I currently own a commercial office building of 9000 sq ft in Southern California and am considering doing a 1031 exchange to move my money out of state. I am currently considering investing in pre-construction single family houses in Houston, Dallas, Austin of Texas. I understand the property tax in Texas is very high and the house price is still very affordable. I believe I can get positive cash flow after putting 20% down. However, I worry about the following things :
How easy is it to rent it out ?
Although I will employ property managemnt company, I still worry about the hassle factor since they are far away from me.
The appreciation potential of Texas as comapring to other states .
Can anyone advise me if this is a smart move ? If not what will be better opportunities?
Andy, I live in Houston and I can tell you that new construction is everywhere. While established parts of Houston have a typical appreciation rate of around 7-10% annually, the new construction areas do not increase quickly for obvious reasons. The subdivisions that are being built around here are huge. I mean 500-1000 or more homes. What ends up happening is people buy a new home and then try to sell 2 or 3 years later and make a profit but they can’t. Because of the constant building, buyers can buy a new home for less than the resales, so why buy a resale? I would say it’s a good investment IF you purchase in a smaller subdivision, you purchase toward the end of the build up OR plan on holding the properties for 7 years or more to realize any real profit. Not many investors want to hold the properties for that long.
To answer the second part of your question, you can definitely rent those properties out and the rental retention is great. As an FYI, you can’t do lease options here which hurts us. That law was just passed this year and will hopefully be repealed but that really affects us. I hope this information has been helpful.
The same is true in Dallas/Fort Worth. Seems that many of the land owners (farmers/cattlemen) are selling up their land to big developers and they are building “master planned communities” with minimum 1000 houses with their own schools, parks, and businesses.
Keep in mind there’s still cash flow in rental properties, since not everyone qualifies or can afford to purchase a new home.
As far as commercial real estate goes, I don’t have any information on that, so I couldn’t tell you if commercial in North Texas is better than residential.