Third Ward cost of rehab per sqft?

Question

Hi all,

My wife and I will be moving to Houston, TX shortly and are looking to purchase a distressed small multifamily (2-4 units) using a 203k loan, renovate completely, and live in 1 unit while renting out the other 1-3 units. I'm getting started on getting to know our target markets. We need to be within a 10-minute commute of the medical center, so for us our target market is Third Ward/South Central/Macgregor/Greater OST/South Union.

Could someone who knows these local markets give some insight into price of renovation per square foot? I'm trying to get better at being able to "run my numbers" as I look at properties.

Thank you in advance,

Caleb

Joe Davis · Answer

Hey Caleb, I am located in Houston - have been an agent here, a wholesaler, flipper/buy and hold guy and now solely lending. We do local hard money loans and DSCR refinances so i know the market well.

It is too broad to give a price per sqft. there are too many variables. Best bet is to get your GC to quote the job before offering, and never rely on calculating your rehab cost purely on size or level of distress/sqft.

If you need some recommendations on contractors here - send me a message.

Daniel Tanasa · Answer

Hey Caleb,

Price per sqft can vary widely depending on the level of renovation quality. For a builder grade I would say probably $15 a sqft for a cosmetic renovation, probably around $30 for something  more serious and close to $50 or more for a full gut. But best way to go about it is to find a contractor that is willing to work with a 203k loan and have them give you a quote.

As about the area it can be pretty rough. I would strongly advise to drive by and get a feeling of the street at night and see if you're confortable living there.

Let me know if I can help with anything.

Victoria D. · Answer

Born and raised Houstonian here and UH graduate so I know this area, I would say you are looking into the poorest of the Houston area and that particular area would be full of distressed properties and homeless. Check out the crime rate and how desirable it would be for your family to live there. While the areas to the west of the med center has changed - Montrose, Rice Village, Braeswood, Southside Place, that particular area has not seen the transformation. Another cost to keep in mind in Houston, med center, is flood insurance. South of I10 you must have flood insurance regular insurance does not cover flood damage. Another point to consider is we have power outages so a generator is a must or near must depending on your health and level of comfort you expect- summer can get to 105F plus humidity. Even if on the map it looks like it could be 10 minutes, Houston traffic especially in the med center is an easy 30 minute commute. We’re a commuter city so I just want to set expectations - check out the map during traffic time 6:30-9am and 3-6p to check the travel time changes especially if 10 min is a requirement. From your list, I would say Macgregor on toward south side would have more potential but again - flooding is a real thing and it does happen and check that crime rate depending on the clientele you’re looking to get. As for costs, Houston has seen some adjustments post Covid so contractor costs are leveling out. With the market and inflation rises, paychecks aren’t seeing the same increase here so folks are not buying as much so contractor rates should be pretty good as folks are looking for work. All that said, welcome to Houston!

Andrew Postell · Answer

@Caleb Hood thanks for the post.  Always great to hear from a future fellow Texan.  Have you spoken with your real estate agent on this strategy?  I can't tell where you are moving "from" with your post...but your current area might have a different type of multi-family market than Houston...but this would be so hard to do in Houston that I might even say it's impossible to do.  Speak to your realtor on it though.  They should be able to square you away on what the best technique is here.  Oh, also, I would not suggest to use a "price-per-square-foot" strategy on rehab.  Lean on your contractor (who will need to be approved by your lender) to give you any feedback on estimating rehab costs if you do end up going this route.