Why Texas?

A question I get asked over and over is: "Why do you recommend that we invest in Texas houses? Why not California, or some other state?" The answer is simple: It works!

Since I happen to live in Texas, many people think that I am biased about our state. Well, maybe I am, but that has little to do with where I invest. Actually, I was born and raised in New York and Florida, not Texas. The reasons why investing in income properties works in Texas better than any other place I’ve looked, are many.

Texas has no state income tax. It is one of only seven states that can make that claim. This fact causes businesses to migrate to Texas from other states, especially those with high taxes, every month. New businesses mean more jobs and are an attraction for people to move to the area. That generates growth in the value of most real estate, plus a growing market for housing.

Unlike many other parts of the country, Texas is decidedly friendly to investors, particularly those of us who are investing in housing. Some states seem to target landlords with laws that impose extra taxes, rent controls, and a strong bias against the landlord in any dispute with a tenant. In Texas, the landlord and tenant are on more-or-less even footing when it comes to the courts. If a tenant does not pay rent, the landlord can get him evicted in a rather short time period (days, not months) as compared to the long, arduous process required in many other states. Non-paying, or destructive, tenants are very costly to an investor and I would only invest in an area that provides adequate remedies for me to promptly replace them with good tenants.

In order to achieve good positive cash flow, the ratio of rent to property cost must be sufficiently high. Interestingly, when I compare rent rates for comparable housing across the country, I find that Texas rents (in the areas where we make our investments) are approximately comparable to rents in most major cities nationwide. That means that, coupled with the low cost of houses, the high rent rates will produce very good returns to investors.

In spite of the fact that many people seem to believe that you can no longer find good, positive cash flowing houses today, our Tortoise Club members have recently been buying houses that are producing fifteen percent and higher first-year cash-on-cash return on investment. Yields over ten percent are typical, not exceptional. Now if you factor in the generous tax deduction you receive from the depreciation allowance, you can see how they are getting these high returns without incurring any income tax to mitigate them. Adding to that the effect of appreciation, which is multiplied by the leverage factor, plus the very nice effect of extremely low interest rates (lower than in some other states) they are locking in for 30 years, you have a truly remarkable investment.

I continuously look for new cities in which to invest. I am expecting to add Houston, Austin, and possibly a few more cities to our territory very shortly. If I can find non-Texas cities that will provide as good an investment climate, I will certainly work to add them, but so far I have not.

To test your knowledge click: TAMU Quizzes for Texas A&M University's Real Estate Center Quizzes.

A quotation to ponder this Fourth of July:

Best Fortune to You All, © copyright Al Lee & Associates, Inc. all rights reserved

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