Welcome

Hello and welcome to our newsletter. In these notes we share updates on our investing activity and industry insights our investors might find interesting. If you have questions or feedback, please get in touch.

Investment Update - Accepted LOI!  

We have exciting news-- we have an accepted offer on an apartment complex near the Houston Area. We will share more details once we have a signed contract, but some initial highlights:

1. "Hybrid" Value play-- strong cash flow, but still appreciation potential
2. Cash-flowing from Day1 
3. Large amount of capex and repairs already completed; 70% of units upgraded
4. 20%+ 3-Year IRR

We're getting the property at a great price and are looking forward to the potential; be on the look out for investment details and an opportunity to join in due diligence. 

Other Investing News  

Over the summer, we've analyzed a number of properties, put in offers, and gotten in the final rounds of bidding. Underwriting has been challenged, especially by:

1. Insurance -- insurers are pulling out of Texas/Gulf States, and premiums are jumping 50-200%. A quiet end to the hurricane season will help, but the question is if these rates are the new normal
2. Financing -- rates are still elevated and lenders are being more selective
3. Property Taxes -- properties for sale tend to be bought 3+ years ago with current taxes well below offer prices, leaving exposure for sharp tax increases after purchase
4. Inflation -- utilities, payroll, and maintenance; e.g. Houston did a special adjustment and raised water bills 10%

With that said, there are still deals to be found, we just have to screen harder and can no longer bank on appreciation (cap rate compression) carrying the value of every deal.

If you would like to connect, feel free to call, email, or schedule a time below. 

Thank you,

Dan

314-477-2447

daniel@archlinecapital.com

www.archlinecapital.com

Interesting Articles on Houston Real Estate

14% YoY Increase in Income required to buy first home in Houston  

• Summary: Redfin estimates that first-time homebuyers in Houston need to make $57,000 a year, up 14% from last year.
• Comments: This is actually good news for Multifamily because it increases the demand for rental units. We have seen in our own properties examples of tenants who make decent money and pay on time, yet they are not able to find homes they can purchase.  

Rents on the Rise in Houston, TX 

• Summary: Houston rents have increased 4% with inner-loop areas up 15.8%, outpacing the national average, but slower than Dallas/Fort-Worth and Austin.
• Comments: This story has become resoundingly clear in the data from the past few decades-- Houston is the turtle in "The Tortoise and the Hare." While other major cities get the flashy headlines from rapid appreciation and rent growth, Houston continually climbs year-over-year. The benefit is that Houston does not see as steep of declines as those other markets, where for-example, they are seeing 10%+ declines in housing prices.

Houston had 2nd highest national population growth in 2022 census 

• Summary: The Houston metropolitan area added 125,000 residents, behind only Dallas-Fort Worth, making it the 5th largest metro area with 7.34MM residents. 
• Comments: This is obviously positive news for Multifamily investing as more residents mean higher demand for housing. While there are a large number of new apartment units coming online in Houston in the next 1-2 years, the continued increase in population offsets that increase in supply and should allow for continued, steady increasing rents.