Best state to Invest ???
Rental Property Investor · Member since 2018 · 55 posts · 14 votes
Best state to invest in buy and hold rental properties ???? is it a Hands down topic ? Or is it debatable ?
Texas.
Enough said.
Im looking in some of the same states however i need to figure out how to establish designated areas of investment that will not be a major head ache with the flooding issues.
@cornelius
Jason I am new to this arena. Just want to ask you, what is that 2% rule?
2% of your investment in rent every month... A $50k house that rents for $1,000 a month, for example
Texas definitely seems to be where the growth is at...here are two articles about the mass exodus of companies from California to other states. Many moved to Texas. I remember when Toyota moved their corporate headquarters from Torrance to the Dallas area. Thousands of jobs and the economies that go with them.
https://www.bizjournals.com/dallas/news/2018/10/11...
https://chiefexecutive.net/business-exodus-california-troubling-sanctuary-policies/
This is such a common misconception. In California, you pay 1% in property taxes. In Texas, I pay about 1.9%. BUT I'm not paying 13% in state income tax! If you're doing it right, you'll gladly make that trade for no state income tax!
Not only that, but it's not just %, but rather how many months of rent income does it take to pay that tax bill. Using made up numbers:
In Houston I pay $1m for a property that brings in $10k/month. My tax bill is $20k/year. Or 2 months of rent to pay the tax bill
In California I pay $1m for $3.3k/month in rent. Tax bill is $10k/year. Or 3 months of rent to pay the tax bill.
So really, even property taxes, at least as a function of your rental income to pay them, is lower in Texas than CA.
Those are some low low rents on 1 mil. In LA 1 mil might bring in 5k-7k, then add you still might have to pay income tax if you live in CA and invest in Texas. Keep in mind the 10% CA income tax bracket does not kick in until you make 268,000 so is it under 10% until that point. Still a rip off imo.
My neighbors house (San Diego) appraised for $950k. He leases it for $3,400/month.
Meanwhile in Houston I paid $800k for a 10 unit that leases for $9,500. And a single family I bought for $480k leases for $4200 (not a "1%" rule but it's an awesome historic SFH in the best neighborhood in Houston IMO). So for apples to apples my SFH in Houston costs 1/2 as much as the one in SD but rents for more.
My numbers were just used to show that a higher property tax rate doesn't have to mean less cash flow if the higher tax rate is on properties that have far more rent per dollar of assessed tax value. But now you have some real life examples. I'm sure you could find some socal property with better rent:price ratios, but then so could I in Houston (many at ~2% rule)
For those familiar with Texas, would you say Austin is on the higher priced, more competitive (to find a deal) side compared to some of the other towns/cities in Texas? I like the idea of Austin and it seems to have a lot going for it in many ways.
Doing a quick search on Realtor.com comparing SFH and Condo buy prices to rentals rates makes it seem like finding properties that meet the 1% rule are going to be really tough to find.
@Steve R. thanks for these area recommendations- Austin (Cedar park, Leander, Round Rock). Are these more suburban areas? If so do you think these areas have more potential than the downtown area?
@Darius Anderson thanks for starting this thread. I'm in the NY/NJ area, so unfortunately have to go out of state to invest and also trying to find a market(s) that make sense.
This is such a common misconception. In California, you pay 1% in property taxes. In Texas, I pay about 1.9%. BUT I'm not paying 13% in state income tax! If you're doing it right, you'll gladly make that trade for no state income tax!
Not only that, but it's not just %, but rather how many months of rent income does it take to pay that tax bill. Using made up numbers:
In Houston I pay $1m for a property that brings in $10k/month. My tax bill is $20k/year. Or 2 months of rent to pay the tax bill
In California I pay $1m for $3.3k/month in rent. Tax bill is $10k/year. Or 3 months of rent to pay the tax bill.
So really, even property taxes, at least as a function of your rental income to pay them, is lower in Texas than CA.
Those are some low low rents on 1 mil. In LA 1 mil might bring in 5k-7k, then add you still might have to pay income tax if you live in CA and invest in Texas. Keep in mind the 10% CA income tax bracket does not kick in until you make 268,000 so is it under 10% until that point. Still a rip off imo.
My neighbors house (San Diego) appraised for $950k. He leases it for $3,400/month.
Meanwhile in Houston I paid $800k for a 10 unit that leases for $9,500. And a single family I bought for $480k leases for $4200 (not a "1%" rule but it's an awesome historic SFH in the best neighborhood in Houston IMO). So for apples to apples my SFH in Houston costs 1/2 as much as the one in SD but rents for more.
My numbers were just used to show that a higher property tax rate doesn't have to mean less cash flow if the higher tax rate is on properties that have far more rent per dollar of assessed tax value. But now you have some real life examples. I'm sure you could find some socal property with better rent:price ratios, but then so could I in Houston (many at ~2% rule)
I hear ya, some rents may have not caught up or just are low like that. Shiat happens on the open market. I have not seen averages lately but perhaps a 650k townie rents for $3500+ in these parts and lets say a 2+2 500k condo 1000 sqft ish is around $2900+ today. A 3+2 sfr well under a mil might start around $3500 in the less than B areas of LA.
@Steve R. i felt this topic is most important to a investor in transition and some one new to putting there money to work i'm also from NJ Long Branch/Deal so i understand the difference in what our money's ability here and somewhere else i been analyzing different states and properties for a while and now im investing out of state its so much potential everywhere its just about narrowing it down and zooming in on the best opportunity available then maximizing that deal to the fullest extent.
For those familiar with Texas, would you say Austin is on the higher priced, more competitive (to find a deal) side compared to some of the other towns/cities in Texas? I like the idea of Austin and it seems to have a lot going for it in many ways.
Doing a quick search on Realtor.com comparing SFH and Condo buy prices to rentals rates makes it seem like finding properties that meet the 1% rule are going to be really tough to find.
@Steve R. thanks for these area recommendations- Austin (Cedar park, Leander, Round Rock). Are these more suburban areas? If so do you think these areas have more potential than the downtown area?
@Darius Anderson thanks for starting this thread. I'm in the NY/NJ area, so unfortunately have to go out of state to invest and also trying to find a market(s) that make sense.
I’m sure Austin is like Houston in that there are A+ areas that are expensive relative to rent. And bad areas that cash flow. And everything in between.
What I like about Houston is I can buy in non warzones and close to super hot areas for a mich better return than if I was only 1-2 miles away. And I get smack dab in the path of progress.
@Steve R. Thanks for sharing the insight. Will have to spend some time learning more about those areas and their ongoing development- sounds really interesting. Agree about the importance of being close to public transportation, this creates significant value around my area as well. I've mostly been looking into urban/city and college areas where there is a definite renters market. I'm not too familiar with the demand for rentals in suburban areas, but sounds worth looking into.
@Cody L. Thanks for the input. Houston sounds interesting and like it has a lot of potential. What grade of properties are you investing in in Houston- B, C, etc? Are you finding the places through MLS listings? What areas are you liking?
Hey folks, I am new to this game and just got my feet wet. We just sold a 2-2 condo in norcal for 700k. Rent was $2500/month. We turned that into a duplex in Round Rock TX, a SFH in Liberty Hill TX, (both suburbs of Austin), and a SFH in Indiana. Now the total rent is $3500. I know it doesn't meet the percentage rules but it was a win for us since we are retiring to TX next year.
When it comes to buy and hold, I could make an argument for any area you name in Texas. Rio Grande Valley is a great play for low priced homes (you can get the 2% rule there and some speculative appreciation), between San Antonio and Austin is the fastest growing area of the country, Houston and Dallas have excellent $100k neighborhoods that are great passive 1% plays, the Permian Basin is blowing up right now, etc., etc.
Thanks for the insight. What do you think of Brownsville, Texas? The homes are priced relatively low. I looked at the rent of the area and depending on the house it falls between 1% - 2% rule.
@Pragati Soni. I'm certainly not the expert on Brownsville, but it will be a solid area.
1. On the coast (Beaches).
2. Large Shipping industry.
3. Farming.
4. Port Of Entry - should be enhanced with new trade agreements.
5. Continuous stream of folks trying to move in from South.
@Pragati Soni. I'm certainly not the expert on Brownsville, but it will be a solid area.
1. On the coast (Beaches).
2. Large Shipping industry.
3. Farming.
4. Port Of Entry - should be enhanced with new trade agreements.
5. Continuous stream of folks trying to move in from South.
Thank you! Those are all great points. I didn't think about number 2 and 3 so thank you for your insight.
When it comes to buy and hold, I could make an argument for any area you name in Texas. Rio Grande Valley is a great play for low priced homes (you can get the 2% rule there and some speculative appreciation), between San Antonio and Austin is the fastest growing area of the country, Houston and Dallas have excellent $100k neighborhoods that are great passive 1% plays, the Permian Basin is blowing up right now, etc., etc.
Thanks for the insight. What do you think of Brownsville, Texas? The homes are priced relatively low. I looked at the rent of the area and depending on the house it falls between 1% - 2% rule.
Biggest city in the Valley - it will only keep growing.
SHHHHHHH, SHHHHHH, Texas is Terrible to INVEST! Especially AUSTIN. GO AWAY, U WILL LOOSE YOUR @@S! SHHHHHHHHH.
Im looking for flip opportunities at the moment. I'm scared of buy and hold in Wyoming at the moment. I've been doing a little research in Springfield Illinois for buy and hold, but I'd like to increase my cash reserves a bit before jumping in. What are your thoughts on my plan. I want to be a buy and hold investor eventually, but I have some financial messes to clean up before I can move forward. I wasn't very wise with my money in my youth...lol
I would be careful about Illinois. As a state its got major issues. A lot of people are leaving the state, the state is all but bankrupt and taxes are likely to go up.
I just don't think its a place to find high returns.