Is It a Good Idea to Invest in Rental Properties for Sale in Houston?

Rental properties for sale in Houston TX are a hot market, but is it too late to buy? Read the following market overview and see it for yourself.

Table of Contents

1. Is Houston TX a Great Place to Invest in Rental Properties in 2022/2023?
2. How to Find Rental Properties for Sale in Houston TX in 5 Steps
3. 10 Best Neighborhoods in Houston TX for Traditional and Airbnb Rental Investment
4. Should You Buy a Rental Property in Houston in 2023?

Many residents from California and other states are going along with the recent trend of moving to cheaper places, due to the high cost of living. As a result, Houston, Texas, is becoming quite a hot destination for many people looking for a cheaper city to live in. Between 2020 and 2021, Houston’s population grew by 70,000 while other cities like LA or NYC lost residents.

The relocation brought about both positive and negative effects for all participants in the real estate market. For a landlord, it means investments in the Houston area are likely to appreciate in value.

According to the Kinder University of Urban Research, between 2020 and 2021, housing prices went up 16% county-wide and 10% in the city of Houston. On the downside, the cost of entering the Houston market is becoming higher and higher due to all the investments pouring in. The rent may compensate for that additional investment as rents are increasing in Texas.

However, the problem for a real estate investor is that rental properties for sale in Houston may drop in value if the trend reverses.

So should a wise investor put their money in Houston, TX in 2022 or not? Let’s look at the statistics and expert opinion on the city’s future. If it sounds convincing, you can read up on how to find the best Houston properties for sale below.

Is Houston TX a Great Place to Invest in Rental Properties in 2022/2023?

Houston appeals to real estate investors because properties in the area appreciate faster than the national average. With the direction the city’s real estate market is going, if you buy a house now, it will be worth 15% more in 12 months.

The problem is such an assumption relies on the trend continuing. Houston real estate’s been going up since 2020. So did the rent. There’s a chance that when rent catches up with the prices in LA or NYC, people will stop coming, and the growth will stagnate.

It puts two main questions to any investor who’s looking for rental properties for sale in Houston. Will real estate prices in Houston fall in 2023? Is investing in Houston properties profitable even with a much lower growth rate?

You’ll learn the answer to both below.

Will Houston Real Estate Market Grow in 2023?

As of 2022, the influx of people in Houston doesn’t show signs of stopping. First and foremost, the reason why is simple math. Houston, and Texas, in general, are much more affordable than the big cities in New York or California.

The average rental income in Houston is around $2,245, according to Mashvisor’s latest market data. For Los Angeles, the number is closer to $4,000, with the average price of a home almost triple that in Houston.

The closest competitor of Houston in-state, Austin, does command a slightly lower rent — $2,100 as per Mashvisor data. But it’s a smaller city and won’t take as many residents as Houston. The price of a house is also larger on average, around $700,000, which makes for a lower cap rate.

Additionally, the cost of living in Houston is 6% lower than the national average and 32%-50% lower than in large metropolitan centers, as estimated by different companies.

It means that Houston is a long way from reaching the levels of LA or NYC in terms of the cost of living, and people are unlikely to stop moving in. So even if Houston properties don’t appreciate at the current high rate, the market isn’t likely to stagnate.

The only negative trend is that more Houston residents tend to move from the city area to the suburbs and metro area. It suggests that housing prices will grow around Houston more rapidly than within city limits but doesn’t make Houston a bad investment.

Is Houston Good for Traditional Rental?

The city of Houston offers a pretty tempting potential for investors. According to data gathered by Mashvisor, the average price of a Houston home is $484,000. The figure is higher than the national average, but for a large city, it’s relatively affordable.

Houston is the fourth-largest US city by population, offering by far the cheapest housing among the top four. In the closest city on the list, Chicago, an average house put up for sale costs $600,000, while rent is at the same level as Houston. It means Houston rentals both require a lower cash investment and produce a better cap rate.

The average monthly rental income in Houston is around $2,300, which makes the average cap rate 2.34% and cash on cash return 2.38%. That’s not the highest ROI in the country, but it’s pretty decent as far as major cities go.

If you want to look at the Greater Houston Area, there are great opportunities there as well. There are cities with a higher cash flow and cities where properties cost less but offer a better cash on cash return.

Is Houston Good for Airbnb?

While the city of Houston is an excellent place for traditional renting because of its low cost of living and great job market. But such things don’t make it that great for Airbnb rentals. According to Mashvisor data, the occupancy rate within Houston city limits is 41%. It means your Airbnb rental is likely to be vacant for 59% of days on average.

The relatively high vacancy rate causes the cash on cash return for Airbnb businesses to be around 0.5%, which is definitely not good. The rental income is on par with traditional rentals at $2,100 per month. However, the expenses tend to be much higher when running an Airbnb, resulting in lower cash flow and lower returns.

That said, the average nightly rate in Houston is $150, and if you really can market your Airbnb rentals, you can make a profit. It’s just going to be much harder than in other cities.

Now, if you want to focus on Airbnb in Houston and be on the safe side, give towns in Harris County a closer look. Many of them are close to the city and offer much better returns.

For instance, the city of Katy, TX, which is just a few dozen miles west of Houston, offers lots of lower-priced properties for sale and provides a higher cash on cash return.

Another benefit of running an Airbnb in Houston is that the city officials are in full favor of making the vacation rental business as effortless as possible. There are little to no legal requirements for Airbnb hosts, apart from what the platform requires.

How to Find Rental Properties for Sale in Houston TX in 5 Steps

For a real estate investor, especially one who wants to make a profit on renting out their property, location is crucial. It’s not just about purchasing a nice-looking house or getting a bargain on it. It’s about finding a place with great infrastructure, excellent job prospects, and that will continue to flourish in the future.

How do you find such a place in Houston, Texas? Here’s a short guide.

1. Define Your Goals

Even before you make the first step of finding the right house for sale, you need to go through step zero. That is, defining your goals and overall investment strategy.

It depends on several things:

• How much cash do you want to invest
• Your payment plan
• Whether to go for traditional or Airbnb rental
• How well do you know the area

Your cash savings and mortgage conditions define the price range you can search in. There’s no use in overleveraging on an investment because you want to invest safely. You can still get a good cash on cash return on a smaller investment, and you won’t risk as much.

The price factor will narrow down your search to certain neighborhoods. The choice between traditional and Airbnb rental models will too. Some places in Houston are better suited for traditional renters and some are highly popular with Airbnb guests. You’ll need to go for the right one.

Knowing the area well means you don’t need as much outside help. One of the things that you may want to hire a professional for are local tax codes and licensing issues.

Related: A Guide to Choosing the Best Rental Property Strategy: Airbnb vs Traditional

2. Find the Right Neighborhood

The first step on your journey towards a great investment in Houston is finding the right area to look for a house. Depending on your goals, you may want to avoid some neighborhoods and focus on others.

For instance, if you’re looking for a below-average price in Houston, go to South Maine. There, the average price of a home is $279,000, but you’d be giving up cash flow if you buy in here as rents are lower.

If you’re looking for cash flow, Washington Avenue Coalition / Memorial Park is the right area to look for homes for sale. However, rentals are much more expensive there, selling at around $531,000.

Mashvisor’s Heatmap tool can help you make the decision about the neighborhood fast. It allows you to view the map of Houston with one of six criteria: listing price, traditional and Airbnb rental income and cash on cash return, Airbnb occupancy rate, or the number of Airbnb listings.

3. Find the Right Property

Once you find the right neighborhood, it’s time to pick several houses put up for sale. Filter the search by your preferred criteria and look for houses that seem like a bargain.

If you find a rental for sale that checks all your boxes, fits your budget, and offers a decent cash on cash return, add it to the list. The reality of a hot market is that you may not find a lot of undervalued homes, so you may need to either compromise or wait for the perfect house.

Once you have a few properties on your list, it’s time to study them a bit more.

4. Estimate the Cash on Cash Return

Mashvisor does provide estimates of both cap rate and cash on cash return on every listing on the website. However, they’re based on average data that may differ from your arrangements.

You can obtain a more precise estimate with Mashvisor’s investment property calculator. It’s very handy if the house seems like it needs a renovation before you can rent it out or your mortgage conditions differ from average.

The rental income calculator will show you all the important statistics when you type in the data. Some of the real estate data like rental income will be provided by Mashvisor based on market research.

Run a few calculations in it to see what properties on your list end up being profitable for you. But don’t discard all but the best one just yet. You may find some crucial details about that home that make it less profitable as you inspect it.

5. Inspect the Rentals

The last part of finding the right rental properties for sale in Houston is doing additional research on the properties from your list. You’ll need to know at least these four things about your next investment:

• Does the owner really have a title to it?
• Is the house used as financial leverage?
• Is the owner the only person who needs to co-sign the sale contract?
• Does the house have structural damage?

If the answer to either of the above questions is yes, you want to seriously reconsider buying it.

Related: The Ultimate Property Inspection Checklist for Real Estate Investors

10 Best Neighborhoods in Houston TX for Traditional and Airbnb Rental Investment

The city of Houston TX is one of the best cities for investment properties, but you must narrow your search down to the neighborhoods that match your goals the most. Whether it’s a lower price or a higher price to rent ratio, you need the data to make an informed investment choice.

Here are the ten best neighborhoods in Houston for both traditional and Airbnb rentals, arranged from the highest to the lowest cash on cash return for each rental strategy.

5 Best Neighborhoods in Houston TX for Traditional Rental Investment

Here are the five best Houston neighborhoods for investing in traditional rentals:

1. South Maine

• Median Property Price: $279,917
• Average Price per Square Foot: $158
• Days on Market: 13
• Number of Traditional Listings: 10
• Monthly Traditional Rental Income: $2,042
• Traditional Cash on Cash Return: 4.93%
• Traditional Cap Rate: 5.29%
• Price to Rent Ratio: 11
• Walk Score: 30

In South Maine, the rentals for sale are less than the Houston average, and most residents are reported to rent.

2. Washington Avenue Coalition / Memorial Park

• Median Property Price: $531,077
• Average Price per Square Foot: $242
• Days on Market: 9
• Number of Traditional Listings: 223
• Monthly Traditional Rental Income: $2,639
• Traditional Cash on Cash Return: 2.67%
• Traditional Cap Rate: 2.72%
• Price to Rent Ratio: 17
• Walk Score: 83

Washington Avenue Coalition is one of the most affluent neighborhoods in Houston. The rental income reflects the location’s prosperity.

3. Fourth Ward

• Median Property Price: $462,446
• Average Price per Square Foot: $293
• Days on Market: 12
• Number of Traditional Listings: 29
• Monthly Traditional Rental Income: $2,329
• Traditional Cash on Cash Return: 2.51%
• Traditional Cap Rate: 2.57%
• Price to Rent Ratio: 17
• Walk Score: 78

Fourth Ward is close to downtown Houston and to Eleanor Tinsley Park — a great location.

4. Midtown

• Median Property Price: $502,211
• Average Price per Square Foot: $223
• Days on Market: 22
• Number of Traditional Listings: 31
• Monthly Traditional Rental Income: $2,236
• Traditional Cash on Cash Return: 2.39%
• Traditional Cap Rate: 2.44%
• Price to Rent Ratio: 19
• Walk Score: 81

Midtown is close to the business district, making it a top destination for professionals who move to Houston.

5. Downtown

• Median Property Price: $440,244
• Average Price per Square Foot: $238
• Days on Market: 9
• Number of Traditional Listings: 12
• Monthly Traditional Rental Income: $2,458
• Traditional Cash on Cash Return: 2.22%
• Traditional Cap Rate: 2.27%
• Price to Rent Ratio: 15
• Walk Score: 95

Downtown Houston is quite affordable for the fourth largest city in the nation. Rental income is high, as expected.

Go to Houston rentals for sale to view recent listings in all the above neighborhoods and more.

5 Best Neighborhoods in Houston TX for Airbnb Rental Investment

Here are the top five neighborhoods in Houston for investing in Airbnb:

1. Greater Easterwood

• Median Property Price: $370,260
• Average Price per Square Foot: $227
• Days on Market: 6
• Number of Airbnb Listings: 394
• Monthly Airbnb Rental Income: $2,273
• Airbnb Cash on Cash Return: 2.05%
• Airbnb Cap Rate: 2.10%
• Airbnb Daily Rate: $166
• Airbnb Occupancy Rate: 40%
• Walk Score: 75

In Greater Easterwood, you’ll find slightly cheaper housing that nevertheless makes a good return on investment.

2. Midtown

• Median Property Price: $502,211
• Average Price per Square Foot: $223
• Days on Market: 22
• Number of Airbnb Listings: 1,134
• Monthly Airbnb Rental Income: $2,618
• Airbnb Cash on Cash Return: 1.37%
• Airbnb Cap Rate: 1.40%
• Airbnb Daily Rate: $162
• Airbnb Occupancy Rate: 40%
• Walk Score: 81

Midtown is in the center of Houston, making it a great spot for anyone visiting the city.

3. Greater Third Ward

• Median Property Price: $457,000
• Average Price per Square Foot: $217
• Days on Market: 6
• Number of Airbnb Listings: 940
• Monthly Airbnb Rental Income: $2,514
• Airbnb Cash on Cash Return: 1.32%
• Airbnb Cap Rate: 1.34%
• Airbnb Daily Rate: $180
• Airbnb Occupancy Rate: 39%
• Walk Score: 68

Along with many other attractions, Houston University is located in Greater Third Ward. It is an excellent location for an Airbnb.

4. Washington Avenue Coalition / Memorial Park

• Median Property Price: $531,077
• Average Price per Square Foot: $242
• Days on Market: 9
• Number of Airbnb Listings: 390
• Monthly Airbnb Rental Income: $2,535
• Airbnb Cash on Cash Return: 1.04%
• Airbnb Cap Rate: 1.06%
• Airbnb Daily Rate: $144
• Airbnb Occupancy Rate: 44%
• Walk Score: 83

Though slightly removed from the downtown, Washington Avenue Coalition is a scenic neighborhood that is worth staying in.

5. Second Ward

• Median Property Price: $412,571
• Average Price per Square Foot: $297
• Days on Market: 4
• Number of Airbnb Listings: 399
• Monthly Airbnb Rental Income: $1,989
• Airbnb Cash on Cash Return: 0.69%
• Airbnb Cap Rate: 0.70%
• Airbnb Daily Rate: $165
• Airbnb Occupancy Rate: 40%
• Walk Score: 64

Second Ward is a historical district bordering a bayou, so it’s a great place for Airbnb rentals.

Find Houston rentals and view recent listings across the city and more.

Should You Buy a Rental Property in Houston in 2023?

All things considered, Houston is and will likely remain a hot market for real estate in the coming years. Looking for rental properties for sale in Houston now is probably the best option if you’re seriously considering investing in the city.

Lately, the Houston housing market’s been growing at a fast pace — 16% year over year growth. It means if you’re sure about buying, your rental will appreciate in value. If you wait for another couple of years, you’ll have to pay extra.

Not sure where to start? Mashvisor can provide you with updated market analytics and multiple sale listings in the Houston area and beyond. Start with exploring the heatmap overview of the city, find suitable properties, and calculate cash on cash return and other key metrics before making a deal.

Ready to give rental properties for sale in Houston a try? Sign up for Mashvisor now and get 15% off.