With the beginning of the new year, you might be thinking about buying an investment property – either to become a real estate investor for the first time or to expand your real estate investment portfolio. Either way, location is one of the most important factors you need to consider when buying a rental property. For the best real estate investments, you need a location with a strong economy and labor market, numerous tourist attractions, a vibrant rental market, and many tenants willing and able to pay good rent. The State of Texas is definitely such a location, which makes investing in Texas properties an excellent and profitable investment decision at the beginning of 2018.
Nevertheless, the State of Texas is so vast that a real estate investor needs more information to choose the best location – i.e., city – for investing in Texas properties. No doubt, Austin and Houston are two of the major cities in Texas, which makes the Austin real estate market and the Houston real estate market a logical choice for buying an investment property in Texas. So, which of the two housing markets is the best real estate investment choice at the moment? Which of the two real estate markets will generate higher return on investment in terms of cap rate and cash on cash return? And what is the optimal strategy in each of the two locations? Keep reading to decide whether to go for Austin real estate investment properties or Houston real estate investment properties this year.
What Are the Real Estate Metrics for Investment Properties in the Austin Real Estate Market and the Houston Real Estate Market?
To answer the main question of which is the best place to buy an investment property in Texas in 2018, we first have to look at the real estate return on investment metrics for the Austin real estate market and the Houston real estate market. The figures below have been computed by Mashvisor’s investment property calculator, the best real estate investing tool available at the market at the moment. Our rental property calculator uses traditional and predictive analytics and real estate comps to provide highly reliable and accurate estimates of the all major return on investment metrics in real estate investing including the rental income, the cash on cash return, the cap rate, etc. However, please note that Mashvisor’s investment property calculator provides the same number for the cash on cash return and the cap rate (for both traditional rentals and Airbnb rentals) because it assumes investment properties are paid for fully in cash.
Austin Real Estate Market
- Median Property Price: $465,000
- Traditional Monthly Rental Income: $2,190
- Traditional Cash on Cash Return: 2.1%
- Traditional Cap Rate: 2.1%
- Monthly Rental Income: $1,320
- Airbnb Cash on Cash Return: 0.7%
- Airbnb Cap Rate: 0.7%
Houston Real Estate Market
- Median Property Price: $342,000
- Traditional Monthly Rental Income: $2,000
- Traditional Cash on Cash Return: 3.6%
- Traditional Cap Rate: 3.6%
- Monthly Rental Income: $470
- Airbnb Cash on Cash Return: 0.1%
- Airbnb Cap Rate: 0.1%
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How Do the Austin Real Estate Market and the Houston Real Estate Market Compare?
In order to see which the best place for investing in Texas properties is, we will compare the various metrics for the Austin real estate market and the Houston real estate market one by one.
Median Property Price
The median property price is always of concern for real estate investors, especially beginner real estate investors, who are usually short of cash to buy an investment property fully in cash. The property price will determine the method of financing of a rental property, which in turn is a main determinant of the return on investment, particularly when it comes to cash on cash return. So, with regards to property price, the Houston real estate market is the more affordable option for buying an investment property in the State of Texas.
Related: Buy Investment Properties in These Neighborhoods in the Houston Real Estate Market
Monthly Rental Income
How much rent you can charge your tenants determines your rental income, which then determines your return on investment, together with the operating costs, of course. The higher the rental income, the better – every successful real estate investor knows that. In terms of traditional monthly rental income, the two housing markets under investigation perform relatively the same though the Austin real estate market offers just a slightly higher rental income for traditional rentals. In terms of Airbnb monthly rental income, however, the Austin real estate market is a much better real estate investment option.
Related: Here Are the Best Neighborhoods When Investing in Austin Real Estate
Cash on Cash Return
If you as a real estate investor are interested in traditional rentals, then you should go for buying an investment property in the Houston real estate market, which offers higher traditional cash on cash return. If, on the other hand, you are interested in renting out your rental property on Airbnb, it is better to invest in real estate in the Austin real estate market, where profitability for Airbnb rentals is higher in terms of cash on cash return.
Cap Rate
As we explained above, Mashvisor’s investment property calculator offers the same numbers for cash on cash return and cap rate for both traditional rentals (long-term rentals) and Airbnb rentals (short-term rentals) because it assumes all investment properties are paid for fully in cash. Thus, the results for comparing the Austin real estate market and the Houston real estate market are the same.
What Is the Optimal Rental Strategy in the Austin Real Estate Market and the Houston Real Estate Market?
In both the Austin real estate market and the Houston real estate market, it is better to invest in properties which will be rented out through the traditional rental strategy.
Is Airbnb Legal in Texas?
Whenever a real estate investor even thinks about investing in Airbnb rentals, he/she should consider the legal situation in the local housing market. All real estate investors considering the idea of investing in short-term rentals in the Texas real estate market – even if beyond the Austin real estate market and the Houston real estate market – will be glad to know this option is legal and generally a good idea.
Related: The Best Places to Buy a Vacation Home in Texas
What Is the Best Place to Invest in Real Estate in Texas: The Austin Real Estate Market or the Houston Real Estate Market?
Overall, the Houston real estate market is the better option for investing in Texas properties through traditional rentals as it yields higher return on investment.
To start searching for the best investment properties to buy in the Houston real estate market, click here.
The Austin real estate market, meanwhile, is better if you opt for Airbnb rentals.
To start searching for the best investment properties to buy in the Austin real estate market, click here.
However, the return on investment in both housing markets in terms of cash on cash return and cap rate is rather low. At the same time though, Texas is generally an excellent choice for real estate investments, so real estate investors could consider other cities and towns.
The places in Texas with the highest return on investment (cash on cash return and cap rate) for traditional rentals include: Port Arthur, Arp, Itasca, Grape Creek, New Hope, Oak Ridge North, Windcrest, Mount Calm, Savoy, and Jermyn.
The places in Texas with the highest return on investment (cash on cash return and cap rate) for Airbnb rentals include: Palestine, Cypress, La Porte, New Braunfels, Canyon Lake, and Leander.
To start searching for the best investment properties to buy in Texas in each of these locations, click on the name of the place.