Thoughts on townhome investment in Houston, 77081?

Question

I have heard the major cons about investing in townhomes but this area is close to the galleria and med center. I am not as familiar with this area so I thought I would ask the group. The property is 2b/2b 1100 sq feet updated and would be pretty much turnkey once purchased. The listing price has been reduced significantly. This would be my first investment property purchase. The plan is to finance with 20% down. COC is approx 4% but I am relying more on the appreciation of the property overtime because of the location. I welcome your comments/feedback.

David June · Answer

@Kai W. That is true. The Houston med center is huge, and doctors/nurses will probably never be able to work from home. I am hard pressed to think of a industry more stable and recession proof than healthcare. I would just be cautious if you are relying on appreciation and have a exit strategy just in case appreciation doesn't match expectations.

All that being said I still think Houston is a wonderful place to invest. There is steady growth, diverse economy, and its still affordable (for now) in areas. Best of luck!

Kai W. · Answer

@Diego Amezquita great points! I am really concerned that the appreciation growth, or possible lack of growth, will not be worth the low COC.

Diego Amezquita · Answer

Hello @Kai W. I am currently working on my first deal as well so correct me if im wrong, but your COC seems a bit low and any issue with tenants or repairs could eat up your cash flow and you might have to go into your pockets to cover certain expenses. the other thing is if the property is turnkey and it doesn't make sense to do a cash out refinance then you will have your invested money sitting and not working for you. I personally would make sure to have some good exit strategies. Hope this helped and good luck!

Kai W. · Answer

@Adriel Hsu thanks for the input. The location is Glenmont and Rice. I believe near Bellaire.

Adriel Hsu · Answer

@Kai W. If you're closer to Bissonnet and 610 it is a good area, more towards Sharpstown/Chinatown not as desirable.The thing is, townhomes don't really appreciate as much in value as a SFR. Make sure it cashflows enough to cover emergencies if your play is longterm appreciation

Kai W. · Answer

@David June great point about the effects of COVID. I have also heard an opposite perspective: since many are being furloughed or losing their employment completely it may be safer to go with a townhome near the med center to attract essential workers. Potential tenants would be graduate students (med students or other professional programs). I really appreciate your thoughts and I will go back and analyze a bit more.

Kai W. · Answer

@Jamal Fontenot thanks for the feedback. The area is already pretty developed. Next door to the section of townhomes that I’m interested in sits another townhome development priced $500k+. There are also homes on the same street valuing >$800k. Houston inner city is interesting because you can cross an intersection and the area can become less desirable. The townhome that I am referencing sits on the desirable side pretty much as soon as you cross the intersection.

David June · Answer

@Kai Williams Congrats on starting your investing journey. I can't speak directly to the pro or cons of "town home" investing, but I would consider the market effects of COVID and how it will effect demand in inner city areas. With more people working from home I think we will see a shift in the number of people wanting to live in the city and close to work vs those that can work from home. Suburbs offer more home for the money, better schools, and now less population density.

I think long term growth of any property inside the loop will be strong, but I wouldn't be the least bit surprised to see a slump, while demand in the burbs grows.

Jamal Fontenot · Answer

@Kai Williams depends, at what rate has it previously appreciated? What signs are you seeing of future development? Sounds pretty good, cash reserves for cap rate are important though so make sure you have “oh crap” money put aside. The best part about it all is your taking that big step of actually getting started. Congratulations on that, and best of luck!