Build a balanced SFR portfolio with Texas properties: Part 1

They say everything is bigger in Texas, and that’s certainly true of the state’s economic growth during the past several years. Companies in Texas have created about 25 percent of the U.S.’ new jobs since 2009, according to the Dallas Morning News. This explosive job growth boosted the Lone Star State’s population by about 2 million during the same period, and all of these new residents need housing.

Single-family rental investors have targeted Texas for years, and it remains a prime market for investors who want to enter the rental property market. While the recent decline in oil prices might scare off investors who think the Texas economy is tied to the price of crude oil, the Texas economy harbors surprising diversity. Investors can build a diversified portfolio that provides ample cash flow, high growth potential and steady value gains. Here are the two Texas locations that will help you hit your investment goals:

Austin for growth

Austin’s rich culture and stunning job growth in recent years make it a hotspot for young people, and population growth is unlikely to slow anytime soon. Technology companies have become a massive part of the city’s economy, and that’s enticing young professionals who would otherwise stay in California to move to the Texas capitol. Austin’s reputation as a youthful city is cemented by the University of Texas, which brings a huge number of educated people into the housing market each year.

The demand for properties in Austin is so high that builders can’t make homes quickly enough. The Census Bureau reported national home inventory stood at 4.7 months in January of 2015. In contrast, Austin only had enough inventory for 2.2 months, according to the Austin Board of Realtors. Supply constraints are driving up home prices, and that pushes more people into rental properties.

Single-family rentals in Austin offer serious growth potential, as continued migration to the city will elevate home prices even further. It will be some time before builders can hope to meet area demand, and that will keep prices on their upward trajectory.

San Antonio for cash flow

If you want to increase your portfolio’s cash flow, consider San Antonio. This city often gets overlooked by real estate investors because it lacks the cachet of Austin or Houston, but properties in this area can provide a steady stream of income for less upfront investment.

Renting is popular in San Antonio because of the city’s proximity to several military installations. The mobile lifestyle of service members encourages renting rather than owning, and the vibrant rental market gains further momentum from a collection of local colleges.

While a shortage of single-family homes has driven up home prices in other Texas cities, San Antonio retains a relatively large inventory. As of January, the San Antonio Board of Realtors pegged home inventory at 3.6 months. While this remains below the national average, it is much larger than the inventory seen in other Texas locations and contributes to the lower home prices that make San Antonio a high-yield investment.

The inventory is unlikely to last, however, and migration to San Antonio could bring home prices in San Antonio in line with other Texas cities soon. Monthly inventory in the San Antonio area has declined steadily over the last four years, and SABOR predicts 2015 will continue this trend.

Our next article will examine how Dallas and Houston offer a balance between San Antonio-style cash flow and the high growth available in Austin. If you want to enter the Texas SFR investment market and to simplify the investment process, register with HomeUnion.

HomeUnion preve​nts rental properties in the top SFR investment markets using a combination of on-ground research and deep data analytics. HomeUnion handles tenant and property management, provides financing through an in-house lender and keeps investors appraised of their home’s condition through a personalized web portal.

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