Houston compared to San Antonio/Austin, TX (buy and hold) purchase recommendations

24 Replies

Hi BP, 

I live in California and own a townhome in Houston, TX near my in-laws. I have had great luck renting it out with the help of a management company and knowing the area based off of the multiple visits a year i take there. I am looking to purchase a SFR in the near future in the Houston (specifically Katy, TX) area in the price range of 125K or so. I was talking to my insurance agent since my rate continues to go up yearly which is at $111.12/month on my current Houston rental. He suggested to look into San Antonio or Austin which offers lower rates averaging $50.00/month due to the less likely hood of hurricanes/flooding. Im here to hopefully hear from experience in all area's and suggestions as to the pros and cons of each area. It might be a broad scope but Im looking for profit and the ease of renting. Let me know what you guys have to say. Thanks!

I could go on for hours about how wonderful Austin is as a city. But I'm hearing the market is so hot that it's almost impossible to find a deal there that makes sense.

The other thing to consider is Travis County has the highest property tax rate in the state, surpassing all the other major cities in Texas. What you might save in insurance, you could end up paying in higher property taxes.

The reality is all the big cities in Texas are experiencing rapid growth and ever increasing property values. But from what I hear about Austin, it's like Houston on steroids.

By the way, I'm looking in Katy now for some investment properties. I would be happy to share whatever information I can and assist you in finding something there if you would like. Just send me a message.

Austin is hot but there are suburbs where positive cash flow is still nice and projected appreciation makes these very attractive.  I have a lot of BP clients that I find properties for here in Austin and all of them are making decent positive cash flow and seeing 5 to 10% appreciation with no end in sight as Apple expands from 5000 to 10000 employees.  Samsung investing billions here in their huge facility.  Dell, Google, Visa, you name it they are either already here or coming.  150 people a day are moving to Austin and 30,000 new jobs projected each year for the next 3 years at least.  Did I forget to mention the Dell/UT Medical Research Center they are building and projecting to be as big as the tech sector job growth.  If they are even half right it will be a boom for people who invest now in Austin.  I am sure San Antonio, Dallas, and Houston all have their stories but I believe in the long term sustainability of Austin via its non-oil-based job growth.

I am new to BP and have lived in Austin all of my life. I can tell you that the property values are rising dramatically. I have not done a deal as of yet but my first will certainly be in my hometown of Austin. Everything Dan has mentioned is very true. A lot of jobs and people are here and still coming to Austin so I think it will be saturated in a few years if it has not already started. Let me know if I can help with anything.

Dallas isn't tied to oil either.  In fact, Dallas is a much larger tech market than Austin/Roundrock.

The fact is, @Fred Heller is right.  The major markets in Texas are stupidly competitive right now.  San Antonio has far more available inventory than Dallas, Austin or Houston.  However, I have my own personal concerns about the long-term viability of the growth in SA.  There are plenty of 3rd tier suburbs in both Dallas & Houston, where the competition is less extreme and cash flow is easier to come by.  

I recommend you hook up with an investor friendly realtor or 2 in those areas. Give him/her your criteria for what makes an attractive investment for you, and let them do what they have trained to do. But, when you give them your criteria, don't just tell them 3/2/2 for $125k or less. Lift the covers and let them see what actually drives your decision. Is it net monthly cash flow? If it is, give them your calculations (i.e. 10% for PM, 5% for OpEx, 5% for CapEx, 10% for vacancy, etc.) I gave my realtor my analysis workbook. He can plug in the purchase price and property tax, and it immediately tells him what my monthly net is. Then he knows whether to move on or present the property. If you're willing to do some rehab, how much?

Basically, make your realtor your partner in the search.  The more information you arm them with, the better the properties they present will be.

I agree with @Fred Heller . Your taxes and sales price are a much bigger concern than insurance. On a long hold I think you are safe in any big city in Texas. Given that, you should probably concentrate on the area you know. If you use PM it will be easier to work with a single PM. 

@Tony Duran , I live in Austin and have all my rentals in the greater Austin area. In today's market you can still find good deals but they are mainly for cash buyers and at the foreclosure auctions. We just picked up a property in Leander, TX for $120k that rents for $1500/month so they are out there, just have to know how to find them. Most properties in the MLS are hitting the .8% rent/value which is not particularly great and the 1%'s are usually snatched up the first day on the market. Austin proper is ridiculous but some of the suburbs are still doable. Both my wife and I are Realtors so if you have any questions please feel free to contact me. Most of our properties have almost doubled in value over the past three years and have good cash flow so we still plan on investing in Austin for a while to come.

Originally posted by @Will R. :

I agree with @Fred Heller . Your taxes and sales price are a much bigger concern than insurance. On a long hold I think you are safe in any big city in Texas. Given that, you should probably concentrate on the area you know. If you use PM it will be easier to work with a single PM. 

 I believe thats what makes me want to stay within the Houston area being that I have family in Katy, TX and know the Houston area pretty well. I really am looking for monthly cash flow over property value since it will be a buy and hold for me.

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I also invest in the Houston market.  I am broadening my horizon to look in other market.  I still prefer Houston because I have connections and have live there for short period of time.

Hey guys! I own one rental in Austin and 2 in San Antonio. I definitely have more trouble searching viable properties in Austin but it seems like a strong market that will appreciate strongly over the years. With the right deals I would totally keep investing in Austin and its suburbs. :)

If oil holds out, Houston is where you want to be.  There is a ton of property below 125k that will make good cashflow. 400-500/month. San Antonio has several as well.  Austin No so much. I could point you to as many as you can handle in Houston or San Antonio, and if they show up in Austin as well.  

@Ed Neuhaus  There are definitely a lot of properties in Houston under 125k but I'm not really seeing much that cashflow in the 400-500/month range after taking into account vacancy/op ex/cap ex/PM (correct me if I'm wrong). Does it make much sense to acquire a property under 125k if the cash flow is good even if the price of the property is just a tad under market price (ie. not a killer deal)? The Houston market doesn't seem to fluctuate much so apart from the cashflow, I don't really see much gains in way of appreciation.

@Jimmy Chin I have been getting emails from several groups in the Houston market searching for these properties.  I have seen several in the last month under 125k that will get over 500/month in CF.  Actually I have seen $900/month CF.  I tried to buy it. 

For simplicity I should mention that I don't take into account CAP EX or PM fees when I am talking about the broader market. I should have explained that in my first post. It would be pretty hard to expand CAP EX across a range of properties. We should include it, but a 10 year old property needs less than a 30 year old property. So I just leave it out until we narrow the search. Also I am my own PM. But my estimates do include vacancy and maintenance estimates.

As for the Houston Market not moving that much, you may want to review some history. Ask people about the 80's.  I know plenty of people in Houston who have wished they could given away properties from time to time.  Then years later sell them for a 500k profit. 

Check out the data on the Texas Real Estate Centers Website.  https://www.recenter.tamu.edu/data/housing-activity/#/activity/MLS_Area/Houston

@Ed Neuhaus

Sorry about asking this newbie question...

What is cap ex? I know vacancy expenses, op ex (Operations expenses), and PM (Property Management) expenses. I know it's probably something simple but I would rather be sure.

Oh and if i got one of the above ones wrong let me know!

Originally posted by @David Pena :

@Ed Neuhaus

Sorry about asking this newbie question...

What is cap ex? I know vacancy expenses, op ex (Operations expenses), and PM (Property Management) expenses. I know it's probably something simple but I would rather be sure.

Oh and if i got one of the above ones wrong let me know!

Cap ex = Capital expenditures. Those would be your big ticket items like the roof, a/c systems, etc. There's a blog here that explains these expenses in great detail that you might want to read up on: http://www.biggerpockets.com/renewsblog/2014/09/28/analyze-rental-properties/

@David Pena Cap Ex is basically an amount of money set aside each month for future expenditures.  If you buy something with a really old roof you can try to wait for a hail storm to lower you out of pocket to replace the roof, but at the same time you should be setting aside the money to replace the whole roof.

Anyone fell free to correct me if I am wrong here.  But, if you are really calculating cap ex you would need to take the cost of everything that is going to wear out of the house. Divide it by its expected life, and come up with a monthly amount to set aside for that expense.  For example:  If a roof last 30 years and cost $6,000 to replace, you should be saving 1/360ith of that each month for a new roof.  Or about 17/month. You should do this for every item of the house.  

But most people including myself don't do this. I just keep $1000 for each property in an account.  That money is enough to get me through just about any repair.  Of course my operating agreement and requires me to replenish these accounts if ever used. 

I really need and want to get good with a private lender so I can start buying 

BTW, for reference. I just purchased a house in SA last month. I paid 80k, put 7k into paint and floors. It appraised before closing for 95k. So I had about 75% ROI when I closed. Paint and Floors probably only gain me 5k in "value" so my ROI went down a little bit. My payment is $517/month. I have tenant moving in next week at $1100. I expect after expenses this one will be about 450-500/month is CF. Not a bad day at the office.

Originally posted by @Ed Neuhaus :

BTW, for reference. I just purchased a house in SA last month. I paid 80k, put 7k into paint and floors. It appraised before closing for 95k. So I had about 75% ROI when I closed. Paint and Floors probably only gain me 5k in "value" so my ROI went down a little bit. My payment is $517/month. I have tenant moving in next week at $1100. I expect after expenses this one will be about 450-500/month is CF. Not a bad day at the office.

 nice deal man are you looking for more turnkey? anyway I was just saying I need a private lender just in case I run into a house I want to keep for my self so I can start getting cash flow

@Marcus Wallace sure the more turnkey the better for me. It just comes down to time. Im a broker in SA so please don't send me anything in the MLS, but if you know of something not let listed let me know.

Originally posted by @Ed Neuhaus :

@Marcus Wallace sure the more turnkey the better for me. It just comes down to time. Im a broker in SA so please don't send me anything in the MLS, but if you know of something not let listed let me know.

 will do and yeah I don't mess with mls properties either

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