Choosing between Fresno, CA and Katy, TX to invest

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Choosing between Fresno, CA and Katy, TX to invest

Account Closed
Lender · Milpitas, CA · Member since 2016 · 376 posts · 248 votes

Good evening fellow BiggerPockets members! I've spent the last month researching different neighborhoods to invest in and have narrowed down my options to these two cities. I'm having a hard time choosing between the two and would love your opinion on the subject.

Katy, TX: A small city on the outskirts of Houston. It's incredibly appealing as I am able to purchase a good quality house for a decent price (~$250k) in a good neighborhood (mostly 9 or 10 star schools). Investing in this area means I'll get a higher quality tenant, possibly one that works in Houston and commutes. Since more tech companies are moving to Houston, I can see Houston and all suburbs around it appreciate over the next few years. Investing in Katy will make me an out of state landlord and carries heavy property taxes (~2.5%). 

Fresno, CA: A large city in the center of California. They recently obtained a contract to start building the high speed rail station, which will attract a lot of people for work. It's only 2 hours away from where I live so I will be able to check on the property any day I like. I can also use my real estate license to buy my own house for some more synergy (save on commission). Fresno is not known for good appreciation or good cash flow and has higher than average crime rates than the rest of the US (although this can be mitigated by investing in the good parts of the city).

I don't have friends or family in either of these locations, but they are the most appealing to me. Do you guys have any thoughts on either of these two cities?

I appreciate all of your help and look forward to reading your comments! Thanks!

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Mark Schmidt
Investor · Clovis, CA · Member since 2015 · 30 posts · 9 votes
10y

@Account Closed North Fresno (north of Herndon) is part of the Clovis school district, which is very good. This area, as well as Clovis has less crime than much of Fresno. The HSR may be helpful, but it's many years down the road. I would encourage you to seriously consider having your first rental close by so you can learn from the experience. 

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  • Tony Ma
    Placentia, CA · Member since 2016 · 7 posts · 1 vote
    10y

    @Account Closed I spent the last few weeks looking at Katy as well for the same reasons you had mentioned regarding a good tenant. Katy ISD seems like one of the top school districts in the state that will surely attract a young family. There seems to be a lot of growth in the area (new hospital, new waterpark, etc.) Would love to share notes if you want to discuss further. I'm trying to understand how strong the SFR rental market is given that interest rates and home values remain affordable. Does anyone have any metrics on how long it is taking to find a new tenant?

    1Reply
  • David Dye
    Real Estate Investor · Torrance, CA · Member since 2015 · 186 posts · 45 votes
    10y
    Would this be your first property?
    0Reply
  • Account Closed
    OP
    Lender · Milpitas, CA · Member since 2016 · 376 posts · 248 votes
    10y

    @Tony Ma I agree, and from the statistics I've seen, about 28% of all houses are rented with only a 4% vacancy rate http://www.bestplaces.net/housing/city/texas/katy. It seems like there's not a lot of competition for rentals in that area and they rent quickly.

    @David Dye Yes, this would be my first property and I would need to hire a property manager if I were to invest in Texas.

    0Reply
  • Franklin Romine
    Visalia-Fresno, CA · Member since 2009 · 1k+ posts · 863 votes
    10y

    @Account Closed I have a feeling the High-Speed Rail is going to put the Fresno Real Estate Marketing into High-Speed.

    Frank

    1Reply
  • Mark Schmidt
    Investor · Clovis, CA · Member since 2015 · 30 posts · 9 votes
    10y

    @Account Closed North Fresno (north of Herndon) is part of the Clovis school district, which is very good. This area, as well as Clovis has less crime than much of Fresno. The HSR may be helpful, but it's many years down the road. I would encourage you to seriously consider having your first rental close by so you can learn from the experience. 

    3Reply
  • Anthony P.
    Investor · Bella Vista, AR · Member since 2016 · 23 posts · 8 votes
    10y

    @Sean Pan I am very new to real estate and investing so take this for what it's worth.  I've been searching for deals in Fresno and most properties just don't make cents (literally).  Or you'll be buying in the worst parts of town.  I've used the BP calculators to analyze deals in a,b,&c neighborhoods.  I have been doing so daily for about a month now.  Either I'm doing it wrong or Fresno isn't the place to start out for us.  That's not to say you cannot find a deal, but it's going to take work I'm guessing or low ball offers.  My wife and I have been looking to invest outside of California more recently.  Also do your homework on the area where you want to buy, Fresno is definitely hit or miss.  Look at the north end of town, north of Shaw Avenue.  

    Are you looking for SFH or MFH?

    Man I sound like a negative Nancy and I'm sorry for that, if you have any questions about the Fresno area I'd be happy to help.  Born and raised in the area and now I'm a police officer here.  

    And if anyone has advice on finding deals in Fresno on MFH I'm all ears.   

    3Reply
  • David Roque
    Investor · San Diego, CA · Member since 2012 · 100 posts · 37 votes
    10y

    I invest in Visalia...still buy multifamily properties that cash flow. As for out of state...each to their own is my opinion. 

    But I do like that I can drive to visit my properties. 

    1Reply
  • Anthony P.
    Investor · Bella Vista, AR · Member since 2016 · 23 posts · 8 votes
    10y

    David are you buying in C or lower neighborhoods? I want to buy a multifamily to live in. And I agree local would be better.  Its probably just wishful thinking to hope for a house in a A B neighborhood and expect a low price.  

    Let me give you an example of the dilemma ... there are 2 properties on El Paso in Fresno.  Great location, close to river park.  Except, that small pocket of apartments are gross and the police calls for service there are many.  The prices were listed at $499k and $550k.  These were 4-plex apartments.  Obviously you can't analyze just by the price but the rent in that area is low.  $800-900 a door.  Looking $3200-3400/mo rental income and a $2600-3000 mortgage just doesn't add up.  We could low ball an offer but I'm not sure what is customary.  What do you guys think?

    0Reply
  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    10y

    The central Calif Valley, regardless of the one-time shot in the arm Hispeed Rail, is not known for growth.  You've already discovered the crime issue and have some good feedback on Katy, TX.  Look into insurance issues (flood, tornados and hurricanes) as Houston is on the Gulf Coast.

    Being an absentee owner, means DIY is out of the question and that forces you into being a manager, not a day-to-day operations 'officer'.  That's good IMO, but you're tehn 100% committed to the Property Manager.  FOCUS on interviewing a list of them, get their policies, expenses, & maintenance support.  Look at the commission structure; IMO, it should be based upon RENTS COLLECTED, not on total rents for the facility.

    Adding the PM, will kill cash flow on 99% of the SFRs, so I would look for duplex, triplex or quads to provide sufficient GSI to support the PM. Personally, I had a 6-unit and would have gone for 8-units if available.

    1Reply
  • Mark Schmidt
    Investor · Clovis, CA · Member since 2015 · 30 posts · 9 votes
    10y

    @Anthony P. I think your calculations match mine. I bought a SFH foreclosure in 2012 here in Clovis that was a good deal and I now wish I had bought more. I will most likely be waiting for the next downturn.

    0Reply
  • David Hines
    Property Manager · Allen, TX · Member since 2015 · 190 posts · 160 votes
    10y

    @Account Closed Let me know if you decide on Katy, Tx. I am a local property manager and real estate broker. I would be happy to help you in anyway I can.

    1Reply
  • Account Closed
    OP
    Lender · Milpitas, CA · Member since 2016 · 376 posts · 248 votes
    10y

    Thank you all for your wonderful posts!

    @Franklin Romine The High-Speed Rail does seem like a great opportunity for the Fresno Metro and will hopefully create a lot of jobs in the area. Do you believe other industries will come to Fresno once the High-Speed Rail is constructed, or is this a one-time boom?

    @Mark Schmidt Thanks Mark, I will look into Clovis tonight. 

    @Anthony P. Welcome to Bigger Pockets and thank you for your insight into Fresno. 

    @David Roque I agree, it certainly is a benefit to have the option to drive to visit your properties.

    @Jeff B. I will send you a PM. Thanks for offering your help.

    0Reply
  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    10y

    @Account Closed

    @J Beard Katy is looking very attractive, but it doesn't seem like there are many Multi-families in the area. Can you elaborate on the commission structure? How do rents collected differ from total rents for the facility?

    Ok.  Assume you have a 4-plex with rents at $1000.  A normal PM commission would be:

    • 10% of 4 x $1000 or $400 / per month, regardless of vacancies.

    assume one vacancy and commissions based on collected rents;

    • 10% of 3 x $1000 or $300 / month as long as the vacancy is unfilled :)

    PM is then motivated to clean-up and fill the vacancy asap.

    2Reply
  • Tony Ma
    Placentia, CA · Member since 2016 · 7 posts · 1 vote
    10y

    @Jeff B. Thanks for pointing out the subtlety in PM commission.  Do you find that the guaranteed PM fee regardless of vacancies is the norm?  I made a bad assumption that the PM fee would be based on collected rent...how else would an owner be able to incentivize the PM to perform!?

    0Reply
  • Account Closed
    San Jose, CA · Member since 2015 · 4k+ posts · 3k+ votes
    10y

    The PM will also normally charge a fee to find a tenant, get rid of a tenant, supervise repairs, etc.  A PM costs more than just the 10%.  You need to pad that figure to be realistic.

    1Reply
  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    10y
    Originally posted by @Tony Ma:

    @Jeff B. Thanks for pointing out the subtlety in PM commission.  Do you find that the guaranteed PM fee regardless of vacancies is the norm?  I made a bad assumption that the PM fee would be based on collected rent...how else would an owner be able to incentivize the PM to perform!?

     In short, yes the flat fee is the norm and collected rents not easy to find. Also as 

    @Sue Kelly notes there are other fees and they can become sizeable.  Don't be shy on negotiating fees and commission structures!!!

    0Reply
  • Anmmar Alsaggaf
    Flipper/Rehabber · Turlock, CA · Member since 2015 · 94 posts · 30 votes
    10y

    Guys I work as an Appraiser in the Agriculture sector of Central California. I also run a small real estate club that has professionals on the lending side, rehab, investing, agents etc. SO I have a pretty good idea of what areas of Fresno have deals and how to buy them. It's tough to get deals in Fresno right now but not impossible. If your looking to buy/hold I suggest looking into the downtown area and tower district. You can still find a few gems there but you have to work with an agent who knows that market inside out. If you need referrals let me know. I would not mind helping you analyze a property here. 

    Fresno is not the only area to invest. Lots of growth potential in nearby towns like Madera and Merced. The experienced flippers are moving in that direction now. I for example just talked to a construction manager of a new home builder in Madera. They are getting lots of eyes on new development both on the residential and commercial side. 

    Let me know if you want more information. 

    0Reply
  • Jay Orlauski
    Realtor · Fresno, CA · Member since 2013 · 471 posts · 225 votes
    10y

    While Fresno may be turning into a sellers market - I have to disagree with the statement that "Fresno is not known for growth" as a matter of fact , one of the reasons I chose to stay in Fresno was the massive growth i was seeing when I first got here 15 years ago. Back then I was looking at new high rise structures going up all over North Fresno and thought to myself - " now here is something going on" Even now, growth is still happening at a pace so rapid, my GPS can barely keep up with it - and of course they chose to put high speed rail here in Fresno because it is a hub of activity and has access to the bay area. The jobs and industries it will bring ill continue to bring growth to the area. I have seen a lot of investors coming over to Fresno from the bay area to get in on some of this growth , but now it is getting overcrowded with buyers and investors are starting to look elsewhere. There are still deals to be found - but they are not going to advertise themselves on the MLS - the deals require someone willing to turn over rocks and knock on doors. The days of opening a real estate magazine and finding pages of cash flow opportunities are long gone. I see continued growth for Fresno and the ones who can afford to buy and hold will benefit from the eventual high speed rail. That said - I myself and looking for opportunities outside of Fresno - but still trying to find them here also. I'm not giving up - I just watched a contractor friend of mine get two properties under contract for pennies on the dollar and and were hoping to scout out another couple of gems that no one really knows about right now.

    1Reply
  • Michael Finkelshteyn
    Wholesaler · Houston, TX · Member since 2013 · 73 posts · 9 votes
    10y

    @Account Closed What is your goal with the Katy investment? A $250k will not cash flow well and your property taxes will be higher than 2.5%. Katy property taxes range from 2.7%-3.8%. There are also two segments of Katy: North of Interstate Highway 10 and South of Interstate Highway 10 (aka Katy Freeway and I-10). You'll have homes better fit as rentals on the north side as they range from 100k-180k. Homes in the south will range from the 150k to Millions. 

    North Katy will typically have more renters and more blue collar workers. South Katy will be your professionals. 

    0Reply
  • David Nelson
    Investor · Houston, TX · Member since 2016 · 4 posts · 0 votes
    10y

    Not sure about Katy, but suburbs have been getting hammered more due to the oil downturn (longer timeframe on market).  I sold in the suburbs of houston last year and can buy more home for less money this year.  Just build in a better cushion for vacancy to be conservative nature with economic conditions.  If your a buy and hold, then you will probably ride thru any short term valuation.  Great points above on property taxes.  Be careful of anything above 2.5%. 

    0Reply
  • William Kyle Walker
    Rental Property Investor · Atlanta, GA · Member since 2013 · 119 posts · 28 votes
    10y
    Like it was said above, some areas are getting hammered by low oil. There is a competitive market in Houston but it could be a good time to buy if you are bullish on oils rebound.
    0Reply
  • Todd Hayes
    Investor · Katy, TX · Member since 2013 · 24 posts · 1 vote
    9y

    So Sean where did you land in Fresno CA or Katy for a rental?

    0Reply
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