The Top 4 Neighborhoods for Houston Real Estate Investing

  • Oct 10, 2016, 11:54 AM

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Thinking about investing in the Houston, Texas real estate market? You should be! Why? To begin with, Houston with its population of well over two million people is the most populated city in the State of Texas and the fourth one nationwide. It is also an important trade, business, energy, and medical center. If that’s still not enough to convince to invest in Houston, then you should hear what Mark Dotzour, a former chief economist for the Texas A&M University’s Real Estate Center, has to say about Houston real estate. During the Greater Houston Builders Association’s mid-year meeting, Dotzour called the Houston housing market’s performance “stunning, astonishing, astounding” as in his words “it’s amazing how resilient the housing market is in Houston when you’re in the middle of a root canal.”

According to Neighborhood Scout, offering investor-grade insights for every location, since 1990, the Houston real estate market has experienced an overall appreciation of 136%, which means an average annual appreciation of over 3%. In the past 10 years, the overall appreciation was 48%, with an average annual appreciation of 4%, which ranks Houston in the top 10% nationally. In the past 12 months, the housing market in Houston appreciated with 7%, higher than in 80% of US cities and towns. Furthermore, the 2015 BiggerPockets Real Estate Investment Market Index placed Houston as the fourth best US market to get rich from real estate (after Dallas, Denver, and Miami and before Atlanta, Tampa, Detroit, Austin, Las Vegas, and Orlando) with its average gross return of 18.5% over the previous year.

Related: Everything to Know About Dallas Real Estate Investing

So, I think we can assume that you are now convinced to give Houston real estate investing a thought, right? Then, let’s look at the top neighborhoods for real estate investing in Houston.

Related: Is It Time to Invest in the Houston Real Estate Market?

As any populous city, Houston has many different neighborhoods featuring various characteristics, which could appeal to nearly any real estate investor. In this article we point you to the top four neighborhoods for Houston real estate investing.

1. Midtown

Midtown might actually be the best neighborhood for buying an investment property in all of Houston. This neighborhood features endless advantages, including: a central location, proximity to key districts such as the Galleria and the Museum District, excellent accessibility along major freeways and hosting major arteries, very good walkability (82/100), and nearness to employment centers such as the central business district. In addition, Midtown is ever-evolving, diverse, and bursting with nightlight and street life including restaurants, bars, coffee shops, lounges, boutiques, and retail stores. Art venues are also abundant. 

Real estate property options are various: townhomes, condos, lofts, patio homes, and single-family homes. Prices are generally affordable with a median price of $385,000. According to the Mashmeter, an indicator developed by Mashvisor for grading how good any particular neighborhood is for real estate investing, Midtown scores 81%, which is a very high score. The expected cash on cash return for traditional renting and Airbnb is 4% and 5%, respectively. The expected rental income is $1,978 for traditional and $2,340 for Airbnb. The occupancy rate for Airbnb is 75%. All these combined mean that Airbnb is the optimal renting strategy in the Houston real estate market for Midtown.

Related: Investment Property Calculator For Analyzing Real Estate Investments

2. Montrose

Montrose is another excellent neighborhood for investing in the Houston real estate market. This predominantly residential neighborhood features a demographically diverse population inhibiting townhomes, renovated mansions, bungalows with porches, and cottages. It offers the best cuisine in Houston, various coffee shops, and rich nightlife. It is very walkable with a score of 93/100 and within a walking distance from the city’s most trendy shops, restaurants, and clubs. No wonder that the Mashmeter rated Montrose at 75%.

Homes here though are more expensive than in Midtown with a median price of $612,500. The capitalization rate for an investment in Houston real estate here is 5% for both traditional and Airbnb, while the cash on cash return is 3%. The rental income for both types of renting is close to $2,400. The Airbnb occupancy rate is 67%. The optimal rental strategy is traditional.

3. The Heights

Another top neighborhood for buying a rental property within the Houston real estate is The Heights. That’s the oldest masterplanned neighborhood in Houston, comprised of seven historic districts. It’s highly eclectic with its mix of commercial and residential developments. The Heights features many preserved Craftsman bungalows as well as Queen Anne mansions in addition to a recent rise in condos and townhomes. The neighborhood offers wonderful hike and bike lanes, which makes it perfect for both single landlords and such with children. The Mashmeter valued The Heights at 69%. 

Prices are slightly lower than in Montrose but higher than in Midtown with a median home price of $504,900. Traditional renting is the recommended strategy for renting out an income property in The Heights as this method offers a capitalization rate of 5% and cash on cash return of 4%, compared to 5% and 3%, respectively, for Airbnb. The expected rental income is between $2,047 for Airbnb and $2,210 for traditional.

4. Memorial

Memorial is yet another neighborhood which you should definitely consider for your choice of rental properties in the Houston real estate market. It is an excellent home for families with children because of the reasonable commutes, the high-quality schools, and the quiet, safe, tucked-away neighborhoods where kids can run and play. Shopping and dining options are also abundant. The neighborhood offers access to the Terry Hershey Park hike-and-bike trails along the Buffalo Bayou. 

The real estate market is dominated by traditional manses as well as modern ranch homes. You may want to know that last year one property in Memorial was listed for sale for $43 million!!! Well, that’s quite far from the median real estate property price of $594,800. According to the Mashmeter, Memorial scores 41% with cash on cash return of 2% for traditional and 1% for Airbnb. The rental income from traditional renting ($1,931) is significantly higher than from Airbnb ($1,627). The optimal strategy here is traditional as that’s the perfect place for families which children.

Once you know which neighborhood is the most appropriate one for your next investment in the Houston real estate market, check out Mashvisor for analytical and comparative statistics as well as available properties in your preferred neighborhood.

And as a bonus, here are some important city averages for Houston:

  • Median Property Price: $528,345
  • Airbnb Rental Income: $1,423
  • Traditional Rental Income: $2,286
  • Airbnb CoC Return: 1.70%
  • Traditional CoC Return: 3.57%
  • Airbnb Cap Rate: 4.22%
  • Traditional Cap Rate: 6.22%

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