Multifamily rental properties, when bought and managed strategically, are a reliable source of passive income and an excellent investment to have in your portfolio. In Texas, where the real estate market is thriving, they’re ostensibly even more valuable.
There are a few hurdles to purchasing a multifamily rental property. You’ll need enough cash to fund the transaction, or at least enough to cover a down payment, and if you’re taking out a loan, you’ll need to qualify for it through a financial institution.
You also need to carefully consider how you approach the purchase. There are many rental properties in Texas, and not all of them are worth adding to your portfolio. On top of that, you’ll need to carefully consider the timing of your purchase, as it can play a major role in determining your return on investment.
So, when exactly is the right time to buy a multifamily property in Texas?
Any rental property in Texas has the potential to help you generate revenue and increase your total net worth via property appreciation. However, multifamily properties have some key advantages. Notably, they generate multiple streams of revenue simultaneously, so vacancies aren’t as big of a concern.
They’re also much more consolidated than single-family homes, allowing you to keep your portfolio leaner and easier to manage. They may cost a little more upfront, but when managed properly, they can be more profitable and valuable than their single-family counterparts.
Moreover, during your apartment search, you’ll notice that multifamily properties often have a higher average rent per unit compared to single-family homes, contributing to greater overall income. Additionally, rental housing demand remains relatively stable, even during off-peak seasons, which can provide a steady revenue stream.
This stability and higher income potential make multifamily properties an attractive investment choice for those looking to maximize their returns in the real property market.
Assuming you know exactly what you’re looking for in a Texas multifamily property, how should you approach timing with your purchase?
There are many individual factors to consider:
The general state of the market. What does the real estate market in Texas look like? Most areas in Texas, especially Houston and Austin, have flourished lately, and there are no signs of that momentum slowing down anytime soon. Still, it’s important to pay attention to both state and local dynamics if you want to time your purchase appropriately.
In a buyer’s market, inventory is higher, prices are lower, and you’ll face less competition when making offers. In a seller’s market, inventory is lower, prices are higher, and you’ll face more competition when making offers. However, there are a few important caveats here.
First, it’s not always easy to distinguish between the two; sometimes, ambiguous conditions and differences between neighborhoods can make it hard to hash out what’s going on in the market more broadly. Second, in many cases, market states exist because of conditions; seller’s markets often emerge because conditions are so favorable to buyers, drawing more buyers to the market and increasing demand.
Interest rates. The federal funds rate, set by the Federal Reserve, dictates the interest rate paid by member banks when borrowing money from the Fed. This, in turn, guides banks on how to set interest rates for loans, including mortgages.
The lower the federal funds rate, the lower mortgage interest rates become. The lower mortgage interest rates are, the more favorable it is to take out a loan to buy a new property. It is often favorable to wait until interest rates are relatively low if you plan on taking out a loan to buy a house; however, it’s important to remember that many other buyers will be following the same strategy.
Your personal finances. Much depends on you personally. Buying a multifamily property is usually a good investing decision, but it’s still a significant risk. Ideally, you’ll be in good financial standing before buying a multifamily property, such that even a catastrophic failure won’t bankrupt you.
You should have ample income, plenty of money for a down payment, and an emergency fund, at minimum. If you’re currently struggling to make ends meet, now probably isn’t the best time to buy a multifamily property in Texas.
Rent prices. We also need to consider rent prices. Prices rise and fall due to a variety of factors, including rental market conditions, employment opportunities, and of course, general supply and demand. High rental prices are favorable to landlords and property managers, as is a consistent upward trajectory of growth in a given area.
Unfortunately, nobody – not even the best real estate agents in the state – can tell you the perfect time to buy a multifamily rental property. That’s because there is no such thing as a perfect time.
These are just some of the reasons why:
The evergreen value of multifamily properties. The best multifamily properties are valuable assets regardless of rental market conditions, especially over a long enough time horizon. As long as you’re able to sustain consistently positive cash flow, it’s arguable that the multifamily rental is a good purchase.
Paying a little more than you should have or dealing with temporarily lower-than-average rental prices isn’t going to wreck your real estate investment strategy; conversely, holding off on an attractive property just because you think the price could fall a little bit lower might mean missing out on a great opportunity.
Unpredictable market swings. In some ways, timing the real estate market is a fool’s errand. Expert real estate agents sometimes attempt to predict the top and bottom of the real estate cycle curve, but nobody in this department has a consistent record of accuracy. That’s because market swings are often unpredictable – and just because it seems like the market has hit a peak or a valley doesn’t mean it actually has.
Adversarial factors. Many factors influencing adept real estate timing are adversarial or contradictory. For example, property acquisition seems much more favorable when interest rates drop, but those dropping interest rates also flood the market with buyers, increasing both competition and average prices. There are no perfect advantages; there are only trade-offs.
The best way to consider multifamily properties is with a long-term view. The best, most profitable investors are those who acquire properties with the intention of holding them and continuing to manage them for many, many years. In the grand scheme of things, adjusting your timing by a matter of months or even a year doesn’t mean that much.
Finding the best rental properties to buy in Texas can be challenging. Managing those properties may be even more challenging – especially as your property portfolio grows. Green Residential is here to help you with every step of the process, from your very first property search to ongoing property management.
If you’re ready to get started, or if you just need some more information, contact us today for a free analysis!
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