Paraprin is excited to announce that we have expanded our home rehab portfolio to Houston, Texas! Why are we so bullish on this market? There are a few key metrics that explain why. First and foremost, we seek out markets that have a combination of high rents relative to property values, have steady population growth, a diversified economy, and linear growth in property values over time. Houston is currently the 4th largest city in the US and is growing in population by about 1.8% per year¹. In other major cities in the US, it is hard to find areas where investment makes sense from a cash flow perspective, or in other words the rent to price ratios are high enough to easily support positive cash flow on rental properties after accounting for all expenses. However, Houston has consistently remaining in the top 25 US markets for cash flow. The below chart put together by BiggerPockets Insights lists the top cash flow markets in 2020, calculated by dividing the average monthly rent by the average home price. Houston has a rent to price ratio of about 0.9%, meaning that, on average one can expect to collect 0.9% of the home value in monthly rent.
Source: https://www.biggerpockets.com/insights/articles/top-us-makets-cash-flow-q2-2020
Furthermore, when analyzing how Houston home prices fared during the last financial crisis, Houston shows outstanding resilience. As reported in our previous post HERE on cyclical versus linear markets during the last financial crisis, on average home prices in the US declined by 19%, and some top tier markets like New York City, Miami, San Francisco, and Los Angeles declined between 26% to 50%. With data taken from the Federal Reserve Bank of St. Louis’ Case Schiller index, using 1987 as the base year (we we did with our previous analysis), the Houston metro market only declined by 4.2%! See chart below:
Source: https://fred.stlouisfed.org/series/ATNHPIUS26420Q#0
By the numbers, Houston is a very strong market. In addition to the numbers above, the factors below also contributed to our decision to make Houston our next market entry point:
- Diverse, growing economy based on energy, petrochemicals, banking, healthcare, and aerospace
- Port of Houston is 6th largest in the world and busiest in the US
- Famous in American history as a center of NASA mission control – Space Center Houston is a major tourist destination
- Most affordable major American city with housing costs 36% below the national average
- Over 60 colleges and universities
- Home to 6.7 million people and 20 of the nation’s Fortune 500 companies
The only major downside to investing in Houston are the increased insurance costs due to potential flood damage. However, that risk can be easily mitigated by avoiding areas that are near the bayous and in the 100 year, 500 year, and 1000 year flood plains. Most of the suburbs to the West and North of downtown are out of the flood plains and the hurricane path, so the risk of damage is minimal. It is very important to analyze the locations of the flood plains, however, and ensure that one is not buying property where there is significant risk of flood or hurricane damage.
Houston is also one of the most international cities in the US, with especially large immigrant communities from Latin America, Vietnam, China, India, and Pakistan. The wealth of diversity in the city make it a welcoming and vibrant place with an energetic buzz of opportunity and optimism.
