Houston Single Family Rental Properties

10 Replies

I was attracted to Houston because I thought it provided a good combination of cash flow and appreciation. After looking at several dozen single family properties (more or less with no rehab necessary) ranging from $130-$175K, I’m seriously beginning to question how you make money with a long term hold single family rental given the tax rates in desirable school districts and the lack of any exemptions on assessed value for owners not occupying the property. Is there a value range you have to stay under? Do you steer clear of the 3%+ tax rate areas such as the CyFair School District? Have you found even as an investment that the assessed value isn’t the price you paid?

I’m starting to bang my head against the wall trying to make anything pencil not knowing exactly what the property taxes will be but figuring it is the combined rate on the tax assessor’s site multiplied by the acquisition price. In doing so, the “1% rule” often doesn’t seem to work.

I’ve found that you need more like a 1.25% rent ratio in Houston, if you want to budget for property management, vacancy, repairs, and capex.  Those deals are very hard to find in good school districts. 

@Brian Burke

When you are buying in areas with good school districts - you are competing with families who are looking to acquire a personal residence.

Therefore - you are competing with other investors and those who want a family residence.
This competition drives up the cost making it less likely to cash-flow.

The good thing is that you may experience significant appreciation.

Have you considered looking at areas that are not in the best school districts?

Basit Siddiqi, CPA
917-280-8544

@Brian Burke

You are right it's almost impossible to find 1% rule SFH rentals in CyFair or Katy ISD. If you pay cash, it's more or less like 6% cash on cash. Even if you are lucky you get a house on 1% rule this year, next year County will raise your prop tax so much it's no longer 1% any more.

@Brian Burke

These are lower priced subdivisions  in Katy/Cyfair ISD. I hope this helps and you more than likely will be above 1%

Westgreen 

Glencairn

Northglen 

Autumn Run

Paddock bend

Amhurst 

Lancaster 

There are a few others but I don’t know them well enough. Also depends on which school it is zoned to you might have greater success 

Best of luck!

Thanks everyone for the feedback. Can’t say it’s the most encouraging but certainly helpful. 

I just sold my SFR portfolio, but had held properties in the areas you are interested in...Katy/Cypress. My average COCR was 10.6% (with one exception). It's definitely not easy but you can certainly find some great rentals in the area.

While I bought my first off the MLS I leveraged wholesalers for the others. What everyone has said...you compete against wanna-be owner occupants when you buy from the MLS and there is no rehab. You can find them, but it's very competitive. We looked at about 75 homes and put in 20 offers before we landed the first deal. Once I started taking on rehabs everything changed.

My bread and butter was typically buying homes around $100-110k, putting in around $20k +/- on the rehab and driving ARV to around $150-170k. I purchased with HML or private money and refinanced within 90 days. At 75% LTV I could reduce my cash left in the deal. No deal was a home run....but when you string together enough of these, it's a pretty awesome business.

@Tony Castronovo , that sounds pretty much exactly like what I’m thinking I need to do. I’m about to go under contract to sell a rental condo here in Orange County and I’m looking to take the proceeds and buy about 6 SFRs. I’m realizing I should perhaps pay cash on a rehab in a decent location, put in the improvements before refinancing and moving on. Eventually I figure I’ll need hard money to buy “all cash.”

If you are investing out of state try a different city or state. It is a lot of work to find even one deal around here. Even the wholesale deals are thin now. If you are looking for appreciation and monthly income try again in a couple of years after we have a small correction. There is just not enough inventory right now and appraisers will not let housing prices rise unless you are doing windows, electrical and plumbing, for the most part. Fixer upper style will not work here right now and I live and work in the Cy-Fair area.

@Brian Burke Valid concern. As @Tony Castronovo said it's possible and doable if you look for the right deal and make it work. I don't use HML a lot as of now to avoid spending on fees. I tried to do my funds to get conventional but property should be lender ready. Being realtor, it helps to get NON MLS properties before going to market which is rent ready and built up equity and easy to get conventional. But it's not always going to be case. We got two properties in last 3 months both of them rented out in a month for 1.25% in missouri City area. It all depends on area and school we don't usually look much or give importance unless you are looking for appreciation.

Vijaianand Thirunageswaram, Real Estate Agent in TX (#612107)
281-912-3112

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