I've been looking around the houston area (Pearland and Cypress specifically) to purchase my first house. I was "pre approved" for a 250k house. I'm worried about "location, location, location". i want to eventually rent out this house when i can afford an additional down payment on another house.
I don't know the Houston area too well because i've been renting in Austin, Tx for the last few years. I'm moving to be closer to work.
My questions are: Is the Cypress/Jersey village area rentable?
-Is 250k too much for a profitable rental?
I've been stressing out more than i have ever been just finding a house, which i naively thought would be a whole lot easier and that obtaining the down payment / finance would be the hardest part. tips or advice for my first purchase would highly appriciated!
@Jesus Perez I live off 290 so I'm very familiar with the area. It's a nice area with some of the best schools in the Houston area (Cy-Fair ISD). And it is very popular with renters.
$250,000 is NEVER a good price to pay for a rental in my opinion. You're never going to get the kinds of rents that will justify that purchase price. When I look for rentals for my investor clients, I always keep it under $130,000.
And I'm probably the odd man out on this, but I don't think buying a single family home with a mortgage is a good idea. I've never seen the numbers work for anyone. If you're paying $600 a month for a mortgage payment, there goes your cash flow.
I would much rather see you take that money and put it in a duplex or fourplex. Actually, a fourplex would be the best.
@Jesus Perez what you want in your personal residence and what you need for a rental property could have two completely different characteristics and trying to meet both may drive you insane. It sounds like you need a personal residence first and your focus should be on that only.
Having a good real estate agent really does help in the process, I'm a real estate broker, but my sole focus is only on property management, however, I can definitely refer you out to a good sales real estate agent.
@Jesus Perez I agree with Fred and think you've found a good area to purchase in. We rent houses quickly and easily in Cypress/Jersey Village due to location and schools. And I agree with Fred that the price point you are looking at is unlikely to give you as great a return as a lower price point. We look at it as a rent to price ratio. You could actually buy 2 houses for that price that would return you greater rent revenue than one $250K property. And finally I agree with Fred that multifamily are going to provide a better return than single family usually. Again it's simple math that you have more doors generating more revenue for the same or lower acquisition cost.
Multifamily are much harder to find than single family in the area you're looking and really all around Houston. Multifamily in good neighborhoods in Houston are the unicorns that most investors are looking for. They can be found but they are usually not in the A & B rated neighborhoods that we like for new investors. And a multifamily property in a C class neighborhood can present a new investor with some Property Management challenges that are far different than what you will find in a SF in a B neighborhood. It can be done [we do it all the time] but I would not advise it for a new investor.
I also work with investors who routinely acquire mortgages [most conventional] to purchase single family rental homes and it works very well for them. I think Fred is saying you will get more cash flow [and a greater ROI] if you don't use a mortgage but the number of young new investors that can purchase property W/O a mortgage is few and far between. I see many more investors [both experienced and newbys] utilize mortgages to purchase investment properties and go on to success with that strategy. There are several posts here on BP that will enlighten you on strategies you can use to pay down that mortgage ahead of schedule [more aggressively] if you like. I've utilized leverage (mortgage) to purchase investment properties and many people do. It is a sound investment strategy.
And finally, I like Cypress and Jersey Village a lot and you can expand your search area to include neighboring Katy, Tomball and NW Houston and still be in highly desirable areas that rent well. The debacle that we call 290 will eventually be fixed and it will look much like I10 West in W Houston and Katy when it is done. At that time you should see a shard increase in value to any property you buy in the area [IMHO}.
I pretty much agree with the other comments. I have a few SFR's in that area. They are in the $150/160k price point. I have mortgages on them and they cash flow, even after reducing for vacancy, maintenance, etc. (although I do self manage).
I learned my lesson on a property I have at $220k...it's my worst performer (considering cash flow and COCR). Rents do not follow a linear progression with home prices (at least I haven't experienced that).
I would definitely look to buy two properties (or multiple units) rather than one larger/nicer/more expensive one. Of course this assumes you have a buy & hold strategy and are looking to optimize cash flow. Sometimes you can capture more equity (there is more spread) on the higher price point homes. Just depends on your strategy.