Purchasing Multi-Family property in Houston.

10 Replies

Greetings from the desert in Dubai everyone, my wife and I are looking to purchase a multi-family apartment building in Houston area, can anyone recommend a good realtor and Property Manager to assist us? We are looking for a property in the $500000 to $1000000 range. We would also welcome any comments about the Houston and Texas market in general. Based on our research, this seems like a good area to start our search. 

Hi Michael,

The debt you can get will dictate the deal.

A 500,000 to 1,000,000 property will likely be local banks as for commercial that is like buying a 40,000 house in residential.

It's so small that larger lenders will not touch it. You being overseas makes it very tough to get financing here on those types of properties.

How much money do you have to put down?? Those types of smaller properties present issues for out of the country owners because you do not have enough scale to be hands off.

What are your cap rate and COC expectations??

There are non-bank options depending on your PFS statement with liquidity and net worth. Without seeing that I couldn't tell you what is possible. You need to look at currency exchange with also any international tax treaty laws and "hold backs" on the income for foreigners investing here.

If you have 750,000 cash or more you can get non-bank lenders even with a foreign status. They look heavily at country of current origin for terrorist activity, money laundering etc. that certain places are known for.

I have went through this with my foreign investor clients many times. The Texas market is great in many area. Houston is a great market but not all areas are great with some better than others.

Most of my clients are buying in the warmer climate states. ( example: Georgia, Florida, Texas, NC,SC,TN, etc.).

Most of the retiring older generation  in the tens of millions are migrating toward these warmer climate areas. This is fueling job growth and positive economies for the areas which is great for investment.

Hope it helps.   

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There are other options if you have a few hundred k cash such as partnerships here or buying into syndicates or a REIT.

In those situations you do not have single ownership control for yourself so you are investing in the project and the knowledge and track record of the sponsor. 

Hi Michael, I'm a licensed realtor and investor in Houston. I deal basically in single family rehabs but have colleagues with vast experience in Multi family and in the Houston Market.

I can tell up front  that large conglomerates are buying up low income neighborhoods close to downtown by the "Block" and converting them to multi-family. Smaller investors are being "pushed" further from the downtown area. There is a great boom in real estate here. Prices are high and inventories at the lowest point in years. Are you looking for 1-4 units or larger? They are treated differently here in Houston. 1-4 still being considered residential.

Hi everyone,thanks for all the information, it has been really helpful. It seems there are institutions now who will provide financing for foreign nationals with 75% LTV for a minimum mortgage amount of $500K. The advice I have been getting however is that a MF property in the range of 750K may be too small to be profitably managed by a property management company

Yes it's too small. Most banks and lenders understand that a foreign or even an out of state investor will have a very hard time keeping an asset that size performing. You really need a "boots on the ground" investor who is local buying and managing those properties.

If it's something at 40,000 a door you are talking about 18 doors and at 40k door likely it is a low income rental which requires a lot of work. If you are at nicer area with higher rents you might be paying 80k a door or higher so only a 10 unit  property. Cannot have an onsite manager or a repair person at those levels.

Lenders like foreigners and out of state investors on much larger properties where the PM and repair person can be hands on and full time. 

By the way I get this ALOT with foreign investors contacting me. They want the world with non-recourse, fully managed asset, and a low price point in commercial. They want a low down payment to preserve cash on cash.

Simply doesn't exist and I tell them they will have to get a partner if they do not have enough cash on their own.

When you get over a 2 million loan putting 500k down then you open up to other lenders and types of properties.  

@Joel Owens  

I don't have a dog in the race (I'm more of a SFR investor), but I'm curious: why can't a 18 door complex be managed by a property manager? I get the point that it's too small for an on-site manager, but why not hire a PM company (as I would for a SFR)?

Typically a unit that size does not have enough income for a full time PM dedicated to just your one building. They are managing other buildings to make a nut. Same thing with a repair person.

Usually investors that are not institutional in nature by these smaller buildings. A few new buildings are constructed today but most were built decades and decades ago. That means like an older car ongoing maintenance is necessary to maintain the property and keep the cash flow going. 

So what happens is generally a local investor self manages and does the repairs themselves or they use a hybrid model having a PM and doing the repair themselves etc.

If you do not have a full time repair person onsite then minor things can get expensive. For instance a wall plug replacement might be under 1 buck at Home Depot and take 10 minutes to put in but an electrician wants a 100 service call minimum.

With larger size properties you can have a PM and full time repair person ONSITE that has no divided interests between other properties and the SOLE FOCUS is to keep your property going.

Let's say you have an 18 unit complex throwing off 600 a door rent.

The PM gets 8% monthly of gross rents. 48 X 18 = 864 a month = 10,368 a year potential income plus of course any tenant signing fees for first months rent etc.

Now if the rents per door were much higher you could argue more income to the PM and repair person but usually the area costs much more for cost of living so it's offset.