Analysis Paralysis in Houston metro

[Denise Mayo-Walley]

Hello BP community!

I've spent lots of time in the last couple of months learning as much as possible from various sources and now I am getting ready to take action! I have started assembling my team and will be working with a Realtor that has experience working with investors and has actually found properties for a co-worker of mine. I've clearly defined my target areas, price range, square footage, bedrooms and baths, age of the home, etc and now I am trying to become more comfortable with analyzing homes I am interested in.

Since I have plans to buy & hold I have become very familiar with the 1%, 2% and 50% rules and for life of me I cannot make the 50% rule work for the market here in my Houston suburb of Sugar Land/Missouri City TX!!!

I am looking at properties in the $80-110k range which are renting for $1,200/month on average. While the 1% rule is satisfied at this amount for rent, every property I look at pretty much fails the 50% rule with cash flow amounts less than $100.

My questions are these:

- Does anyone have any experience in the Houston suburbs with properties in a similar price range and able to have good cash flowing properties? If so, what was your strategy?

- How true have you found the 50% rule to be? (I know this will vary based on the age of the home due to expecting to make more repairs when compared to a newer home)

- Any tips on whether it financially makes more sense to purchase cheaper properties ($60k) requiring more work than I originally intended to do to increase the monthly cash-flow though investing more up front?

Thank you all for your help -- I'm driving myself crazy!

[Sam Craven]

@Denise Mayo-Walley

We buy from the MLS, and direct from sellers. Deals are out there but (and I'm sure some people are going to strongly disagree with me here) the 50% and 2% rules are unrealistic in the Houston Market and should not be a guiding factor in selecting a rental property. It should be noted that you CAN get these returns in Houston, but you will be in rough parts of town, renting 30-50k homes. With that said, the potential returns if purchased properly are excellent.

To keep costs down over the course of ownership put extra money into maintenance when purchased, and find properties that need more repairs for greater equity capture.

My personal portfolio consists of properties exactly like you are looking for, but in different geographic areas all over houston. 80-90k homes, that I'm all in at 60-70k, and they are renting for 1150-1200mo. I also wholesale a lot of homes that fit this model.

So it may be time to drop the 50% rule and start looking outside of your first area of choice. Hope this helps.