Advice Needed on Houston Market Analysis

[Xi Chen]

Hi BP, 

I am a novice investor located in Houston area that has never done a deal. This is my first post in the community. I have been looking for opportunities to invest in either single family or Multifamily rental properties. After about two months searching on MLS, I realized that it is extremely hard to find any that is close to 1.5% rule. I can find 1% deals but with my conservative calculation (10% for repair/maintenance, 5% for capital expenditure, and 10% for property management etc.) those cannot bring me positive cash flow, let alone $100/door that I aim for. At this moment, I am kinda lost. The housing market in Houston is hot, and there is a lot of competition even for seemingly not good deals.

I would really appreciate any advice/analysis on 1) Is the Houston market overheated right now? 2) What areas in Houston are more worth looking at? 3) Should I stick with 1.5% rule if I wanted to buy and hold. 4) Should I explore other niches that might be more profitable?.   

I have to add that I have only been in contact with one real estate agent and one wholesaler in the area. So it can well be that I am not trying hard enough to find deals. I look to network more in the future. I guess this post is a good start for me. :)

Many Thanks in advance. 

Best Regards!

[Tim Johnson]

Hi @Xi Chen I am also relatively new to Houston and have not yet found a deal that I want to jump on.

My primary obstacles right now are (1) finding good rent-to-value % just like you, and (2) not feeling familiar enough with various areas of Houston.

Regarding issue (1) I would suggest to look outside the loop, possibly also outside the beltway. Competition and thus prices will probably be lower. You might also connect with wholesalers, RE agents, and other investors by attending networking events, so you can expand your access to off-market properties and market intelligence. I have had good experiences at the 713 Houston Area Real Estate Investor Network as well as the monthly JET Lending events at Redneck Country Club (lots of people, wide range of backgrounds, lots of vendors). 

For issue (2), my plan is to try to choose a couple of specific areas to focus on instead of scanning the entire Houston market for deals. This will limit options for deals, which may seem counter-productive if you are already having trouble finding them -- but it makes sense to me because I will invest more time in those areas, spend more time on the ground, and make contacts that specialize in those neighborhoods. If I do this, I will be able to quickly identify a good deal vs a bad deal in that area, and so I would feel more comfortable making a higher bid if necessary to beat out competitors on the right deal. I would rather be able to do that, instead of trying to stretch my focus over the entire Houston metroplex.

Hope this is helpful for you.