On the single-family side in December we saw very small price INCREASES month over month on very low volume. The market is still mostly balanced with a very slight advantage to sellers according to Rocket Mortgage. There are slightly fewer homes on the market in December of 2022 compared to 2021. The December market is traditionally quiet and that did not change this year. Houses are on the market for about 60 days. That’s up about twice as much as last December but about 10 days less than in 2019. I think that the population is starting to adjust to the higher interest rates. My personal opinion is that we will not see sub-4% 30-year mortgage rates in the next 5 years let alone sub-3% rates. I have seen a couple of articles that say that San Antonio is going to be one of the better places to invest in real estate in 2023. They believe what I said last month; that the price for single-family properties will be up moderately in 2023. Don’t forget home prices in San Antonio are still down about 10% from the highs we saw in the late spring of 2022. However, if you are looking for huge declines in the single-family San Antonio real estate market, I wouldn’t hold my breath. I think it might be a while.
Now for the question everyone is waiting for: What happened to the house you bought in Poth, TX? Well… it’s under contract to sell, but there is a story there. We were selling the house off-market not using the MLS. Investors prefer to buy off-market because there is not an MLS history.(aka your buyer doesn’t know what you paid for it) As we are negotiating with a couple of different investors, one of the investors tells us what we paid for the house. It’s a small town and our seller told everyone what we paid for it, which really limited our upside. I doubt he mentioned the $200 lawn bill to get the grass cut because it was so high or the pet urine-stained carpet we had to remove from the house, but either way, the number was out there so we decided just to get rid of it and move on to the next project. We made a profit but it was about half of what we were hoping to make. So, the results are inconclusive in my book as to what kind of market we are in. I am confident it is not a bad market for selling a house, but I am not sure it is a good one either. My buddy who is a realtor here in town says that good properties under $300,000 are selling pretty fast. As you get above that price point, it starts to get harder to sell a property quickly.
• Population in San Antonio, TX increasing
• New Homes are not being built at a slower pace.
• People are not moving because they don’t want to give up their low-interest rates
The job market in San Antonio and the US, in general, is still pretty good
On the multi-family side, the market is still mostly frozen. In my real estate meetup group of about 40 multi-family investors, there is one person that has bought a deal in the last couple of months and that was down in the Valley, not in San Antonio. For a frame of reference, last year that group was averaging one to two deals a month. The consensus seems to be that everyone is waiting to see if rates will shift and no one wants to be forced to sell.
I am going to go deep into this for those of you that are interested, but if you are not detail-oriented you might want to skip the next couple of paragraphs. We are going to talk about Capitalization Rates or short-hand Cap Rates.
Cap Rate is calculated by dividing the property’s net operating income (NOI) by its current market value. The NOI is the total income of the property minus its operating expenses. The higher the NOI, the more profitable the property is likely to be.
Example: You are buying a 100-unit property. The monthly income is $100,000. Expenses are $50,000/month. So your NOI (Net Operating Income) is $50,000/month or $600,000/year. Those expenses include taxes and insurance but do not include the principal and interest of your mortgage. If you were willing to buy the building at a 4% Cap Rate, you could pay $15,000,000 for that building. At a 5 Cap $12,000,000, at a 6 Cap you could pay $10,000,000 for that building.
My final thoughts are almost exactly the same as last month; there is still a housing shortage in the US and in San Antonio, specifically, both in multi-family and single-family homes. We expect the decline in the economy to increase this problem as builders in both single-family and multi-family start fewer projects in these uncertain times. This makes investing in real estate an outstanding idea for the foreseeable future.
We have not seen an increase in sellers who are ready to accept higher cap rates. They are holding on to see how things will shake out. Buyers can’t buy properties because there is not enough cash flow to cover the mortgage at higher interest rates so we are at an impasse. The good news for sellers is that rent growth has been above average for the last 2 years. In 2021, rents in San Antonio increased by 15% but in 2022 they were up 4%.
I expect the multi-family market to open up in the coming year as more multi-family loans come due and owners are forced to accept higher Cap Rates and sell at a discount. Maybe this is wishful thinking on my part, but I know the numbers on multi-family look much different at 4% than they do at 7%, and many of those multi-family loans are only fixed for a short period of time – usually, about 3 years before they become variable rate loans.
If you know someone that might be interested in investing in real estate with us on either the single-family or multi-family side, please contact us at 210 960 6543 or email email@example.com.