Investing in Santa Fe and or Albuquerque ?

[Garrett Humphreys]

Hello everybody this is my first post so please bare with me. I currently am living in California just north of Los Angeles and am looking to get into my first Real Estate Investment. With current prices where they are right now in my area I am looking at potentially making my first purchase out of state. My best friend lives in Santa Fe and says New Mexico is booming. I am just reaching out to see if anybody has any experience investing near or around the Santa Fe area and if you do, how is it? Thanks! 

[Robert Carmody]

Like many markets throughout the United States, both Albuquerque and Santa Fe have experienced a noticeable jump in real estate prices during the last couple of years, more than normal. Both markets have been operating on record low inventory levels for about 2 years. This is caused by many years of low interest rates, high construction costs & supply shortages, along with high demand from millennials buying first and move-up homes at the same time baby boomers want to downsize. 

The dynamics and characteristics of the real estate markets in ABQ and Santa Fe are very different. Santa Fe is less than 1 hour north of ABQ. It has a population of about 90,000, and it is a much higher cost housing market than Albuquerque (incl Rio Rancho). Many of the area's homeowners own their property as a 2nd home, vacation home, and don't live & work in Santa Fe full time. There are a large number of properties rented as Airbnb's and vacation rentals. Santa Fe, for many many years, has been more of a vacation and retirement destination. It's well known for its history, art galleries, Santa Fe Opera, upscale hotels & resorts, top notch restaurants, skiing and outdoor recreation. As of October 2021,  the average home sold in the Santa Fe area was $715,000, and median price is just shy of $600,000. Prices like that create a barrier to entry when it comes to entering the housing market as a homeowner, whether trying to investor or buy a primary residence.

Prices are double in Santa Fe from what they are in Albuquerque, where the median hovers around $300,000 and average price is about $360,000. Population is about 10 X that of Santa Fe. It is much more of a working-class market than Santa Fe, where historically the market has offered a wide range of housing, from entry level to luxury homes, most being in suburban style neighborhoods and large developments. Albuquerque is home to Sandia National Labs, Kirtland Air Force Base, the University of NM, Presbyterian Health Care, Abq Public Schools, Amazon, Netflix, Intel, HP, T-Mobile, several large call centers, among many others. Those employers tend to help create a steady supply of good quality renters in the Albuquerque market, seeking single family homes, townhouses and condos to lease under typical 12-month leases. Albuquerque's rental and resale market, historically speaking, is very stable and the market moves at a healthy pace. When you compare rental prices to actual home prices, or your acquisition cost buying the property to the rental income produced, you'll usually find the ROI higher in Albuquerque. There are exceptions, and some investors have succeeded with Airbnb style rentals in Santa Fe that can be very lucrative when rented consistently. Rental prices in ABQ keep up with purchase prices much better than they do in Santa Fe.

Overall, residential prices are up about 15-17% from 1 year ago, in both markets. Rental prices are also up 20%+ compared to 2020. A typical 3 bedroom rental in ABQ averages $1,700/mo, compared to an average of $2,400/mo in Santa Fe. 

If your goal is to acquire additional investment properties in the future, you are better off starting out with a traditional rental, whether single family or multi-unit, compared to a vacation rental or Airbnb, where the income potential might be higher but won't be used to help you qualify to purchase other properties in the future. Good luck, let me know if you need any help.