Located in the southern part of Texas, about a three-hour drive west of Houston, an hour-and-a-half drive south of Austin and two-and-a-half hours north of Laredo on the Mexican border sits San Antonio, the seventh most populous city in the United States. Home to more than 1.5 million people, San Antonio is the second most populous city in Texas and is actually the state’s oldest municipality, having been first chartered in 1731.
San Antonio has long been known as a hotbed for retiring Baby Boomers, as the city’s laid-back atmosphere and low cost of living compared to similarly sized urban areas in the United States are a big attraction to this segment of the population. However, in recent years, San Antonio has experienced a boom in population in other cohorts as the industry has continued to develop.
Forbes recently named San Antonio as one of America’s 20 fastest-growing cities, and that expansion is expected to continue in the next several years. Development along the I-35 and I-10 corridors to the north, west, and east of San Antonio are likely to contribute to a strong continued growth in population for the metro region, which already ranks as the 24th largest in the country, with an estimated population of about 2.47 million people as of 2017.
The strong economy, a low unemployment rate that continues to get even lower and expected a continued boom in population in and around San Antonio make the city and the metro region as a whole a great place for single-family residential investment.
San Antonio’s Strong Economy Has Led to Population Growth
There’s no better measuring stick of the stability of single-family residential investments for a region than its economy and job market. Families young and old flock to regions in the country where the opportunities are. This has always been true in America, and the regions in the country where the population is booming today are where these strong job markets are.
San Antonio’s economy is unique compared to much of the rest of the country in that it is strongly supported through traditional private-sector and public-sector government jobs, along with a strong foundation of military employment. In the close surroundings of San Antonio are Fort Sam Houston, Lackland Air Force Base, Randolph Air Force Base, Brooks City-Base with Camp Bullis and Camp Stanley, providing a steady stream of military jobs and a sector of the economy that a lot of other places don’t have. These are jobs and economic production that is not going anywhere anytime soon and is often insulated from downturns in the general economy.
The San Antonio metro economy is worth $130 billion in Gross Metro Product and is projected to grow substantially, to $136 billion in 2019. Overall, the metro region contributes to 7.2% of the Texas state economy, also known as the Gross State Product.
The metro region’s employment growth is at 2.3%, with 20,000 new jobs added this year, and it’s predicted to be at 2.2% in 2019. San Antonio’s unemployment rate is at 3.3% in 2018, 0.1% lower than it was in 2017. The region’s 60.7% labor force participation rate is close to the national rate of 62.8%.
The three largest sectors of the region’s economy are trade, transportation and utilities; education and health services; and government, and all are expected to continue their growth in the coming years. San Antonio is home to five Fortune 500 companies, including Valero Energy, Tesoro Petroleum Corp., USAA, NuStar Energy and CC Media Holdings. San Antonio’s economy used to be very reliant on the energy industry, but over the last few years, the continued diversification of the region’s economy has made it much more stable.
The strength of the San Antonio job market, its stability, and projected growth have been the drivers of the region’s boom in population recently. Between 2010 and 2017, the metro’s population grew by 15.5%, adding more than 331,000 residents in that time. Over the next 15 years, that trend is expected to continue, with a projected growth of 28% over the current population, which would push the metro’s total population to well more than 3 million people.
San Antonio’s Population Makes it a Great Region for Investment
Forbes ranked San Antonio as number three on its “Where to Invest in Housing in 2016” list, and even though it’s now almost three years after that list came out, the greater region is still an outstanding location for single-family real estate investment.
The population growth brings with it a natural greater demand for housing, housing that, right now, doesn’t exist. A recent trend in the region, though, has begun to result in limited housing inventory. As the cost of construction materials and labor has continued to rise in the region, housing development has begun to slow, which has caused there to be a housing shortage. Building permits on single-family homes were up starkly in 2017 versus 2016, but the number of permits pulled for multi-family dwellings (those with five or more units) dropped dramatically year over year, and that trend is expected to continue.
Because of this limited inventory, vacancy rates dropped steeply in 2018, from close to 14% in 2017 all the way down to close to 8% in 2018. This is even more dramatic when you consider the vacancy rate had been on a steady uptick every year since 2014, spiking steeply from 2016 to 2017. Those were considered elevated levels of vacancy in the past, but with the slowdown of new housing construction and the continued demand for new housing options, the vacancy rate is expected to continue to improve.
At the same time, asking rents have continued on their steady levels, around an average of $1,345 per month. This provides an excellent opportunity for return on investment since the median investment sale price in San Antonio stands at $167,597, lower than the investment price in Dallas or Austin. The San Antonio market, then, is ripe for attractive yields.
Similar to what is seen across the country, traditional home buyers are moving into higher priced properties in newer neighborhoods. Investors in the San Antonio market, however, are attracted to mid-tier neighborhoods where renter demand is strong.
San Antonio’s population is also very much a solid fit for renters. The city is home to 29 college and universities, including a branch of Texas A&M University and The University of Texas at San Antonio. This constant influx of students provides a steady stream of demand into the single-family rental market. In addition, the region’s strong military presence also pumps demand into the rental market, as families who relocate for the military rent more often than they purchase homes.
Overall, 15.9% of the city’s population consists of people between the ages of 25 to 34, a cohort that is most often trying to establish themselves professionally and begin to start and build their families. In the past, this would be considered a cohort that would traditionally be first-time homebuyers. However, with the continued increase in home sale prices in the region and the continued uptick in mortgage interest rates, these would-be homebuyers are opting to rent single-family homes at a much higher rate than they have in the past.
This entire picture provides an outstanding opportunity for those who are looking to get in on the single-family residential investment market. The continued influx of residents – a large majority of whom are gravitating toward rentals – along with the strong job market and diverse economy makes San Antonio a prime market for this type of investment.
Where to Invest in San Antonio
With all the factors above, it’s clear that now is a great time to invest in the San Antonio housing market. There are plenty of opportunities to invest in the San Antonio metro region, both inside the city and outside in one of its many suburbs. The suburbs in the metro region could provide a good opportunity because you won’t be competing with multifamily developments for the rental pool.
Here are a few prime investment opportunities in single-family homes in the San Antonio region.
This three-bedroom, three-bathroom property has 2,209 square feet and is located only eight miles from the city center. The home, which was built in 2002, has a purchase price of $124,900. An investment of $46,472 could result in a projected rent of $1,380 per month. That would end up being a 13.26% gross yield and $6,688 in net operating income.
This large six-bedroom, six-bathroom home has 3,290 square feet and is located 12 miles north of San Antonio’s city center. The 1968-built home has a purchase price of $319,000, and with an investment of $106,570 could result in a projected monthly rent of $3,000. That would net a gross yield of 11.29% and a net operating income of $15,513.
This home is located in Converse, a suburb about 14 miles northeast of the San Antonio city center. It’s a four-bedroom, two bathroom home with 2,187 square feet that was built in 1994. It has a purchase price of $145,000 and an investment cost of $52,100. This could result in a projected monthly rent of $1,350, a gross yield of 11.17% and a net operating income of $6,980.