Need help on a deal in Houston

21 Replies

Hello everybody,

I'm thinking to follow through with a deal in Houston (zip code 77449). Since I don't know much about the area, I hope you guys can give me some information on this area. Do you think if this is a good area for rentals? The property is around 160k-170k. Is that a good price for this area? Do you know if this is in the flooding zone? Also, this deal requires all cash, and I'm thinking to do it through hard money lenders. Please let me know the process for that as well. THANK YOU so much for your responses. 

Anh

Sounds like you need to do some research before doing your first deal. Internet is your friend, but no one on BP can answer your own decisions.

That is some great advise you are getting. I would also find some boots on the ground. Do you have any family or friends in the area?

It’s hard to answer your question about price without knowing anything about the house, but that number sounds pretty close to retail for much of that part of town.

Several websites you can go to on your own to help you decide if this is the area/property for you: Zillow for broad-stroke comps and what the sale/rental market looks like (how many rentals there are like yours and what they’re renting for), www.city-data.com for demographic data (like number of occupied rentals), and www.harriscountyfemt.org for flood plain data. You can ask the seller for disclosures (they don’t always provide them up front) and they will tell you if that particular house flooded.

I know a trustworthy HML in the area you could talk to- look up Red Door Funding in Stafford. They can let you know all the costs of the loan plus the up-front out of pocket expenses. They might even be willing to help with comps, but finding a realtor is best. Then you can use the rental calculator and crunch the numbers to see whether or not this is a good deal for you.

I have to wonder how you’re planning to manage the property if you decide to move forward with it. It’s just my opinion, but I would encourage you to either start with something close enough to you so you can learn the process hands-on, or like the others said.. get boots on the ground that you trust, or go see Houston for yourself and learn the area you’re investing in. I’m pretty old-school and believe that an ounce of prevention is worth a pound of cure.. whenever possible. :)

@Anh Le    I'm not trying to give you a hard time, but this is exactly why you need a real estate professional representing you.

I can tell you without even looking that a house priced at $160K to $170K will never be a good rental property. Rents in Houston will cap off around $1400-$1500 a month, except in higher-end areas like the Heights. And you'll never find a house for that price in the Heights.

I can't check the comps without an address, but that zip code is north of I-10, which is a part of Katy where the rents tend to be lower than the areas south of I-10. And I'm talking in that $1400 range give or take.

The area north of I-10 flooded mostly around Mayde Creek. Pretty spotty elsewhere. But I can't check the flood zone for your property without a specific address.

Is this property move-in ready? I used to have several rentals in this area. Most were $140-170k...but only after I forced the appreciation. I purchased them much lower and rehabbed. @Fred Heller is right about rents in the area. 

Do be careful to check whether the home was flooded. We got lucky and stayed dry. But many homes flooded in this area. And many fly by night investors came in to fix and flip without proper flood remediation. 

Are you buying from an owner occupant or wholesaler? Has this home been occupied the last12 months?

I'm a newbie investor in Texas, but I've already learned a few hard lessons, so take what I say for what you wish. 

If they are requiring all cash, is it because the property will not appraise under a standard or FHA or VA loan? That's what it sounds like to me.

Which means it needs a lot of repairs, maybe as much as $30k or more, including new roof at maybe 10k. And will it be worth it after the 30k-40k repairs? No, it will negative cash flow, big time.

A HML will not loan on a property that either: is not rent-ready; is not priced low enough to compensate for repairs with a profit margin built in; does not cash flow with a margin for selling costs built in in case they have to foreclose on you; or that will not yield enough rent to provide that cushion.

It seems that you are from California, like me, and saw the prices in Texas and thought, wow, what a steal, when you are looking at shacks in your area for 1.5M. Don’t be fooled. The prices are lower because the rent is lower – much, much lower, and property taxes are high because there are no income taxes, so the money to run the state has to come from elsewhere.

I'm concerned that you are being ripped off, frankly. The good deals, or even the prize OOH, are being snatched up within one day, sometimes one hour (in my recent experience in San Antonio), so if this deal is hanging out there, it’s because the sharp investors don’t want it.

How many years old is this property? Roofs do not last long in the hot Texas sun, they disintegrate. They are composition – I don’t understand why they don’t use concrete tile roofs, well, yes, I do, it’s b/c they aren’t Mediterranean style construction. (Still, they could do flat concrete, but probably don’t b/c of cost.) I’m under contract for a sfr in SA and I could kick myself – the roof is at the end of its life at only 18 years, but the owners quickly patched up the few loose tiles within 24 hours and pretend like everything’s okay, and what can I do now? I can’t back out because it’s a 1031 exchange, and I have no time left to select property.

It was newbie lack of experience on my part, and also the agent had no interest in advising me much, only to tell me which areas he wanted me to buy in, the areas that would be the least management headache for him and make the biggest 10% commission. Oh, he offered me a discount of 1% on the management commission, but in my mind, that’s only so I won’t be such a demanding owner. I won’t take the 1% discount; I plan to demand full service and high level of pickiness in selecting tenants etc.

Have you spent time in Houston going over the market with a fine tooth comb? You should do many hours of research on Zillow, both the buy and rent sections, to get good ideas of the market, and of what your ROI will be, and then make a trip there of at least a week to do your due diligence and maybe find a good investment. There are thousands of sfh for sale in Texas; this is not the last one. Take your time.

Originally posted by @Manon Sheiman :

I'm a newbie investor in Texas, but I've already learned a few hard lessons, so take what I say for what you wish. 

If they are requiring all cash, is it because the property will not appraise under a standard or FHA or VA loan? That's what it sounds like to me.

Which means it needs a lot of repairs, maybe as much as $30k or more, including new roof at maybe 10k. And will it be worth it after the 30k-40k repairs? No, it will negative cash flow, big time.

A HML will not loan on a property that either: is not rent-ready; is not priced low enough to compensate for repairs with a profit margin built in; does not cash flow with a margin for selling costs built in in case they have to foreclose on you; or that will not yield enough rent to provide that cushion.

It seems that you are from California, like me, and saw the prices in Texas and thought, wow, what a steal, when you are looking at shacks in your area for 1.5M. Don’t be fooled. The prices are lower because the rent is lower – much, much lower, and property taxes are high because there are no income taxes, so the money to run the state has to come from elsewhere.

I'm concerned that you are being ripped off, frankly. The good deals, or even the prize OOH, are being snatched up within one day, sometimes one hour (in my recent experience in San Antonio), so if this deal is hanging out there, it’s because the sharp investors don’t want it.

How many years old is this property? Roofs do not last long in the hot Texas sun, they disintegrate. They are composition – I don’t understand why they don’t use concrete tile roofs, well, yes, I do, it’s b/c they aren’t Mediterranean style construction. (Still, they could do flat concrete, but probably don’t b/c of cost.) I’m under contract for a sfr in SA and I could kick myself – the roof is at the end of its life at only 18 years, but the owners quickly patched up the few loose tiles within 24 hours and pretend like everything’s okay, and what can I do now? I can’t back out because it’s a 1031 exchange, and I have no time left to select property.

It was newbie lack of experience on my part, and also the agent had no interest in advising me much, only to tell me which areas he wanted me to buy in, the areas that would be the least management headache for him and make the biggest 10% commission. Oh, he offered me a discount of 1% on the management commission, but in my mind, that’s only so I won’t be such a demanding owner. I won’t take the 1% discount; I plan to demand full service and high level of pickiness in selecting tenants etc.

Have you spent time in Houston going over the market with a fine tooth comb? You should do many hours of research on Zillow, both the buy and rent sections, to get good ideas of the market, and of what your ROI will be, and then make a trip there of at least a week to do your due diligence and maybe find a good investment. There are thousands of sfh for sale in Texas; this is not the last one. Take your time.

 Flat roofs have other issues, they always eventually leak and can puddle up large bodies of water for mosquitoes to breed. The style also doesn't fit most neighborhoods as well. I'm all for more metal roofs, look beautiful and very durable even for hail.

@Anh Le

As was stated above, and with no disrespect...you're not quite ready to start investing remotely based on your questions. You can't give a price and zip code and ask if you're getting a deal...that's not how investing works. And since you're not aware of the process for HML's, I would respectfully suggest you first get all the education possible on the areas where you're not yet sufficiently versed. Asking people specific questions when they have no dog in the hunt is the surest way for you to lose money in investing.

Agreed with everyone and here's my 2 cents: 

Run the numbers! Texas is different than California so if you're not familiar with the area do some research online and get help from an agent (or some other professional) who knows the area and has experience working with investors. Houston might be cheaper than most cities in Cali but the market is tight so if something is just hanging out on the shelf is probably a sign.

One great way to get a good feel of the property is to ask whoever selling that house to take a detailed video of the house and send it to you. Heck you can even facetime them and see the house LIVE! A lot of good wholesalers actually do this proactively. That way you can get a feel of the neighborhood and see if the house if flooded or not (not always easy though). 

Hope it helped :)

Hope it helped.

Careful relying on Zillow for comps. Texas is a non-disclosure State so sales prices are not readily available through public records. Zillow pulls from public records for their Zestimates. Some homeowners and agents do provide data to Zillow but it is not enough at this point. See below directly from their site. 

I recommend getting in touch with a realtor in the area that can guide you through this. The questions you've asked are very broad. I'd hate to see someone make a very expensive mistake by not having enough information before jumping in. 

Originally posted by @Ronald Rohde :
Originally posted by @Manon Sheiman:

I'm a newbie investor in Texas, but I've already learned a few hard lessons, so take what I say for what you wish. 

If they are requiring all cash, is it because the property will not appraise under a standard or FHA or VA loan? That's what it sounds like to me.

Which means it needs a lot of repairs, maybe as much as $30k or more, including new roof at maybe 10k. And will it be worth it after the 30k-40k repairs? No, it will negative cash flow, big time.

A HML will not loan on a property that either: is not rent-ready; is not priced low enough to compensate for repairs with a profit margin built in; does not cash flow with a margin for selling costs built in in case they have to foreclose on you; or that will not yield enough rent to provide that cushion.

It seems that you are from California, like me, and saw the prices in Texas and thought, wow, what a steal, when you are looking at shacks in your area for 1.5M. Don’t be fooled. The prices are lower because the rent is lower – much, much lower, and property taxes are high because there are no income taxes, so the money to run the state has to come from elsewhere.

I'm concerned that you are being ripped off, frankly. The good deals, or even the prize OOH, are being snatched up within one day, sometimes one hour (in my recent experience in San Antonio), so if this deal is hanging out there, it’s because the sharp investors don’t want it.

How many years old is this property? Roofs do not last long in the hot Texas sun, they disintegrate. They are composition – I don’t understand why they don’t use concrete tile roofs, well, yes, I do, it’s b/c they aren’t Mediterranean style construction. (Still, they could do flat concrete, but probably don’t b/c of cost.) I’m under contract for a sfr in SA and I could kick myself – the roof is at the end of its life at only 18 years, but the owners quickly patched up the few loose tiles within 24 hours and pretend like everything’s okay, and what can I do now? I can’t back out because it’s a 1031 exchange, and I have no time left to select property.

It was newbie lack of experience on my part, and also the agent had no interest in advising me much, only to tell me which areas he wanted me to buy in, the areas that would be the least management headache for him and make the biggest 10% commission. Oh, he offered me a discount of 1% on the management commission, but in my mind, that’s only so I won’t be such a demanding owner. I won’t take the 1% discount; I plan to demand full service and high level of pickiness in selecting tenants etc.

Have you spent time in Houston going over the market with a fine tooth comb? You should do many hours of research on Zillow, both the buy and rent sections, to get good ideas of the market, and of what your ROI will be, and then make a trip there of at least a week to do your due diligence and maybe find a good investment. There are thousands of sfh for sale in Texas; this is not the last one. Take your time.

 Flat roofs have other issues, they always eventually leak and can puddle up large bodies of water for mosquitoes to breed. The style also doesn't fit most neighborhoods as well. I'm all for more metal roofs, look beautiful and very durable even for hail.

@Ronald Rohde: Either I was misunderstood or didn't explain myself well enough when I said 'flat concrete roof' - I don't mean a true flat roof, I only meant instead of the curved concrete tiles (used to be clay originally) that characterize the Mediterranean style, which would not be in line with the styles prevalent in Texas, and I meant that possibly they could make roof tiles flat instead of curved, therefore look similar to composition but last much longer. 

I absolutely agree with you about true flat roofs. Not only are they not aesthetic, they have all the issues you mention. I've only seen them on older commercial buildings and some very old residences in California, not on new tract builds, but I'm no encyclopedia on the subject. 

However, your suggestion of metal roofs is ideal - they are beautiful and durable in many extreme weather situations. But don't they cost more than most builders in this price range can afford?  Therein lies the rub. The end user simply has to budget for a more frequent roof replacement than under other weather conditions. 

Originally posted by @Katy Wyly :

Careful relying on Zillow for comps. Texas is a non-disclosure State so sales prices are not readily available through public records. Zillow pulls from public records for their Zestimates. Some homeowners and agents do provide data to Zillow but it is not enough at this point. See below directly from their site. 

I recommend getting in touch with a realtor in the area that can guide you through this. The questions you've asked are very broad. I'd hate to see someone make a very expensive mistake by not having enough information before jumping in. 

 @Katy Wyly: Great chart! Thanks for that, and I absolutely agree. I would never rely on Zillow's 'Zestimates' of property value as there are too many data points they don't have access to, and also the market is fickle, so no company can track prices with 100% accuracy. It looks like a few areas have access to more accurate data than others, esp Denver and Minneapolis-St Paul.

One has to spend many hours on Zillow, Realtor.com, or any of the other sites to get a sense of what is accurate information and what is not. I have never seen Zillow being able to accurately predict the future appreciation of properties, although the past appreciation does seem pretty reliable. 

I've seen listings in my town go up on Zillow before my agent got them to me, but I've also seen houses for sale that were never listed on Zillow (e.g., a condo I recently sold while being rehabbed), and houses that remained on Zillow for a year or more after they were sold. The agent wanted exposure and leads and didn't want to take the listing down. 

But for broad beginning research of prices and rental listings, Zillow, Realtor.com, etc., can be valuable to get a sense of the market, also for neighborhood info, the GreatSchools.org ratings and reviews, price and tax history, and so on. Also www.city-data.com. 


Boots on the ground can be helpful, but intent of those boots is important. As an investor, get a local pro who focus's on rentals in the area. Lots of companies and realtors avoid rentals/leases so their "opinion" on your deal won't be as helpful as someone who is into this sort of thing. Offer to pay them, upfront, if need be to help you out in the area's you aren't familiar with or able to access. If that works out then hire an inspector. I am an accredited inspector, but you won't find me climbing in attics and through crawl spaces on deals I am buying as an investor. But then again, I am willing to pay to not spend hours getting dirty and gross. Plus, I spend that time saved on looking for my next deal. Next you need a general idea of "repair" or make ready cost. Its also not a bad idea to calculate long term ownership cost. i.e. if the roof is 10yrs old, in 5-10yrs you are going to have to spend 10k+ on a new one. Thats 2-5k a year needing set aside for differed maintenance. The #1 reason I see people fail is that they FAIL to accommodate for maintenance cost. Rental property is expensive, and time consuming to keep looking 100%. And looking 100% is what gets you that "easy" money.

I have been doing investment contracting for 20+ yrs in Houston. Investing for almost 18. I have consulted for the 3 biggest retail/commercial property owners in Houston. The best advice to anyone I meet is to take a minute. Think past the typical or the facade. "How its done" is touted most by people who aren't doing anything.

@Katy Wyly ... thank for sharing this chart from Zillow's website about their accuracy. If folks don't mind, since Houston don't have numbers I'll use Dallas-Fort Worth numbers to convert the numbers shown there to what it means in the real world.

Only 1 time out of 3 will a property that sells for $200,000 be "zestimated" to be worth between $190,000 and $210,000. It means that 2 out of 3 times, a property that sells for $200,000 is "zestimated" by Zillow to be worth either more than $210,000 or less than $190,000.

Can you afford to be that far off in price that frequently?

1 time out of 5, a property that sells for $200,000 will be "zestimated" to be worth either less than $160,000 or more than $240,000.

These are stats provide by Zillow about their own accuracy (from the chart posted by Katy).

Zillow is a pretty slick tool, but my opinion is that you should do your own comparable sales (or ask your real estate agent to do/help with it).

Natural disasters may occur anywhere in the country so insurance up. My house is not in the flood plane. Never flooded in 30 years. But Harvey got us just the same. Don't rely on flood plane or windstorm requirements when making decisions or purchasing insurance. I wouldn't let that stop me necessarily.