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Real estate investors are focusing on the Houston market, particularly for converting properties into rentals. A vital aspect of real estate investing is location, and understanding the benefits of buying an investment property is essential to determine the potential profit you can achieve.
1. It's a Developing City
Houston is experiencing ongoing growth in its job market, prompting many young professionals to move to the city. This will lead to an increase in rental demand as more jobs become available, positioning rental property owners for profitability.
With several industries thriving in the city, rental growth can enhance the value of your rental property. When you choose to exit the rental business, your real estate investment will be worth more than the purchase price due to the steady demand. The best part? If you intend to use the profits for a new investment property, you can defer capital gains tax.
2. Houston Housing is More Affordable
While Houston properties are not exempt from the rising prices in the industry, they are still considered to be more affordable, with a median sale price 20% lower than the national average.
Between the purchase price and the closing costs, your potential rental income can cover your investment costs and operating expenses.
Furthermore, Houston's average mortgage interest rate for a 30-year fixed-rate mortgage is around 6.8%, around 5.9% for 15 years, and 7% for five years. You can consult real estate agents to find which investments are worth your money.
3. Zero State Income Tax
You'll be pleased to learn that there’s no state income tax in Houston. This advantage makes owning rental property in the city more appealing. However, keep in mind that property tax rates in Houston are higher than the national average.
Determine whether your residential real estate can still generate positive cash flow despite high property tax rates. If you're unsure, you can hire a property manager or tax professional to provide insight about tax liability and benefits, allowing you to make informed decisions about purchasing rental properties.
Protect Your Rental Property Investment
Investing in rental properties can be challenging, as you need to consider your investment returns in the long term. A solid investment can become a financial drain with poor choices. However, you can avoid or reduce these risks by taking specific proactive measures.
- Cash Reserves: Property owners are advised to have a financial safety net in case of negative cash flow, which will allow them to weather economic downturns, unexpected maintenance costs, and other rental expenses.
- Require Security Deposits: While cash reserves can keep your rental home afloat, a deposit can help you cover tenant-caused damages or loss of rent, preventing any impact on your annual cash flow.
- Get Property Insurance: Sometimes, cash reserves might not be enough to protect you from certain risks, and property insurance can offer structural damage and liability coverage.
- Hire a Professional: You can benefit from hiring a property management company since professional management can lead to positive income. Property management fees are a small price to pay for financial freedom.
AREA Texas Realty and Property Management
Like the stock market, you need to plan ahead to ensure you'll generate the most returns possible on your investment property.
With AREA Texas Realty and Property Management, you can turn your rental property into a profitable investment.
Leave the day-to-day operations to us, and you can use your passive income to expand your investment portfolio. Contact us now to take the first step toward maximizing profitability!
