Rental Properties
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Rental Properties
I own a few rental properties. They are single family homes. The last one I bought a while back in 2014. You can appreciate that its been a while! My wife is getting antsy, as she loves to buy a few more. Trouble is the market is not very favorable around Houston for a while. Home prices moved up a lot recently around Houston (not like the rate elsewhere in the US, but at our standard). Rental prices haven't caught up to it. Added problem is 30-year fixed mortgage rate is still very high. Yes, it has come down a bit, but not anywhere where I like for it to be.
I look at that chart and think damn it, I was sleeping in 2021 and 2022. In fact I was not, it was covid, so buying houses wasn't the thing in my mind, and mind you prices around here were still high, relatively speaking. My wife was bugging me to look into properties for a bit, and she says that "projected" interested rate is showing a downtrend. Yeah, I plotted that on this chart with dashed line, but it ain't much! There is no way 30-year fixed is going down to 4-5% level where I like it to be for this type of venture to work around my market. However, as she is keen, and I had some time at hand, and I liked to test my simple skills with matplotlib in python, I thought, I should do some searching and see what is the status of the market in general locally.
Nearby Median Home Prices
I started fairly broad with a search near my home and following are the current median single family home prices:
- Sugar Land: ~$400,000 (premium market, affluent area)
- The Woodlands: ~$450,000 (high-end, master-planned community)
- Pearland: ~$350,000 (growing, slightly below Houston’s median)
- League City: ~$340,000 (coastal, similar to Pearland)
- Pasadena: ~$250,000 (more affordable, industrial area)
Thankfully Texas do not have any state taxes, but we do have property taxes, I factors those in:
- Sugar Land: ~2.0% (Fort Bend County)
- The Woodlands: ~2.1% (Montgomery County)
- Pearland: ~2.2% (Brazoria County)
- League City: ~2.1% (Galveston County)
- Pasadena: ~2.0% (Harris County)
Next is insurance:
- Sugar Land: $5,500/year ($458/month) (less coastal exposure)
- The Woodlands: $5,000/year ($417/month) (inland, lower risk)
- Pearland: $5,800/year ($483/month) (near coast)
- League City: $6,000/year ($500/month) (coastal, higher risk)
- Pasadena: $6,200/year ($517/month) (industrial, flood-prone)
I factored in Property Management and Repairs (on purpose I based it a bit high)
- Property management: $100/month
- Repairs: $200/month for each home
When I calculate the monthly costs, if I pay 20% down and take a 30-year fixed mortgage, I can easily calculate my monthly ownership costs.
So if I buy in any of these markets, in order to breakeven I must rent these home at these monthly rates or higher.
Are there any recent changes in prices?
First, some of these prices looked rather high to be, and especially the break-even monthly cost. I felt it would be difficult to get them rented even near those prices. So I looked for cheaper towns.
I simply plot the previous year to see if there is any anomaly. There wasn't. This is normal price increases in this area year over year.
Median Rental Prices and Gap
The main thing about this exercise, is that I must rent this house. So I needed to check how does the real median rental prices compare with the break even monthly cost. Here is the bad news!
So, clearly I can't make money in this market. Unless:
- I find a home cheaper than median price
- I can rent it out at higher than median price
Perhaps both at the same time is probably better. However, what are the chances of that? Small.
Let us look elsewhere
Is there any city in Texas where the gap is near zero? Well there is. Yes, it is a major city!
Look Ma! I have found San Antonio!
At a $46 gap, and a major population center in Texas. I can definitely make it work. So I thought, why don't I zoom into different neighborhood of the city. Hell, I even like San Antonio. It is drier, and no hurricane. Insurance is lower there, in fact that is one reason the math worked out.
The gap looks totally workable here. I estimated $200/month in repairs. Over the 15 years I am doing this, it never cost me that much on average, so I have that cushion. Plus, I can find a home slightly lower than median and rent it out slightly higher than median. The point is I think I have found my city for a rental property.
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