Houston Texas has many vibrant construction real estate investment opportunities for accredited investors and novice investors alike. Houston has proven to be a very resilient housing market the past 30 years. Most recently the past 5 years the city has withstood the collapse of oil prices and an estimated 81,000 lost jobs during that same period, according to the Associated Press. During this period more than 100 companies filed for reorganization under federal bankruptcy guidelines.
According to the New York Times the Houston metro area is still growing by 400 people a day and is building 40,000 new single family housing units a year. Houston has consistently built between 35,000 – 45,000 homes since the apex of the financial crisis in 2009. The New York Times issue went on to say that Houston is the largest single family new home market in the nation representing 7% of the nations residential construction.
For the purpose of this article we will limit our discussion to value added construction real estate opportunities for investors in Houston.
What are the Houston Investment Opportunities?
There are many different asset classes of construction real estate investment in Houston. They can be easily be classified as short term investments and long term investments. Short term investments are described as less than one year, while long term investments are greater than one year.
Like any other commodity these different housing types go through cycles contingent upon market demand and supply forces.
Short Term Investments
- Foreclosure Homes – Foreclosure homes have long been a viable source for investors. During the 2009 financial crisis the inventory levels of foreclosures spiked in Houston nearly 14,000 homes. The current inventory level of foreclosures 4,000 homes a year. This small inventory of foreclosures tend to maintain market value pricing, thus making them far less attractive as an investment.
- Harvey Storm Damaged Homes – Harvey flooded 40,000+ single family homes and an additional 35,000+ apartments. It is difficult at this time to determine how many of these homes will be repaired and how many will be sold as is. In addition it is estimated that more than 60% of the homes flooded did not have flood insurance.This dynamic market condition will cause pricing to zigzag for some time to come. At this point in time lot values have held to market price for future homes. As more lots come on the market, the prices are expected to fall between 10%-20%. The prices for many of the current storm damage older homes are currently being offered at lot value.An investor would need to carefully inspect the older homes in order to determine the repair cost versus tearing it down for building a future home. Prices are likely to be unstable for some time to come.
- Metro Houston Lots – Metro area older lots continue to be attractive investments for investors considering tear down strategies or full home renovations strategies.
- Undervalued Homes – Although not easy to locate these types of assets in these current market conditions, there are always homes that either stay listed on the market and do not sell or are in need of a great deal of work and do not sell. These homes require close inspection but if the location is good and the numbers work, these can be sold short term transaction returns.
- Metro Houston Older Multifamily Projects – Older metro multi-family investments make for excellent investments with multiple exits strategies. The key to these deals is a location that provides mass transit, in transitional neighborhoods and close to shopping. These prospective properties typically need fundamental replacement products like a new roof and cosmetic updates for the interior, such as paint and new flooring.
Long Term Investments
- Luxury Spec Home Construction – Luxury spec homes are good investments for investors that like higher capital investments that offer interest and equity returns. The Houston luxury home market (>$1M) expanded 20% year over year from 2016. New luxury home inventory has steadily reduced the past 3 years. Close in lot inventory in minimal and remains in high demand when it comes on the market in the form of a tear down.
- Small Multi Unit Home Developments – Small multi unit new home gated developments are in big demand. Finding desirable lot locations that can be subdivided is the key to these types of investments. These developments can be very attractive returns, but require large cap investments from investors and/or lenders.
- Luxury Multi Family Homes – Although the multifamily metro market is not in demand as single family, luxury multifamily projects can be a good strategy for high land prices in the most desirable locations. Condo’s have been overbuilt but are a very attractive housing solution for the international migration that Houston is experiencing.
Why is Houston a good market for investment?
Houston is an excellent construction real estate investment market for small and large accredited investors. While the commercial office building investment market tries to recover from the oil industry struggles the past few years, Houston is still considered a top 10 city for investors based upon annual returns and the economic outlook.
We will examine the fundamentals that make Houston a investment city of the future.
- Employment & City Growth – Houston represents 24% of the Texas population but accounts for 32% of the states job growth according to the Houston Partnership. e The construction sector is twice the level as the US average of jobs.
- Cost of Living – Housing is 22% less than the national average and the general cost of living s 10% below the national average.
- Housing Affordability – As mentioned Houston housing is 24% lower than the national average. Medium price of a home is $164,000 with a medium income of $58,000 making Houston attractive for workforce and professionals alike.
- Shortage of Home Inventory – Home builders have already been struggling with labor sources and challenged to keep up with new housing demand in Houston. Now with during the Harvey aftermath, housing shortages are expected to continue for many years.
Diversified Local Economy
- World Class Medical Center – The largest medical center in the world receives 8 million patients a year including 18,000 international patients.
- No State or Local Income Taxes – The State of Texas and City of Houston do not impose income taxes.
- Port of Houston – Is one of the largest ports in the US. International trade represents a significant portion of Houston’s commerce.
Summary
The City of Houston is one of the elite metropolitan areas that continues to increase in population and remains the most affordable housing major cities in the nation. The Houston market produces a wealth of residential construction real estate investment opportunities for accredited investors. The variety of real estate investments allows investors a full brigade of different risk tolerant and high performance opportunities. The investment climate looks to be very promising the next 5years.
