Many investors in Houston purchase and hold rental properties, and retain a reliable project management company to handle their investments. Why do so many Houston landlords and property owners invest in, and keep, rental properties?
Below are the most common reasons. If you haven’t started your rental property portfolio in Houston yet, maybe this list will persuade you to get going!
Real estate is one of the few investment methods that empowers you to enjoy high leverage with mortgage financing. When you obtain an investment property loan with a mortgage, you can buy $100,000 rental homes in Houston by putting down only about $20,000.
Thus, you control a $100,000 asset with only 20% of your money. After you’ve held that property for a year or two with a solid rent history, you can refinance the loan and pull out some of your cash. With that, you may buy more properties if you wish.
High Return On Investment
When you have high leverage in your rental homes, you can get a high ROI. This type of leverage ensures a satisfyingly solid cash-on-cash return. Also, given the typical appreciation of real estate, the property will rise in value over time … and not just the part you paid for up front.
Most real estate investors buy investment properties primarily for the appreciation. If you buy houses in Houston, you should see a strong boost in value over the years to come.
Texas and Houston, in particular, have a strong economy, so you will benefit from that. The homes may shrink in value in some years, but if you hold them for a long time, they will almost invariably climb in value.
Passive Cash Flow
When you invest in real estate wisely, you may enjoy largely passive cash flow. If you arrange for excellent property management to handle your portfolio, you may not have to do any work at all.
Of course, you’ll have to acquire suitable properties at suitable prices and rehab them only as much as necessary. And place good tenants in them, who pay on time. But much of this will depend on putting a good property management team on the job.
Owning buy-and-hold real estate in Houston lets you deduct your mortgage interest and property depreciation every year. You also can increase your wealth by doing a 1031 exchange to defer your tax liabilities by buying new homes. In theory, you might be able to delay paying taxes for years.
Pay Down Mortgage
When you buy a rental house with a mortgage, you have leverage, and you arrange some positive cash flow after your mortgage payment and expenses. Plus, your tenants will be paying down the debt you leveraged to buy the home. The longer you keep the house, the more payments go to paying off the principal.
Increases In Rent
With few exceptions, rents increase every year, usually by 3 to 5%. All landlords and tenants know this. Owning rental properties and holding them over time empowers you to elevate your cash flow every year by increasing rents.
Hedge Against Inflation
If you boost your rents at least 3% per year, you have an excellent hedge against inflation. You will steadily generate more income as inflation rises. When prices go up, housing prices will also escalate. Owning assets that grow with the economic tide will take care of you as the years pass.
Over the course of 20 years or more, the odds of living your retirement with rental income increase. If you execute a suitable financial plan, you might be able to purchase one or two homes a year, move up with a few 1030 exchanges, and be in a good position to retire quite well.
It’s possible to own some properties with no mortgage and create millions in net worth as you live off the passive cash flow from these houses.
Exit Strategies Available
Your risks as an investor are lower when you buy rental properties. Many landlords and property managers like to know that if an economic crisis occurs, they could reside in one of their homes for a while.
If you ever need ready cash, you can get some through your rental portfolio in several ways. You could sell, refinance, lease, offer seller financing with 25% down, and more.
You’ve got many options to exit the rental home market if you need to. There are always rental property investors interested in buying someone else’s portfolio if the price is right.
If you want to buy good properties in Houston, here are some of the ways to do it:
- Select the proper neighborhoods. Buying good rental properties entails acquiring homes in working-class districts with ready jobs. It’s also wise to hunt for good schools with popular shopping outlets nearby. Make sure you do plenty of research, because a mistake here could be costly. Especially good are lower-priced neighborhoods that are on their way up.
- Avoid buying the cheapest properties. Cheap homes are almost always located in bad neighborhoods with crime and high unemployment. If you can only afford to buy the most affordable properties, perhaps you should wait until you have the money to shop in better areas.
- Buy homes that don’t need significant repairs. Most structures will need some work, but you should avoid places that need to be gutted; those repairs will be prohibitively expensive. That said, IF you can get a cheap deal on a major fixer-upper, it might be worth mulling over if you also know an excellent, affordable contractor.
- Ensure the price is right: One of the biggest rookie mistakes is buying a house that costs too much. You might not know it now, but you’ve just blocked your ability to make a profit on that home. Remember, there are almost always more deals out there. Shop until you find the right place at a price that allows you to make a solid profit.
All the advice here will go a long way to your enjoying real estate investment success in Houston!