Real estate investing can be a lucrative endeavor, provided you are successful at locating property in the most overlooked areas that are capable of potential growth.
In fact, an article published by the Forbes Real Estate Council advises that the main key to profitable real estate is the location, which many people bomb at because they don't quite know the factors to look for that make it a good investment, which we will cover in more detail later, but first, lets look at why real estate investing.
What we'll cover:
Why Real Estate Investing?
According to Million Dollar Listing Los Angles star James Harris, in addition to other real estate investment gurus, real estate investment offers many benefits that make it a great choice, including more control over your investment, it generates higher returns and stable income, it can be used for portfolio diversification, and it provides many tax benefits.
It Offers More Control Over Your Investment
Stock market investments, such as stock, can be more volatile, thus increasing risk. In fact, there are many factors out of your control in the stock market that can decrease your investment's worth.
However, with real estate, since it is a physical asset, you have more control over your investment because you can borrow against the property or use it as collateral to generate more revenue streams, while the property value continues to increase. Also, your property and land will always have value, unlike intangible investments, such as equity, which can fall as low as 0 in value under certain market conditions. And because real estate is a tangible asset, you can also protect its value with insurance.
It Generates Higher Returns and Stable Income
Unlike traditional investments, real estate also eliminates the need for investors to rely on the proficiency of managers, such as with real estate securities, like real estate investment trusts (REITs), that must adhere to certain guidelines regarding investment strategies and payouts. Also, unlike REITs, real estate investment generates the bulk of its total return from rental income as opposed to capital value return, which can be volatile.
It Can Help Diversify Your Portfolio
Real estate also helps spread out your risk. Since real estate is a tangible asset, and it has a low correlation to other major markets, it helps lower volatility. It also helps protect against inflation because as the economy expands, real estate demand increases, which causes rents to rise, thus also increasing capital gains.
It Provides Many Tax Benefits
Real estate comes with various tax deductions, which makes it especially attractive for many investors. For instance, you can get a tax deduction on mortgage interest as well as deductions for operating costs and expenses. You can also get tax deductions for insurance and property taxes, as well as depreciation, even if the property's value has increased, and more.
Where to Find the Best Investments
When looking for the best place to invest in real estate, there are various key factors to consider. However, some of the most important factors include:
The Area has a High Track Record of Real Estate Investments
As an investor, you want to buy in an area that comes with high profitability, such as one that has a stable track record of the best real estate investments, be it long-term or short-term, such as vacation rentals, because it signals the potential for steady growth and income.
The Area has a Strong Economy and Low Prices
It is also important to find an area where the prices are low, but the economy is strong, which increases the likelihood of a higher than average return on your investment.
Besides a strong economy and low prices, some other factors that help drive property prices up include low rates of unemployment, a growing work population, a growing number of residents, development booms, and municipal restrictions on new construction, which, in some cases, can even result in less inventory in the area.
Traditional Data About the Area
Knowing traditional data about the area, such as the area's median real estate values, price per square foot, rental income, price in relation to the rent, how long the property's been on the market, and short-term occupancy rate, will also help you locate the best cities to invest, as well as help you make savvy decisions concerning the property.
By considering these important factors, it will help you pinpoint the areas that are thriving and expected to continue growing in the long haul, which can help you plan for maximum profits.
Is Houston a Good Real Estate Investment?
Houston is the fourth-largest city in the United States with plenty of features that appeal to both renters and buyers.
To begin, it has some of the most attractive neighborhoods in all of Texas, with some of the lowest housing costs in the country to match. In fact, reports show that many properties are selling at more than 20% below the U.S. median home value, with a 3-year appreciation forecast of more than 10%, which means it is a fast appreciating area with potential to generate both rental income and capital gains. The city also has an abundance of natural land features, as well as plenty of open parcels of land ripe for development.
Furthermore, reports show that Houston is one of the largest markets for job creation in the U.S.. It is also one of the fastest cities in growing residents, which helps guarantee a large number of renters, as well as increased property values.
Houston also enjoys a strong economy backed by a wide range of industries, including over 1,000 biotech companies, over 6,000 manufacturers, and more, as well as major colleges, universities, and research medical schools. It is also home to good school districts, which is also great for attracting residents.
The area also has favorable tax laws, which continues to inspire many Fortune 500 companies, including the company Amazon, to relocate their headquarters to the state, which also helps keep investment in the city strong.
How Do I Find an Investment Property in Houston?
To find the best investment property in Houston, you can always use what's known as a real estate investment calculator. Using this tool not only helps you perform an investment analysis of the property, but it also enables you to perform a real estate marketing analysis, which looks at the surroundings of an investment property, including the rate of appreciation as well as other similar properties, etc., to determine if it is a suitable property for investing. For a quick overview on how to use a real estate investment calculator, check out this Youtube video.
You can also use real estate sites like Zillow, Trulia, and Loopnet to perform a search for Houston investment properties. Simply, key in the details you are looking for in a property and then wait for the return. From there, you can use the address to perform various searches regarding the property, such as the appraisal value and information about the property taxes, etc.
A good real estate agent, realtor, or Houston real estate investment property company can also help you locate the best investment property in Houston.
What Should I Invest in Houston?
Reports show that Houston is home to some of the best long-term investments in the U.S., such as single families, which history shows are the most profitable type of real estate investment.
However, the area is also quickly becoming one of the most thriving cities for tourists, which makes short-term real estate investments in Houston equally attractive. In fact, in just 2017, the city of Houston received more than 500,000 Airbnb visitors, particularly in rural communities, and earned more than a combined $70 million in additional income.
Houston Housing Market Forecast 2020
Though Houston's housing market is already experiencing record growth, analysts predict that home prices will continue to rise into 2020, according to Zillow, at least another 2% as more Fortune 500 companies enter the area, creating more jobs and an even stronger economy, attracting more young adults. In fact, Houston is the leading city in Millennial relocation, which some speculate is not only due to the job market, but the local college market, lower taxes, and entertainment, recreation, dining, shopping, and energy the city provides.
However, in any case, is a demographic that many property owners want to attract because they are more likely to rent than buy, which increases demand in the rental market. Many families are also choosing to rent as opposed to buying, which is behind the recent increase in townhome, single-family homes, and condominium rentals due to the affordability and flexibility that renting provides. However, the city is also enjoying lower than usual interest rates, which makes the inventory accessible to more investors.
For these reasons, and more, many real estate experts are advising potential investors not to hesitate for long as property values have been climbing for many years now, making Houston a sensible long-term investment for property owners. Otherwise, you risk interest rates rising and a decrease in inventory after heavy investing.
Rental Market in Houston
According to reports, most residents of the housing market throughout Texas are looking to rent as opposed to buy, which makes Houston rental properties an attractive investment to real estate investors.
Texas is also known as a landlord-friendly state because the laws that apply to lease violations lean more towards the property owner's rights. This makes it easy for property owners to repossess the rental property as well as receive compensation for violations of the rental agreement.
There are also pending laws, regarding short-term rentals, such as Airbnbs, that enable investors more leeway over how they rent their property.
Best Rental Neighborhoods in Houston
The Heights is comprised of seven historic districts. It features many modern residential developments, such as townhomes and condos, as well as various preserved buildings, including Queen Anne Mansions. It is also home to numerous biking and hiking trails, which makes it suitable for active individuals, families, and vacationers. Rental property in The Heights on average has a rental income of $2,210 for traditional and $2,047 for Airbnb.
Downtown Houston is a major hub for new residents due to its location near a good public transit as well as many jobs. However, it does have an overabundance of condos for both ends of the real estate market, which makes it especially attractive for investors looking for cheap condos to rent.
Rice Military is located in close approximately to Rice University, which provides a great opportunity to rent to students. It is also a more affordable neighborhood with many high ranking schools nearby, which makes it a suitable investment choice for those looking to invest in multifamily properties that are in high demand.
The Museum District is located just a short distance from the Medical Center, which has an abundance of medical employers. It also has over 15 museums in the area, which makes it highly attractive to both retirees and young adults who love the museum scene. It is also not too far from Rice University, which many residents appreciate.
The area also enjoys stable rents due to the new construction of various high rent properties in the area, which makes it great for investors.
EaDo is located near Downtown Houston; however, it offers more security and has a greater appreciation rate than Downtown. It is also located near the Gulf and South Freeways, which is great for commuters. All around, the area, along with its growing appreciation, makes a great place for rental properties.
Some past and current averages for Houston are as follows:
- Traditional Rental Income: $1,508
- Median Property Listing: $295,000
- Airbnb Rental Income: $2,665
- Traditional Cap Rate: 6.22%
- Airbnb Cap Rate: 4.22%
- Traditional Cash on Cash Return: 3.57%
- Airbnb Cash on Cash Return: 1.70%
As you can see, there is a lot to take in when it comes to investing in real estate property; however, the good news is, you don't have to tackle it alone.
In fact, anytime you feel overwhelmed researching properties, simply contact a real estate investment company or a realtor in the area who can help you find the best real estate investments in Houston.
In the meantime, be sure to practice researching different properties in the Houston area, using one of the real estate investment tools or online real estate listing sites like Trulia and Zillow, which will help get you used to seeing and calculating the different returns on your own for greater confidence when you are finally ready to invest.
Here at Sell My House Easy Fast, we focusing on buying houses in Houston and surrounding areas, so the Houston market is something we specialize in.
If you're an investor looking to purchase a property, make sure you give us a call so we can show you properties we have available at investor discounts.