquire and re-sell at a profit quick" then deals may be scarce anywhere in a hot market. But if it means "reasonable opportunity to buy and rent out at a modest but slowly increasing cash flow" then I suspect there are plenty of deals out there. Point is, it all depends on what you mean by "deal."

Dave Chapa · Answer

@Mark Sewell I have been focusing on small towns outside of the Houston area. Brennan, Katy, Bellville, Sealy and, also Brookshire. My goal is to run my PM all over the place :-).

Mark Sewell · Answer

I won't say they aren't there, but I will admit, it is starting to feel like winning the lotto. Can't win if you don't play, I suppose.Once last summer I looked at an old 1940s house in Waller. Places like that, with new businesses moving in (Amazon is expanding somewhere over here), are probably where the opportunity is.

Jessica Wygal · Answer

I've been thinking of the Waller area as well, seems like a smart move.

Mark Sewell · Answer

Good insight Dave. Thanks for sharing.