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.
Fun data. Now do it for Brooklyn neighborhoods!
lol! Am I suicidal? !
I've been looking at multi-family units/buildings here. I don't feel suicidal...
Perhaps you are right, but you are familiar with that market. For me that is intimidating! :)
My first wife's family all lived in League City, and then moved to Webster. We'd go to Kemah boardwalk all the time. They got wiped out by a storm or two over the years. But the 8 years I spent in Texas, I always lived in Austin, so I became all too familiar with that 2+ hour drive over.
If you bought and kept that in Travis County, you would be all smiles today :)
from $95K to $750K
If nothing else, it is okay for me to familiarize myself as a thought experiment. I just never dealt with complexity of multi unit apartments
I'm still not convinced to buy a rental :-D But I wish you all the luck in the world! You clearly know what you're talking about :-)
What speaks for buying in Ecuador is the very low property tax (0,1% in Cotacachi). Every year, the expats here go and pay and then publish the ridiculous amount that they paid fort he whole year - with a 10% discount if they pay between the 2nd and the 15th of January, 9% between the 16th and 31st, and so on. And the seniors even get a discount on top of that.
I just started scraping the walls of the place that I rent - it's becoming moldy again, due to a very heavy raining season.
I still rather not own. 200$ per month in maintenance can be an exhausting reality here, and that considering the very low prices on almost everything. I am thinking about buying a property though, but just something plain to hold our farmer's market on. Nothing to get rich of, but we're tired of moving around and want something where we don't have to deal with politics (on municipal property) or landlords/ladies.
One smart thing could be renting and then using all the money you would put down and lay out into various syndicated deals just need to find a good sponsor. The sponsor ive done a few with has not disappointed.
This was the return for a bit less than 2 years on this one and had a couple more with them like it to as well as others with other sponsors in the 20-30 range as well for about 20 deals I have done so far. The lower layout of capital lets me take less risk per property and diversify all over the US as well but there are draw backs like less control but the idea of renting and buying rentals either way is one that is a interesting way of doing it to if you can find a good trustworthy and talented group.
That's basically what I'm doing - a friend has a construction firm, so I provide him with cash, and he pays a handsome interest every 6 months :-) I don't have to hassle with anything.
Build one new just the way you want it.
I think it could be a mental block in owning what you still consider a foreign country?
Let me ask you this.
Are you still a German? (in your mind, not your passport)
Are you from Ecuador?
Where are you really from now? :)
If you answer this, I think you will find peace.
The question about building new is finding someone who actually has the skill to do it right. I really thought about it all, from many perspectives, but renting is still the best in my opinion.
And it's not because of a foreign country - I'm not really happy about inheriting a house in Germany, either, but it will come to it. It's my general mindset about not owning material. I never had that wish of owning a house or something. Maybe once I have one for whatever reason, that will change. My brother is thinking about buying an apartment here in Cotacachi, so he and mom can visit easier. Maybe seeing how that works will bring me closer to it.
The mental block could be the responsibility to care for yet another thing. I have enough of those responsibilities already, and am happy to not have to stress about a house.
As to your other questions - I don't fit well in either culture. I do consider myself German still, as most of my values come from there, although they have shifted over time. I do consider Ecuador, especially Cotacachi, my home, though. Going back to Germany brings back beautiful memories, but not the desire to create new memories besides the vacation.
I would do apartment complex and just take a few units if its a high rise and turn the top floors into my house then rent the rest out since they value those types of buildings based on NOI and all you need to do is renovate a bit and raise the rents and the building instantly becomes worth a few million more. Invested in a ton of deals that did this strategy and averaged like 30% a year on the 20 or so I've done or invested in as a lp. If i actually do the deal as the GP id make a lot more since they put down like 10% and get 20% as a promote plus a 1-3% mgmt fee.
We have that a lot here in town. The expats love there gated communities and apartment complexes :-D But that would be even worse than owning my own house in terms of stress for me :-D
Now that the cat is out of the bag:)
Next is attachment and responsibility. Do you know what the average life span of a 30-yr fixed mortgage is?
This is the average mind you, so there is numbers that is less than that. Also this number is on the rise lately. It used to be five years, pre-covid.
The reason I brought this up is because this is a mindset. I know numerous people who bought a house, knowing that they will only live there for 2 years and then they are going to go to a different state or country. They still like to own. Why?
Because if you rent, you pay. That money is gone forever never to come back. If you own, and pay the same or less or more amount of money, that goes towards your own equity! You are investing in yourself.
That is the difference.
I know students here who own houses and apartments, because their parents taught them. My parents didn't, I had to learn it by myself.
I'm still not convinced :-D I helped to sell houses (and cars) here for commission, but only for friends as it's quite the hassle, Ecuador is highly bureaucratic. I rather invest in stocks and businesses - my parents are definitely more of the house people, but maybe that experience made me not wanting to do that. My brother owns two houses, my mom and my dad one each.
It's great for those who are into it - I'm just not. Maybe yet, maybe forever, but right now, I don't feel like it would add value to my life in any significant way.
and that is fine. You do what makes you happy. There are no perfect solution that fits everyone. Also location is important. My experience of markets are all based in the US.
Yeah, a lot of it is really Ecuador. I'll see how it goes when I inherit a house in Germany. Maybe with that experience I'll come around :-D
Wow as an European these rental prices are high! Rental for a single family home where I live (a small city in The Netherlands) is €1000 - 1200 and the 30 year mortgage is around 4%
For the next two years our mortgage is 1.75% we will not be able to get such a nice deal anymore when this rate expires😅
Housing prices are crazy since covid, my house did a 2x in 8 years
Interesting to see how is it viewed from the investor side 😀
I am aware. No wonder so many Americans are moving aboard. I have looked into Italy which I like a lot. Honestly most of Europe is very inexpensive compared to here.
We used to go to Italy for summer holidays, it's a beautiful country, the reason we don't go anymore it's because the summers are very hot in the last decade and this will only get worse, I'm not made for high temperatures.
Buying a house there to live in for a couple of months and rent out for the rest of the year would be very nice though
Philippines is a good investment for apartments you might want to check it out.
ive been looking into moving there to do that and a few other things since its just so much cheaper and i could live like a king compared to here in a nice high rise on the top floor and then buy rentals and let those pay for my rent and then profit after. Herd the property is super cheap and its annoying you cant own land if you are not from there but if you got married and actually found someone for real they can own the land which would be ideal.
First of all you need to know something about Filipina. If you marry someone here you are marrying the whole family.
Yes, I have been told many times. I got to go there first
Cool let me know so I can show you around.
How much could i buy like a 100 unit high rise for there?
Well that's a lot of money maybe around $5M. I would suggest apartments then you have a land by the beach and live like a king like you said. You get passive income every month to support your basic needs.
I think I am going to have to start getting more serious about what I need to do to pick a rental property - but nothing can be done about it unless there is some crypto support.
What an amazing rate you are working with!!!
Consider yourself lucky.
damn id kill for that rate
Me too
You probably have more local knowledge, but this can get your started
Here is a a ballpark estimate, based on my simple model...
Assumptions for ownership cost calculation
down_payment_rate = 0.20 # 20% down payment
loan_term_years = 25 # Common Finnish mortgage term
interest_rate = 0.014 # 1.4% (projected 12-month Euribor 2025 + 0% margin for simplicity)
maintenance_fee = 4.60 # €/m²/month (national average,)
apartment_size = 79 # m² (average 2-bedroom,)
insurance_cost = 100 / 12 # €100/year for 40 m², scaled to 79 m² ≈ €200/year ()
property_tax_rate = 0.0093 # Lower bound for residential buildings ()
repair_cost = 20 # €/month estimate for minor repairs
incidental_cost = 10 # €/month for miscellaneous
PS: This is better sorted
When does your wife think you have enough properties? :P
If everything is paying for itself and you guys can live on the money / maybe a little salary, isn't that good enough? :D
Not just my wife, but it is widely considered owning 10 single family homes as rental is an excellent retirement supplement.
How many do you have now? And damn, 10 is a lot xD
I just have stocks and I consider that to be my retirement in 40 years time? xD
Ever think about doing a 1031 into a complex or self storage facility those can be extremely profitable.
Did you do a portfolio loan on that I herd banks give you shit once you get to that many SFRs
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Rental properties are a good way to go for the right people. I’ve looked into it before but sadly I have to find other avenues, as I don’t have the capital to get one off the ground in these markets lol. These are good thought exercises for me yo keep in mind for when I’m ready!
The markets are for sure pretty wild right now but I don’t think 4-5% interest rates is a bad thing. It’s not sustainable to be 2-3% honestly.
Thought exercise is the reason I did this for myself. Yes I like 4-5% 30 yr fixed. Historically that seems to be the sweet spot
Those property tax rates are brutal. In my area of North Carolina and one of the fastest growing Counties in its segment average property tax rate is around 0.8%
I agree. But we don't have state tax. So there's that.
Do you have any nice state or federal tax credits you can take advantage of in TX? In NY there are a bunch that you can get if you do the right things in the right places or if you take a building like a old barn or church or something historical and change it into something like self storage or something you can get some pretty sweet tax credits plus if you mix up some digital asset infrastructure you might be able to get a few more interesting credits.
This is just my opinion and I might be wrong, but here is what I see:
Given above I would wait buying rental property if you think there will be a recession. Even in the better markets like San Antonio.
Yes. You are absolutely correct. I have been waiting for a recession since 2008 :) not getting any
No hurricanes... yet.
I'm glad you've found an area that might work for you. I assume you're looking specifically at stand-alone houses... not townhouses, condos or apartments right?
With your rental properties, are you trying to pay down the mortgage as quickly as possible? As in, you pay off your primary residence and then put that same amount on Rental Property #1 until that's paid off, and then put your income + rental income from Property #1 and #2 into paying off #2 as quickly as possible... and continue? Or do you basically keep the mortgages as a tax deduction?
The reason I ask is that if you keep paying them off, eventually you could not worry about mortgage rates to make money.
My properties were financed at 4% fixed rate. It's a terrible idea to pay them off because there are numerous things I can do that earns more than 4% interest.
So no I am not planning on paying them off early. Once the long term interest rate goes below 5% it is essentially free money.
Ah, I see... and I think we might have actually had this discussion before, sorry about that.
The free money aspect is breaking my brain a little bit - is the 'long term interest rate' government bonds? Is it free money because government bonds kind of pay for the fixed rate mortgages?
Another fun free money hack is use a zero percent credit card to buy everything you need for 21 months which is the best i found and put the money in a CD then when its up pay it off you net the interest on there loot. I did it with my 50k loc once lol
Whoa! That's really smart! I never would have thought of that. I'm not sure I've noticed an interest-free for 21 months credit card, usually they are 55 days, so I'll have to search around for one.
Long term stock market return is 10-15%, more towards 15% these days. I can put the money I am going to pay off my mortgage to a S&P500 Index fund and earn 10% return easy. Why do I want to pay off my 5% 30-year fixed? The difference is 10-5 = 5% or higher. For a $300,000 loan that is $15,000/yr that technically govt is paying me to take the loan.
Ahhhhhh, I see. Thanks for spelling all this out for me. It's definitely a completely different way to think about it from how I've been looking at rental properties. It's a good perspective.
Then the best part your kids get to step up the property to FMV and deduct it again with out paying for it and can refi at the new value lol its the wealth machine dollar depreciates asset and if goes up plus if you do it right no tax ever until you get really wealthy but even then there are strategies.
I've been doing syndications a lot and those even with the extra fees for the sponsor split I'm getting 25-40% apr a year on most of the properties I've invested in except like 3-4 which were like 12-15 and one was 5% bc of a fire but cant beat all that tax free distributions if you just reinvest like half every sale the leverage built in wipes out any gain.
Looking at finally doing my own and combining it with digital assets by putting infrastructure like servers or miners in the building like a self storage facility since there are some credits I can get that would possibly give me a QETC credit in NY which is 15% if you hold it for 10 years on the entire building lol plus possible that you can qualify for at lest some of the digital asset stuff as r and d as well if you get it in the right zone qualify for start up NY which lets you not pay real estate tax for 20 years or income tax for 20 years and triple threat get it in a OZ and you wont ever pay federal tax either after 10 years so no cap gain ever. If you can have one of you spend 51% of your time in real estate then your losses can be unlimited on paper offsetting any type of income to.
Good call my friend i could not talk out of it he had a 2.75 rate i think and he was throwing cash at it to pay it off I'm like dude you can put that in a CD and make more and profit off that rate. Or better use it to buy more.
Honestly, seeing all those charts made me wish I had your skills in Python! It’s so cool to visualize everything.
If you really want to you can learn anything. Literally anything. Keep learning.
It's so strange how it works outside my country, do you have to pay insurance even if it's rented by someone else? Or do you keep it off until it's rented? It does come into account what the insurance charges or not, (flood or theft maybe?) Normally we just lock our houses up tight, and if in case we have some event of nature, we just have to turn around and get on with life, no insurance here.