I wrote a post on Bigger Pockets a little over three years ago on how to understand San Antonio’s real estate market based on the type of deals that investors are looking for. Since then it has received numerous votes and comments and I have been asked by investors and colleagues to get an update out on how things have changed since that original post.
What prompted the original post was that instate, out of state, and even people within San Antonio were always asking where they should be looking to invest based on their current criteria. In the original post, I stated that San Antonio is a very different city compared to other major metros where the most expensive and highly sought-after property is in their downtown corridor. Over the last three years, San Antonio’s downtown property housing inventory has matured very nicely. Those that took the information in the original post and implemented the type of strategies would have done very well over the last three years.
Just for some background Context for those that might be reading this for the first time here is a little background on what I stated in the original post about San Antonio.
San Antonio is a very diverse market with a transportation system that has made our city much different than any other. Most other cities that I have studied have some of the best most expensive real estate closest to downtown. This is not the case as San Antonio currently sits. I agree with people in saying invest where the jobs are as people don’t want to drive an hour to work and fight traffic if they can help it. San Antonio, because of the military, built their roads system in the shape of a wagon wheel with major interstate and highways feeding our downtown area.
What this has caused is having the ability to live where you want to live as you can travel to pretty much every major employment district within 20 minutes without having to fight much traffic. You can see the effect this has had on our real estate pricing as some of the cheapest real estate you can find are right around our downtown area. I think the reason for this is because commercial developers could very easily build new buildings further away from the downtown corridor because the price of land and construction is more affordable. Taking those points into consideration is why I think our nicer more expensive homes are 10-20 miles from our downtown area.
As I write this we are on the back end of the pandemic of 2020 and I am sure that anyone reading this knows that real estate was one of the shining stars of asset appreciation. Ultra-low interest rates, lack of inventory, supply chain disruptions (think lumber prices) have all driven the price of real estate through the roof. As of writing this, San Antonio has seen double-digit year-over-year median sales price appreciation for the last 11 months. Ranging from anywhere between 11% to 19.7%. Those kinds of numbers are insane and unsustainable for long periods of time. That said I do believe that we are going to continue to see this for some time for multiple reasons which I will elaborate on at the end.
This all said let’s get an update on the areas of town on where to invest.
Rental
I mentioned this in the first post and I continue to believe that a San Antonio Rental is something to produces enough cash flow that it is a self-sustaining investment. Meaning it covers property management and a CAPEX of 10% of the rental price. This usually means there is a minimum $250/month in cash flow over PITI if you are leveraging. These types of properties are becoming harder and harder to find as the price of properties has gotten so high. Because of the high prices, you are typically having to sacrifice the amount of cash flow you are generating to get a newer home or you are having to venture into older housing inventory and assuming more risk with the house.
I still believe that the NW/W and the NE/E sides of san Antonio are where you can find great rental properties but lately (because of price appreciation) those types of properties are much harder to find and you are seeing investors move into older housing stock and into lower classes of housing and trying to force appreciation in values and rents. The sheer lack of inventory is helping in this. A property that two years ago a class A tenant wouldn’t bother to look at is having to move into B and C class neighborhoods because there is just no inventory. Since inventory is so low an investor can do a great renovation and command a higher rent giving you a better rent to value ratio.
Areas where we still see great, but hard to find, rentals are
For NE/E
78244 – Just need to watch which neighborhood
78233
78217
78109 – Just need to watch the area
78239
78247
For the NW/W side
78250
78251
78245 – Just stay inside 1604 as you get outside the houses get a lot newer
78238 – Just watch the neighborhood
78240
I do have an eye on the following zip codes as the southside of SA continues to appreciate to the point where it makes sense to purchase and rehab properties in the area. Traditionally these houses were so much older that the cost of renovation to bring to the current code were just too high and you couldn’t get houses cheap enough as the profit wasn’t there.
78222
78214
78227
78242
Appreciation
In the original post I set out a couple of areas and parts of town that I would think would appreciate faster than others based on our investment philosophy. For our appreciation plays we are the type that buys, holds for cash flow, then selling out once we think an area has topped out or the cash flow does not sustain the investment anymore. Basically, since the middle of 2020 every area has seen massive price increases in both the rents and the values so anywhere you can find something to hold based on the criteria mentioned above, I think you are going to do alright
For us, we like to hold for appreciation in areas that are seeing investment by municipalities and commercial development that are below median price ranges for housing. Right now, the median price point for the San Antonio metro sits at 260K. It becomes hard to find low money-down investments that still produce cash flow at that price range. I still think for the vast majority of people that are not in this space full time that buying a property in this price range or below and putting the traditional 20% down is a good investment. You just need a good agent that understands construction or you yourself need to be able to understand the major components of a home and what type of repairs they are going to need over the life of your investment.
We still focus our attention on the north side of downtown inside 1604 and then up the i35 corridor towards Austin. Each of the following zip codes has some pockets for good property based on the price range but some areas that are not so good because of rent to value ratios.
Be careful in the following areas as prices are lower but for a reason. These zip codes are known for foundation problems so to try and find something that already has had foundation work or one where you can do that foundation work and still have equity.
78233
78217
78247
Focus on the older areas of these neighborhoods where values are rising but you can still get the properties at attractive price ranges. Our play here is that we want them clean and in good condition but dated so that way you can update or add sqft in the future to capture value.
78216
78212
78213
78230
78201
I still like the NW side of town but that area has seen massive appreciation over the last several years so I just don’t know how much more room it has to go. We try to find properties that are at least 1,500 sqft that are clean but need a little update in the future to capture value.
78250
78251
78240
78238
One area that has changed that I think is going to see great appreciation over the next decade are the following zip codes. The reason being is the areas are cheap relative to other parts of town because of the age of the housing and the fact that they need major renovations. I put these areas in high appreciation but at a higher level of risk because of the age of homes and the rehabs required.
78207 – closer to downtown the better
78214 – inside 410
78211 – inside 410
78228 – closer to major hwy the better
78223 – inside 410
High risk- high reward
My opinion on these next areas has not changed much. To me, they are even more high risk now as the prices are just insane for what I think are just above tear-down houses. Where you are seeing a lot of development coming in these areas is really maximizing sqft. The days of buy and just fixing in these areas I really think are gone. It is now buy, renovate, and add 500-1000 sqft to the house. That is why I think the risk is so much higher. To add to the risk the city is trying to come up with revenue, so they have turned the development services department into a profit center. So be prepared for lots of red tape, stricter regulation, and massive delays in projects. It takes a special level of knowledge to get things done in these areas. That all said, done right, you can make out with some huge profits.
The problem with investing this way is you are betting that is your only strategy to making a profit as these areas don’t make sense, from a cash flow standpoint, or as a rental. The city has also really started cracking down on Airbnb's as well so that might not be a play either. Holding costs have gotten really high as the city has really started to tax where the value in these properties is, which is the land. So, unless you have deep pockets buying and just sitting on the properties could get expensive
78202
78203
78210
78208
78215
78204
78207 right next to the downtown corridor
78209
78212 – in the older more historic parts of the area
In conclusion, I think the San Antonio metro still has a lot of room to grow especially along the I-35 corridor towards Austin. Texas in general blew every other state out of the water as far as growing population and capital improvement projects based on a dollar value. Nothing does more to increase real estate prices than having a growing population. With the continuation of government regulation in the building space driving up construction costs, supply chain disruptions, ultra-low inventory, business-friendly regulation, and being the cheapest major metro in Texas I honestly believe that there is no safer place to invest than San Antonio, TX over the coming years. There is always a risk to investing, done right and leaving emotions out of the equation I think an investor would get a good safe return out of housing in San Antonio, TX
Well, there you have it. That is my opinion on the San Antonio market and what type of deals come out of where.
If you are interested in more information, I put a market report out every month that follows what pricing is doing in what areas of the city. Quarterly I also started doing a Texas housing market update. You can find the link in my bio.
