Anywhere has good deals that will cash flow with 20% down. Just have to shop hard....

I read a fun book recently that I found in our office. Chck out the chater about crummy dogs.

Hi Tim,

It's quite common anywhere in Suburban Houston for newer single-family homes to produce positive cash-flow (after vacancy, maintenance, and management) with 20% (or less) down.

In terms of pure cash-flow, The Woodlands is probably not the best bet....the homes are priced higher thus the rent rate to acquisition ratio is slightly lower than the surrounding communities. However in terms of economic stability, marketability, and future value, The Woodlands is in popular opinion the ideal place for investment in the Houston area.

The Woodlands market is far from inflated -- our appreciation was slow & steady during the nationwide boom. Prices continue to rise and our inventory remains low.

Rental rates in The Woodlands are at or better than 1% of acquisition cost for lower end ($200k and below) neighborhoods. Higher-end homes must be furnished for corporate leases to bring in the same cash flow.

Feel free to contact me with any questions – residential investments in The Woodlands (and surrounding area) are my primary focus.

Hi Tim,

Please check the link below. My seller is a southern California resident with properties in Houston that already cash flow with 20% or less down, and is able to put in certain guarantees. All of the properties (he owns approximately 45 sfrs in the Houston/Woodlands area) are locally managed and rented, all built in 2005, and were managed remotely from Southern California using the local agency. I am posting more on the site that I've linked you to, but these properties are indeed worth looking at because one of the guarantees is that they are rented. Prices range from $134,900 to $165,900, 3 and 4 br, rent ranges from $1,150 to $1,395. He will also guarantee reduced property management fees for a fixed period. Please let me know if you are interested.

The Woodlands was started with HUD monies by George Mitchell, It is one of the finest pre planned communities in the United Stated in one of the fastest growing counties in the United States. You have homes here from under 100,000 to the millions.
What price range are you thinking about - I do not like the $900 to $1300 rentals in The Woodlands any longer - I do in the surrounding areas - The homes in that range are in purely rental neighborhoods. You no longer get the same appreciation then. The rental market is great. In The Woodlands you can aim at a higher rental market or if you want to stay under $1,500 there is a lot of that near by - even on the Lake.

June 15, 2007
hope you didn't listen to the pro below.

anyways

good luck

if you did listen, today you are sad.

Try forest creek in Austin. They are $188,900, 3-2.5's & rented for 2 years @ $2000 a month. That's 15% ROI

Absolutely, but perhaps not in your backyard.

Real estate is local, but what’s happening in your backyard isn’t necessarily indicative of markets across the entire country. Despite the headlines, real estate is not universally decreasing. According to a report recently released by the National Association of Realtors (NAR), there are a number of fundamentally sound markets that have performed favorably year-over-year, including through the second quarter of 2007. Approximately two-thirds of the 149 markets surveyed registered home pricing increases thanks to strong local economic growth and affordable housing prices. Similar counter-cyclical markets can be found inside large market metros, where select micro-market neighborhoods defy the national downward cycle.

Look for a real estate investment company that conduct exhaustive research in multiple markets – for up to two years to recognize areas where real estate outperforms national and local averages so you invest ahead of the growth cycle, rather than follow it.

Tim. The answer to your primary question is yes. I live and invest in The Woodlands and surrounding areas. I have been for more than 6 years. This market is not over inflated by investors. The Woodlands has in the recent years experienced a 4 to 5% appreciation rate. The last two years it jumped a bit in some of the villages near the front (close to the booming Town Center) to 9%.

The rental market is strong, if you can stay in an affordable price range (900 to 1300 a month). With the increase in foreclosures and tightening of the secondary lending market, more people are renting again instead of buying.

I own a property management business here in The Woodlands. Vacancies are filled quickly. I will give you a very recent example of how properties here cash flow and rent quickly. A client of mine closed on a 4-2-2 here in The Village of Grogans Mill in August. He paid $126,000 for the property. With 20% down and an interest rate of 6.825% amortized over 30 years, PITI plus 7% monthly management fees is $1021.32 a month. I had that house rented before he closed for $1400 a month.

Another example. A lady was referred to me from an investor friend of mine for property management. She moved out of state and wanted to lease out her home in Grogans Mill. I placed a sign in the yard and before I had our ads running had three phone calls regarding it. We rented it to a couple from France that weekend. They moved in two days after the owner moved out. 3-2-2 rented at $1195.

The Woodlands is a unique market here in Houston. There is not another Master Planned community that compares to what we have here. It has been rated the #1 master planned community in Texas since I've lived here (2000). Homes here range in price from the 90's to the millions. If thats not affordable, Im not sure what is.

Come take a look.

Travis Foote
President
Real Estate Solutions of Texas
txrex.com

The CA market is very difficult to cash flow in...even with 20% down. As the sales manager of a national real estate investment company, our clients are investing out of state in appreciating markets.
If you would like to find out more you can email or call me at 714-729-2253

The Woodlands if I'm not mistaken is outside of Houston. I'm pretty sure there are areas around there that 20% should be fine for cashflow. I know here in Austin 20% can definitely cash flow SFRs.
I recommend searching for an agent in that area.

Tim
Sorry, forgot to answer the SFr vs. condo/townhouse part of your question.

My recommendation is to try to stick with SFRs. A couple of reasons:
1. There is more land value. Somebody might was to add on to the property, cannot ever do that with a condo.
2. HOA fees. Run the numbers, however in most cases in you add in the HOA and compare what that additional monthly expense could buy if it was part of the mortgage is an interesting number.
3. Most condos of Codes, Covenants, and Restrictions (CC & Rs) that control what percentage or number of units in the complex can be rentals. Do you really want to own a rental in a complex where there are a lot of rentals? A renter is not going to be on the board of the HOA, making sure that things are being run to a high standard, so you end up with a sub-standard complex. Just my opinion...

Good luck. Let me know what you end up deciding, I'd like to know how it turns out.
Keith

Tim
Glad that you are doing your homework.

What I like best about the MREI book is that the majority of the investors interviewed prefer to look at holding for the long term, as opposed to flipping. Fix,it up, rent it, take the appreciated equity and use that to purchase the next one.

I encourage you to run models on prospective properties. Although timing real estate cycles, just like timing the stock market, is problematic (we never really know when we reach the bottom, or the top of a cycle), the strategy of always buying undermarket protects your downside. That means that fewer properties will qualify, and that is a good thing.

The other major idea I got out of the book is that there is a systematic business approach to investing in real estate. Putting together a team of professionals who you trust is key. I suggest talking with Realtors in areas that you have an interest and trying to establish a long term relationship. The really "good deals" truthfully never hit the market. Most listings. once signed (meaning a listing agreement is signed), are withheld from the MLS until the property is properly prepared. However, during that time, the listing is marketed inside the brokerage, so other agents with buyers are constantly looking for these deals.

Occasionally you will see the verbiage "sold before processing", meaning by the time the "exclusion" period was over, the property was in escrow.

Hope this (and the book) are helpful.
Keith

Thanks Keith,

Very solid advise. I just went out and purchased Gary Keller's RE Investor book.

I was asking about The Woodlands, Tx. I am staying out of the CA market until things settle down from the run up. As much as I would rather own in San Diego county, its a mess and getting worse down here in regards to inventory levels, foreclosures, short sales etc... .

How does one choose between condos/townhomes, sfr's or 2 - 4 unit investment properties? Some say condos for out of state ownership are the way to go. But I'm weary after watching San Dieo's condo market nose dive due to overbuilding, over converting and over speculation.

I was looking at McAllen, Tx until I found an article on a real estate blog discussing the fact that the Feds are about to declare much of that city and surrounding areas flood zones due to aging levees, and it looks like a prime area to be overbuilt in a few years.

I have a sfr in Spartanburg on hold that with developer incentives will cash flow nicely for 2 years. But am not sold completely on the area's merits.

I want the best of both worlds... cash flow and appreciation.

Guess I'll take your suggestion and read Keller's book before I buy a property that I regret.

Thanks Again.

Tim, are you referring to the Woodlands in Texas? Or the Verdugo Woodlands in Glendale, CA?

Your questions in general are exactly on track. Although not a Woodlands, TX agent (I'm in Glendale, CA) I would like to offer a few investing tips that might help you.

If you don't own any investment property (let's say only your own home), one option is to purchase a new home where you live (upsize or downsize). Your basis -taxwise is low and if you have owned the property for a few years, you know about its maintenance, issues, etc. Plus, being local, you could manage it yourself. I see quite a few pluses to owning a rental near your area.

Let's look at purchasing rental property (regardless of area). I first suggest doing research. "The Millionaire Real Estate Investor" is a very good book that would be helpful. There is also a website called millionairesystems dot com that has some very helpful (and free) downloads referred to in the books, such as cost analysis spreadsheets, things like that.

I will summarize a few basic principles:
1. You will want to purchase in an area that has good, long term potential. Buying in a market that is down now is usually a good long-term strategy.
2. The specific purchase goes from city, to area, to neighborhood, to block, to property. One rule of thumb is that you will regret more purchases that you have made, than purchases you have not made...you don't need to buy.
3. Buy at least 20% below market. You'll make money even if you need to sell it earlier than you thought.
4. I strongly recommend purchasing property you can manage. Paying a management company a 5% -10% fee to manage the property (plus have Q/A issues) is a dicey proposition.
4. Your question about current rents is right on. Also, look at future planned development. Is the area built out? What is the current inventory of SFRs?

5. Talk with a REALTOR in that area and get a handle on where the market is in the housing cycle. Every market is in a cycle.
6. Plan on long term. If you could purchase one home a year, buy leveraging the equity in those homes you should be able to create a nice retirement cash flow relatively easily...just know that markets go up and down.
6. Look at your personal tax picture. How will the properties' income and expense affect your tax base.

Lastly, your 20% down, cash flow question. I recommend running prospective properties through the spreadsheets I referenced earlier. Look also at pre-tax versus post-tax when assessing cash flow.
Also, look at expansion potential: Purchasing a run-down two bedroom in a nice neighborhood, then adding a third bed room and second bath, then fixing it up overall, will net you a handsome profit almost anywhere. The cost of construction is almost always less than the cost of purchase...again, do your homework.

Hope this is helpful.
Good luck
Keith
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