How to buy an investment property In Houston

Guide To Buying Investment Property In Houston

Inna Radford | 1st July 2024 | 10 minute read

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The Houston real estate market is booming, and rental properties are a fantastic way to leverage that growth and put your money to work for you.

With over 2.3 million residents and a constantly expanding job market, Houston is a renter’s paradise – meaning every new arrival needs a place to live.

This guide will equip you with the knowledge to navigate the exciting world of Houston investment properties.


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What Is An Investment Property?

An investment property is a real estate purchase made with the intention of earning a return on the investment through rental income, future resale of the property, or both.

Forget the risky flips you see on TV. Investment properties are specifically purchased to generate rental income, providing a steady stream of cash flow. Unlike your primary residence, these properties become your income-generating assets.

Are Investment Properties Right for Me?

Investing in properties can be a lucrative endeavor, but it’s important to understand that the value of an investment property is never guaranteed.

Over the past decade, the median home value in Houston has risen from $122,000 to nearly $197,000. Experts like Zillow predict an additional 6.4% increase in 2021, pushing values even higher. This upward trend, coupled with the rental income potential, indicates substantial profit opportunities for property investors.

For example, if you purchase an investment property with a $940 monthly mortgage payment, and the average rent for single-family homes in Houston is $1,940 (as of September 2020), you would achieve a gross annual profit of $12,000 before accounting for taxes, maintenance, renovation costs, fees, and other expenses.

While these numbers are promising, it’s important to remember that owning an investment property also means taking on the responsibilities of a landlord. You’ll need to handle maintenance and repair issues or hire a property manager, which adds to your costs.


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How Do I Find The Right Investment Property?

  • Location is key! Your ideal rental property should be in a neighborhood that attracts renters.

  • Good schools, parks, and access to amenities are all high on the priority list for most renters.

    Here are some of Houston’s hottest neighborhoods for investment properties, as identified here at Address Commercial:

    • Greater Heights
    • River Oaks
    • Uptown
    • Eastern Downtown
    • Museum District
    • Downtown
    • West University Place
    • Rice Military
    • Humble, Texas
    • Webster, Texas

    For further research, consider using a real estate heatmap tool to pinpoint up-and-coming neighborhoods with high rental demand.

  • Mashvisor, for instance, offers a free 7-day trial of their heatmap along with the ability to search for Houston investment properties and access details often missing on traditional home buying sites.

How Do I Pay For An Investment Property?

    • Savings: The most straightforward approach is using your own savings for the down payment. This gives you the most control and flexibility but requires significant upfront capital.

    • Co-Investing: Partnering with a friend, family member, or another investor allows you to pool resources and potentially qualify for a larger loan. Remember to involve legal and financial professionals to draw up a co-ownership agreement outlining each party’s rights and responsibilities.

    Financing Options:

    • Investment Property Mortgages: Unlike traditional home loans, investment property mortgages don’t have mortgage insurance. This translates to a higher down payment requirement, typically around 20% of the property’s purchase price. Interest rates are also usually higher than those for primary residences, though putting a larger down payment upfront can potentially secure a lower rate.

    • Private Money Loans: These short-term loans come from private lenders or hard money lenders and are typically used for quick property purchases or renovations. They come with higher interest rates and stricter repayment terms compared to traditional mortgages.

    • Home Equity Loan or HELOC: If you own a home with built-up equity, you can leverage it to access funds for your investment property. A home equity loan provides a lump sum, while a HELOC functions like a credit card with a revolving line of credit. Remember, using your primary residence as collateral carries some risk.

    Down Payment Strategies:

    • Save Aggressively: Create a budget and stick to it, prioritizing saving for your down payment. Consider reducing unnecessary expenses and exploring ways to increase your income.

    • 401(k) Loan: Some employers allow you to borrow from your 401(k) retirement plan for a down payment. There are strict rules and tax implications to consider, so consult a financial advisor before going this route.

    Additional Cost Considerations:

    • Closing Costs: Factor in closing costs associated with purchasing an investment property, which can range from 2-5% of the purchase price. These include origination fees, appraisal fees, title insurance, and other expenses.

    • Renovation and Repair Costs: Be prepared for potential repairs or renovations needed to get your property rent-ready. Budget accordingly and consider unexpected costs.

    The Bottom Line:

    Financing an investment property requires careful planning and an understanding of the different options available. Carefully assess your financial situation, research loan options, and factor in all the costs involved before making a decision. Consulting with a financial advisor can be extremely helpful in navigating the financial aspects of real estate investment.

Can I Get A Mortgage For Investment Properties?

Securing a mortgage for an investment property in Houston requires a different approach compared to traditional home loans. Here’s a breakdown of the process:

Qualifying for an Investment Property Mortgage:

  • Credit Score: Just like with any mortgage, your credit score plays a crucial role. Aim for a score of at least 670 (ideally higher) to qualify for the most favorable loan terms. Focus on paying down debt and maintaining a good payment history on existing loans.

  • Down Payment: Investment property mortgages typically require a higher down payment compared to primary residences. The standard is around 20% of the purchase price, though some lenders may offer options with a 15% down payment. Having a larger down payment strengthens your application and can potentially secure a lower interest rate.

  • Debt-to-Income Ratio (DTI): Lenders consider your DTI ratio, which compares your total monthly debt payments to your gross monthly income. A lower DTI (ideally below 36%) indicates a greater ability to manage additional debt payments associated with the mortgage.

  • Investment Experience: Some lenders may look favorably on applicants with prior experience in real estate investment. This could include owning and managing other rental properties.

The Loan Application Process:

  1. Shop Around: Don’t settle for the first lender you encounter. Compare rates, terms, and fees offered by different banks, credit unions, and mortgage brokers specializing in investment properties.
  2. Gather Documents: The lender will require various documents to verify your financial situation, including tax returns, pay stubs, bank statements, and proof of employment.
  3. Pre-Approval: Getting pre-approved helps you understand how much you can borrow and strengthens your offer when negotiating with sellers.
  4. Underwriting: Once you have a signed purchase agreement, the lender will underwrite your loan, meticulously examining your financial documents to assess the risk of lending to you.
  5. Closing: After loan approval, you’ll finalize the details and sign the mortgage documents at closing. Be prepared for closing costs, which can range from 2-5% of the purchase price.

Types of Investment Property Mortgages:

  • Conventional Investment Mortgages: These are the most common type, offered by banks and credit unions. They typically require a 20% down payment and offer competitive interest rates.

  • FHA Investment Mortgages: These government-backed loans require a lower down payment (around 15%) and can be easier to qualify for with a slightly lower credit score. However, they come with additional mortgage insurance premiums.

  • Portfolio Loans: These are offered by smaller lenders and cater to experienced investors with strong financial profiles. They may offer more flexible terms but often come with higher interest rates.

Additional Tips:

  • Be Honest and Transparent: Provide accurate and complete information throughout the application process.
  • Consider a Larger Down Payment: Putting down more than the minimum 20% can significantly improve your loan terms, potentially lowering your interest rate and monthly payments.
  • Work with a Mortgage Broker: A mortgage broker can connect you with the best lenders for your specific situation and help navigate the loan application process.

Remember, securing a mortgage for an investment property takes time and preparation. By understanding the requirements, shopping around for the best rates, and presenting a strong financial picture, you can increase your chances of obtaining favorable financing for your Houston rental property.


Houston’s like a giant game of Tetris, with new neighborhoods and job opportunities constantly popping up. That means there’s a constant need for places to live, and that’s where you, the savvy investor, can swoop in and play a winning hand with rental properties.

Think of it like building your own personal money machine. Tenants pay you rent, which covers your mortgage and throws off extra cash each month. Over time, property values tend to rise, meaning your investment grows while you sleep (or sip margaritas by the pool – the dream life!). Plus, there are sweet tax advantages to owning rental property that can make your accountant do a happy dance.

But here’s the reality: being a landlord isn’t all rainbows and unicorn glitter. There will be leaky faucets, late-night calls about exploding toilets (hopefully not!), and the occasional need to chase down a tenant for rent. That’s why having a good team – a rockstar real estate agent, a property manager who can handle the day-to-day headaches, and maybe even a killer plumber on speed dial – is key.

Investing in Houston properties can be an exciting adventure that sets you on the path to financial freedom. It’s not a get-rich-quick scheme, but with some planning, research, and the right team by your side, you can turn your real estate dreams into a thriving rental portfolio that keeps the cash flowing for years to come. So, are you ready to become Houston’s next property mogul?