Sub-Market Analysis - Houston Texas
Rod Khleif
Master Multi-Family Real Estate, Create Multi-Generational Wealth & Freedom, Invest Passively or Actively | 1-on-1 Expert Coach | Multifamily & Apartment Investing | Real Estate Investing | #1 Best-Selling Author
A few weeks back, we highlighted Athens, Georgia as a submarket that we thought was very attractive and today, as part of our ongoing series of sub-market analysis, we are going to discuss Houston, Texas.
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What we look for in a sub-market:
Houston Statistics:
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Houston is the fourth largest city in the country and growing fast. In 2023, the city grew by 1.9% to 6.8M people. The city also is experiencing strong job creation. From November 2023 to March 2024, the city increased new jobs by an annualized rate of 2.8%! Houston is known as the "energy capital" of the US but is also home to the most manufacturing companies (6,000), a strong healthcare system, and many jobs in technology. Housing is very affordable in Houston. The city scores a 96.9 in the "Cost of Living Index Score" where 100 is the US average. The median household income is $60.4K with the average rent of $1,372, and the average home costs $262K (at 30%, an income of $55K could afford an apartment). At first glance, Houston looks like a great place to invest. It has a booming population, a diverse job base, the median income can afford the median rent, and the rent versus own favors apartments by $900 a month. So, Houston checks many of the boxes we look for but as always, the devil is in the details.
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Houston is very vulnerable to an energy downturn. In the early 1980s when oil prices collapsed, the city lost 57% of all energy-related jobs. The reality is that the city is overly dependent?on oil and gas, and that is an industry with a target on its back. In terms of housing supply, in 2024 there are 17.8K new apartments coming to market, which is higher than the trailing 10-year average of 16.3K. Apartment vacancy is trending higher and today is 8.1%, which is stifling rent growth to 0.7% YOY. In addition, new housing building permits in 2023 increased 10.6% while non-residential (job-related)?permits decreased 36%. And finally, yes population is growing, but while San Antonio is growing from US residents moving from other states, Houston ranks 3rd?behind Miami and NY for international migration. This is a red flag because we do not know how this population matches the current employment needs or what their income potential is.
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Houston's insurance costs are exorbitant when compared to the US and other Texas cities because of the risk of flood. In terms of single-family home insurance, the average cost for a $300K home is $6,600 in Houston, $3,590 in San Antonio and $2,600 for the US on average. Property taxes are also higher than in other Texas cities. The reality is that Houston is vulnerable?to a hurricane, and flooding is a problem. This fact will probably keep insurance costs moving higher.
CREE also likes safe, low-crime areas. The above graph indicates the high-crime areas in dark blue. Houston has one of the highest violent crime rates in the country with 57/1000 a victim. The reality is that 20% of the population lives below the poverty line, and crime generally follows poverty. There are very nice areas in Houston where properties could be found, but you have to be aware of the adjoining areas because crime can spill over.
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We are not saying we wouldn't invest in Houston, but it is not a target for us due to the factors listed above, many of which are out of our?control. We have many other submarkets that meet our criteria, and we will continue focusing our efforts on them.
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Managing Broker at Cramer Consulting Group
5 个月Thank you- good information?
Multifamily Acquisitions, GP, LP, JV
5 个月Love that crime heat map. Where did you get that?
We help real-estate investors add millions of dollars in value to their assets in flood zones.
5 个月Thanks for the insights. Houston is a market we're working in constantly and very familiar. One of the details to add to your article, is that although Houston has the broad flood maps and respective flood insurance requirements as a result, it is also one of the areas we most consistently find solutions to help lower and combat those costs. Not all investors know these solutions exist - it's worth talking to one of our experts to explore if any current or prospective assets in Houston are in flood zones. A recent client of ours in HOU saved over $125,000 a year and in perpetuity. These are the type of out of the box solutions that Multifamily requires as we all try to get through this tough time. This is a great strategy on the front end too for all those looking for deals.