This is just one mans opinion but I don't think institutional capital is causing pricing growth. I think it was a perfect storm of increased student demand and a complete lack of new supply of starter home deliveries during the Great Recession. I was on the A&M Real Estate Center website yesterday and it showed something like 2.1 months supply for College Station (neutral is 6 so 2 is insane). Then I started looking around. You can buy houses all day in the $400,000 price range. Pick a place. But try to find something under $200,000 (starter home for a married couple or what a parent would buy for his kid to live in and rent during college), and they are almost non-existent. This is a ramification of the Great Recession when nobody was building starter homes.

26.2 said:

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This is just one mans opinion but I don't think institutional capital is causing pricing growth. I think it was a perfect storm of increased student demand and a complete lack of new supply of starter home deliveries during the Great Recession. I was on the A&M Real Estate Center website yesterday and it showed something like 2.1 months supply for College Station (neutral is 6 so 2 is insane). Then I started looking around. You can buy houses all day in the $400,000 price range. Pick a place. But try to find something under $200,000 (starter home for a married couple or what a parent would buy for his kid to live in and rent during college), and they are almost non-existent. This is a ramification of the Great Recession when nobody was building starter homes.

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You are spot on. The housing bust in 2008 affected more of the country than Texas however Texas was impacted by lack of housing development. Developers across the country shut down, and were very reluctant to get back into developing. When they finally came back it seems that their emphasis was on high end homes. Essentially the low end market was somewhat ignored.

The population of America is still growing at 1%. That is 3 million more people each year. Texas is getting more than their fair share. Property values are rising to the point that the millennium generation is having a tough entry level price point.

So how does an investor capitalize on this situation. Buying real estate can be risky, however by staying in the low end housing market where you find rents below $1200/month you have a great deal of protection from a housing correction. The eventually correction is going to greatly impact the higher end market, while the lower end market will feel a slight impact and will be the first to spring back. That is why I like duplex investing. You will be in the low end market. If you buy at the 1% or better you should have a $500 or better profit per month before expenses. That is enough buffer to withstand a down turn in the market. Even in the downturn of 2008 my duplex rents went up as foreclosure and housing stress caused more people to rent.

Now the trick is finding the property at 1% or better. Some people on this board say they can't find it. Well, I say it is being done every day in Bryan/College Station. You have to be a birddog or find you one. You may even buy a duplex where the current rents are undervalued. No investment is without risk but in this current market, low end housing seems to be safe bet. Good luck.

Speak of the devil....

http://www.bizjournals.com/houston/news/2017/02/01/houston-expert-the-200-000-house-is-going-to-be.html

Quote:

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"The supply side hasn't caught up to the demand side," Torres said. "That's one of the major issues we've had in Texas, including Houston."

Houston homebuilders haven't been able to keep up with the demand for new homes because of two major reasons, Torres said: lack of developed land for new home and the labor shortage. These issues have been most acute in the starter-home market, he said.

"Homebuilders are telling us it's hard to build homes below $250,000 because of land and labor costs," Torres said.

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There it is, can't build starter homes anymore.

Those down periods are why I think I'm leaning to increasing the down payment. I won't stretch my cash across as many properties, but I also won't be sweating as bad if the market turns.

Its of course to your own risk tolerance but I would just keep that extra down payment in cash. This gives you more flexibility to cover any additional costs (A/C etc), still have rainy day fund if trouble renting, and if everything goes well you can use the money for another down payment. The optionality with the cash to me is worth the slightly higher monthly payment.

True, but i"m considering a 1031 exchange. So I'd be taxed for whatever I held out. My cash position should be solid regardless of this deal.