The US real estate market has been on fire over the last few years, and Houston was no exception. Houston home prices have been rising at a steady rate.
According to data from Redfin, Houston home prices were up in September 2022 by 6.9% compared to last year, selling for a median price of $310,000. The total number of homes sold in the Houston market in September was 2,320, and the average amount of time that homes stayed on the market is 26 days.
If you want to take advantage of Houston’s thriving real estate market, now is as good a time as ever. Here are five different investment strategies you can take:
- Buy and hold
One of the reasons real estate is such a popular asset class is that it tends to appreciate in value over time. There’s no guarantee that home prices will go up from one year to the next, but you can be fairly certain that prices will go up over the course of a few decades.
As a result, many investors choose to take a “buy-and-hold” approach to investing in real estate. This means buying a property and then waiting for it to appreciate over time so you can eventually sell it for a profit.
This is why Will Rogers famously said, “Don’t wait to buy real estate. Buy real estate and wait.”
- Fix and flip
If you’re not the patient type, there are other ways to make money in real estate. For example, you can become a home flipper. Flippers will buy distressed properties at a low price, fix them up, and then quickly sell them again for a higher price.
Of course, flipping houses takes some work. Repairing and renovating a home may require electricians, painters, plumbers, roofers, and other construction workers. But even if you’re not a handyman yourself, you can contract the work out.
The key is to buy the home well below market value so that you can pay for repairs and renovations and still sell at a profit. That’s why it’s common to hear in real estate investing that “you make your money when you buy, not when you sell.”
- Rent it out
Another way to make money in real estate is to invest in rental properties. These could be multi-family apartment buildings, single-family homes, commercial buildings, or even vacation rentals.
The idea is simple: You own the property and let tenants or businesses use it in exchange for a fee (aka rent). Most of the time, you as the landlord collect monthly rental payments that you can use to pay for the mortgage and other property expenses and keep what’s left over.
For short-term rentals (like vacation homes), you will probably charge a daily fee for each day that a guest stays at your property.
The beauty of renting out your property is that you can generate a steady rental income while still benefiting from value appreciation. If you someday decide you no longer want to be a landlord, you can most likely sell the property for a profit.
In the meantime, you will need to keep up with finding and keeping tenants, performing regular maintenance and repairs, collecting rent, and seeing to other landlord duties.
One way to make the job easier is to partner with a Houston property management company. They’ll take care of all the day-to-day property management work for you in exchange for a fee that is usually 8% to 12% of your monthly rental income.
- Try the BRRR method
If you can’t decide between the three real estate investment strategies discussed so far, there’s actually another one that combines all three (and can be quite lucrative too!).
The BRRR method of real estate investing is a multi-step strategy that involves buying and rehabbing a distressed property, renting it out, doing a cash-out refinance, and then repeating the process by buying another rental property with the profits.
By rehabbing the property, you raise it’s value and gain more equity in it. Then by refinancing, you can cash out on some of that newly captured equity to put toward future investments. It’s a savvy strategy that you can repeat over and over again to quickly grow your real estate portfolio.
- House hack
Let’s say you don’t have enough money to buy your first investment property. In that case, there are still ways to make money from real estate—specifically your primary residence.
House hacking is a term coined by Brandon Turner from the real estate investing website BiggerPockets.com. It essentially means finding ways to make money from your home.
There are a few different ways you can house hack. You could rent out a spare room, a basement apartment, an accessory dwelling unit (ADU), storage space in your garage, or even a parking space. The idea is to extract value from untapped parts of your home.
As with any rental property, you can choose to rent parts of your home out on a long-, mid-, or short-term basis. A lot will depend on what your home is like and what you’re willing to manage.
Unlike many investing strategies, however, house hacking lets you start investing in real estate right away. All you have to do is find ways to leverage the property you already own.
Adding it all up
At the end of the day, investing in Houston real estate is a great way to generate passive income and build long-term wealth. There’s a reason 90% of the world’s millionaires own real estate and why the wealthiest man in American history, John D. Rockefeller, once said that “the major fortunes in America have been made in land.”
Whether you choose the buy-and-hold, fix-and-flip, rent-it-out, BRRR, or house hacking method, you can make great returns that can help you become financially independent and retire early. So don’t wait. Start investing in real estate today and begin reaping the benefits of compounding returns. When you’re older, you’ll be glad you did.