Question about what I should do with my first Rental in Denver!
Member since 2022 · 7 posts · 6 votes
Question about what I should do with my first Rental in Denver!
Most Popular Reply
James DainardPro Member
Real Estate Broker · Bellevue, WA · Member since 2015 · 415 posts · 1k+ votesQuote from @Emanuel Caldera:
Hello Everyone, I am wanting to get some insight as to what others would do in my situation.
I have a home that I own in the Denver area and currently have about 250k in equity after paying the agent fees. In todays market even. I know that will go down eventually if homes are staying on the market longer and as rates slightly rise. So worst case scenario I am thinking would be I walk away with 200k and lose out on the $350 it is currently cash flowing monthly or should I pocket the 200k and look into getting other properties either here in Colorado or possibly out of state? I want to grow my real estate portfolio just don't know what I should do next.
Thanks for reading and helping out!
If you're able to hold on to the property and continue to cashflow you should keep it. You can access the equity in the deal by getting a HELOC for now or a cash out refi once rates normalize a bit.
If you analyze some deals and realize that you can get a better return on your equity somewhere else you can 1031 it into that as well.
If you're looking to grow your portfolio you want to either keep it for growth or trade up using 1031s where possible.
Best of luck!
19 Replies
- 3yTaylor DaschBusiness MemberReal Estate Agent · Temple, TX · Member since 2022 · 1k+ posts · 700 votes
I'm not familiar with your market but I know for a fact in my market, 200k will generate around 1800/mo in cash flow if I buy the right deals, So if I had 200k equity in a property, I would sell or cash out refinance. But it all depends on your goals. I would run the numbers to see how much passive income that 200k would bring in and then weigh that against the risks, so how comfortable are you in your market and how much time would have to go in to finding your next deal.
Taylor Dasch | EG Realty560 Reviews - Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes3y
Quote from @Emanuel Caldera:
Why would you get rid of a property that cash flows $350 a month?
The only reason an investor should sell a property is to invest in bigger, better properties to increase earnings or wealth.
Do the numbers and make a financial decision, not an emotional one.
The DIY Landlord Book4.7248 Reviews - Member since 2022 · 7 posts · 6 votes3y
Quote from @Nathan Gesner:
Quote from @Emanuel Caldera:
Why would you get rid of a property that cash flows $350 a month?
The only reason an investor should sell a property is to invest in bigger, better properties to increase earnings or wealth.
Do the numbers and make a financial decision, not an emotional one.
Hey Nathan,
The only reason I would sell is to possibly buy multiple properties that would cash flow for than my current $350 a month. Just trying to see what other people would do. I do not want to take out a HELOC and then have that HELOC payment eat into any future cash flow I may have after purchasing another property with a HELOC.
- Real Estate Agent · Orlando, FL · Member since 2020 · 39 posts · 20 votes3y
Hi Emanuel,
You're on the right track with your thinking, just follow the questions a little farther. What was your cost out of pocket to purchase the property? What is your CoC return? Cap Rate? If you have a solid property with your current metrics, don't rush to sell a good thing. You may want to talk with a lender to get your ducks in a row so you are not committed to a loan but you are able to pull the trigger on a property on your terms. It could even be a possible 1031 exchange situation.
- Member since 2022 · 7 posts · 6 votes3y
Quote from @David Van Singel:
Hi Emanuel,
You're on the right track with your thinking, just follow the questions a little farther. What was your cost out of pocket to purchase the property? What is your CoC return? Cap Rate? If you have a solid property with your current metrics, don't rush to sell a good thing. You may want to talk with a lender to get your ducks in a row so you are not committed to a loan but you are able to pull the trigger on a property on your terms. It could even be a possible 1031 exchange situation.
Hey David!
I am a veteran and actually lived at the property for 3 years prior to renting it out so I had very minimal if any cash to purchase this home. The only reason I started renting it out was because I refinanced that rental property from a VA loan to a Conventional Loan. That then freed up my VA loan to purchase my current home where I live now. I was thinking of doing the same thing over and over but with rates being double of what my previous 2 loans closed at I am finding it hard to refinance my current home to free my VA Loan option once more.
- Real Estate Agent · Orlando, FL · Member since 2020 · 39 posts · 20 votes3y
First, thank you for your service! Second, are you wanting to move out of your current residence? If you don't need/want to move out of your current residence, why not be conservative with a HELOC? Have fun playing with numbers but always include some cushion into your numbers. If you're cash-flowing but you don't need it use that extra $$ to put towards paying down the HELOC. Running conservative numbers has a $300 minimum payment at 9% allows you to have a $40k HELOC. This way, you have a buffer built into the HELOC if/when rates rise. If you're able to make a deal work and cashflow with 40K, you can take some of that payment (not all) to pay down your HELOC. Additionally, you could keep enjoying the lower rates on the other properties and not worry about the numbers on that end getting all screwed up. You would also then have a property at these higher rates so that if rates fall, you can refi into a lower rate and the numbers will make even better sense for you. Just make sure to keep your VA loan on your personal residence. I don't want you getting in trouble.
- Real Estate Agent · Denver, CO · Member since 2022 · 356 posts · 228 votes3y
@Emmanuel Caldera
A couple initial questions you should ask yourself.
1. What type of rental are you doing right now? LTR, MTR, or STR? If you are doing an LTR, look at what an STR may cash flow on the property. Instead of selling, maybe you maximize your cash flow that way.
2. What part of town are you in? Pulling data on what the equity growth may be in future years by looking at previous years median home price (by year) in that area, may be a good indication of where to expect your equity to go. Hence, does it make sense to sell in that particular area if you can expect significant equity growth in the future.
3. What is your current interest rate on your property now? If you have a low rate, and you sell it, just know you'll have to now buy in a market with 6.7% interest rates for a 30 yr fixed mortgage which makes it even tougher to cash flow.
My advice is to analyze your current areas potential growth in future years, wait until rates drop, then you can explore either selling or doing a cash out refi in which you can pull money out to go buy more properties at that lower rate. Also, take advantage of an STR or an MTR if you are capable in your area. You will net much more cash than an LTR.
- Real Estate Broker · Kansas City Metro · Member since 2015 · 2k+ posts · 1k+ votes3y
@Emanuel Caldera Are you familiar with Return on Equity? It is a less common but equally important real estate metric for when considering a 1031 exchange. I can show you the calculation along with some examples. Could help with your dilemma but congrats on a successful investment!
- Member since 2022 · 7 posts · 6 votes3y
Quote from @Kenny Smith:
@Emmanuel Caldera
A couple initial questions you should ask yourself.
1. What type of rental are you doing right now? LTR, MTR, or STR? If you are doing an LTR, look at what an STR may cash flow on the property. Instead of selling, maybe you maximize your cash flow that way.
2. What part of town are you in? Pulling data on what the equity growth may be in future years by looking at previous years median home price (by year) in that area, may be a good indication of where to expect your equity to go. Hence, does it make sense to sell in that particular area if you can expect significant equity growth in the future.
3. What is your current interest rate on your property now? If you have a low rate, and you sell it, just know you'll have to now buy in a market with 6.7% interest rates for a 30 yr fixed mortgage which makes it even tougher to cash flow.
My advice is to analyze your current areas potential growth in future years, wait until rates drop, then you can explore either selling or doing a cash out refi in which you can pull money out to go buy more properties at that lower rate. Also, take advantage of an STR or an MTR if you are capable in your area. You will net much more cash than an LTR.
Thank you for that information.
It is currently a LTR and was thinking of possibly going into a STR or MTR but the amount of homes and the difference of what similar homes are going for in my area would not benefit me as it would only cash flow an extra $200 a month if I were to furnish the home vs what I am currently LTR it for.
Yeah my current interest rate is sub 3 so I do see how a new property at 6 plus would cash flow a lot less.
It is in a desirable area in Denver (Central Park) where I think the equity should keep going up and/or at least not drop as much as other areas would. A cash out refi does sound like something I can do in the future and I will just have to be patient for that.
- 3yJames CarlsonBusiness MemberReal Estate Agent · Colorado | stan.store/JamesCarlson · Member since 2014 · 2k+ posts · 2k+ votes
If you've got a property in the Denver metro area that is cash-flowing $350/mo as a long-term rental, I'd totally agree with @Nathan Gesner -- Why sell? You're in a solid long-term growth market for appreciation and you're getting cash flow. Best of both worlds. Yes, appreciation is slowing/reversing in Denver, but despite what some threads on here are saying, I don't believe there is some cliff we're about to drop off. Hold for another 10 years and I bet you'd be super happy.
Now, if you don't have funds elsewhere to buy right now, then you could pull a HELOC for a down payment on another rental. Be aware that HELOC rates are variable so they will go up with the Fed's rate, but I still think they're better than a cash-out refi right now, because refi's lock you in to the higher rates, whereas a HELOC is only higher while you're paying. There's no interest once you pay off.
The other consideration with pulling out equity -- be it HELOC or cash-out refi -- is that your $350/mo in cash flow is going to disappear. Maybe you don't care because you'll be gaining another asset at -- hopefully -- a better price than what we've seen for years. But it's something to be aware of.
- Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes3y
Come to KC :) You can 1031 into a property here. With 250K you can find 1-3 properties depending on if you finance and area. I have helped many Colorado investors since it's just East of you guys(through boring KS lol).
- Real Estate Agent · Denver, CO · Member since 2022 · 356 posts · 228 votes3y
Quote from @Emanuel Caldera:
Quote from @Kenny Smith:
@Emmanuel Caldera
A couple initial questions you should ask yourself.
1. What type of rental are you doing right now? LTR, MTR, or STR? If you are doing an LTR, look at what an STR may cash flow on the property. Instead of selling, maybe you maximize your cash flow that way.
2. What part of town are you in? Pulling data on what the equity growth may be in future years by looking at previous years median home price (by year) in that area, may be a good indication of where to expect your equity to go. Hence, does it make sense to sell in that particular area if you can expect significant equity growth in the future.
3. What is your current interest rate on your property now? If you have a low rate, and you sell it, just know you'll have to now buy in a market with 6.7% interest rates for a 30 yr fixed mortgage which makes it even tougher to cash flow.
My advice is to analyze your current areas potential growth in future years, wait until rates drop, then you can explore either selling or doing a cash out refi in which you can pull money out to go buy more properties at that lower rate. Also, take advantage of an STR or an MTR if you are capable in your area. You will net much more cash than an LTR.
Thank you for that information.
It is currently a LTR and was thinking of possibly going into a STR or MTR but the amount of homes and the difference of what similar homes are going for in my area would not benefit me as it would only cash flow an extra $200 a month if I were to furnish the home vs what I am currently LTR it for.
Yeah my current interest rate is sub 3 so I do see how a new property at 6 plus would cash flow a lot less.
It is in a desirable area in Denver (Central Park) where I think the equity should keep going up and/or at least not drop as much as other areas would. A cash out refi does sound like something I can do in the future and I will just have to be patient for that.
Only an extra $200 a month for an MTR or STR? That number seems very low. My fiancé and I run 3 airbnbs right now in Westminster, and they do extremely well vs what we could get as an LTR. How many bed, bath, renovated? There are a series of hospitals over there, and you could crush it as a medium term rental. Check out furnishedfinder.com to see what MTR's are going for in your area. Then, check airbnb and see comparable STR's to yours in your neighborhood. Look on their calendar and see how booked they are, and what their going rate is to give you a ballpark idea of what you could get. Also, if you do consider an STR, you need to follow Denver's laws which is owner occupied, and requires a license. Read more below.
https://denvergov.org/Governme...
Feel free to give me a call if you have any further questions, I'd be happy to help.
- Member since 2022 · 7 posts · 6 votes3y
Quote from @Kenny Smith:
Quote from @Emanuel Caldera:
Quote from @Kenny Smith:
@Emmanuel Caldera
A couple initial questions you should ask yourself.
1. What type of rental are you doing right now? LTR, MTR, or STR? If you are doing an LTR, look at what an STR may cash flow on the property. Instead of selling, maybe you maximize your cash flow that way.
2. What part of town are you in? Pulling data on what the equity growth may be in future years by looking at previous years median home price (by year) in that area, may be a good indication of where to expect your equity to go. Hence, does it make sense to sell in that particular area if you can expect significant equity growth in the future.
3. What is your current interest rate on your property now? If you have a low rate, and you sell it, just know you'll have to now buy in a market with 6.7% interest rates for a 30 yr fixed mortgage which makes it even tougher to cash flow.
My advice is to analyze your current areas potential growth in future years, wait until rates drop, then you can explore either selling or doing a cash out refi in which you can pull money out to go buy more properties at that lower rate. Also, take advantage of an STR or an MTR if you are capable in your area. You will net much more cash than an LTR.
Thank you for that information.
It is currently a LTR and was thinking of possibly going into a STR or MTR but the amount of homes and the difference of what similar homes are going for in my area would not benefit me as it would only cash flow an extra $200 a month if I were to furnish the home vs what I am currently LTR it for.
Yeah my current interest rate is sub 3 so I do see how a new property at 6 plus would cash flow a lot less.
It is in a desirable area in Denver (Central Park) where I think the equity should keep going up and/or at least not drop as much as other areas would. A cash out refi does sound like something I can do in the future and I will just have to be patient for that.
Only an extra $200 a month for an MTR or STR? That number seems very low. My fiancé and I run 3 airbnbs right now in Westminster, and they do extremely well vs what we could get as an LTR. How many bed, bath, renovated? There are a series of hospitals over there, and you could crush it as a medium term rental. Check out furnishedfinder.com to see what MTR's are going for in your area. Then, check airbnb and see comparable STR's to yours in your neighborhood. Look on their calendar and see how booked they are, and what their going rate is to give you a ballpark idea of what you could get. Also, if you do consider an STR, you need to follow Denver's laws which is owner occupied, and requires a license. Read more below.
https://denvergov.org/Governme...
Feel free to give me a call if you have any further questions, I'd be happy to help. 720-885-5362.
Yeah for sure. Thank you for that info. I will take you up on that call as I have looked into furnishedfinder.com and that is where I have seen that I would only make an extra $200 monthly when comparing it to other places like mine.
- Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes3y
Central Park is a great location, you have a very low interest rate and high cash flow, so I'd hold personally. One thing to consider however is capital gains taxes. Seeing as this was your primary residence, you may be exempt from capital gains taxes on the first $250,000 if you are single and $500,000 if married filing jointly. You need to have lived there for at least 2 of the last 5 years however, so if you recently moved out you'd have just under 3 years to sell. I'd probably hold another few years and then sell. I have some clients in Central Park, I'm bullish on the location over the next few years. I think there's still a lot of upside potential there (probably not what we've seen over the past few years but the area is still improving and likely to continue seeing good appreciation). https://www.investopedia.com/a...
- 3yJames CarlsonBusiness MemberReal Estate Agent · Colorado | stan.store/JamesCarlson · Member since 2014 · 2k+ posts · 2k+ votes
A couple thoughts:
1. You can't do short-term rentals in Denver if it's not your primary residence. A Central Park (Stapleton) area home would certainly do well, but it's not eligible under the Denver Airbnb rules.
2. You should be able to get more than a $200 premium on that house by converting to a medium-term rental. I do think there's more demand for smaller MTRs -- 2br, maybe 3br that two traveling nurses or a couple that's remote working would use. But we've got a 4br/2ba medium-term rental in Colorado Springs. We're getting about 35% more than we would as a LTR. You attract more families that are A) moving to the area and don't know where they want to buy yet or B) families displaced by a major renovation on their home for 3 months.
- Member since 2022 · 7 posts · 6 votes3y
Quote from @James Carlson:
A couple thoughts:
1. You can't do short-term rentals in Denver if it's not your primary residence. A Central Park (Stapleton) area home would certainly do well, but it's not eligible under the Denver Airbnb rules.
2. You should be able to get more than a $200 premium on that house by converting to a medium-term rental. I do think there's more demand for smaller MTRs -- 2br, maybe 3br that two traveling nurses or a couple that's remote working would use. But we've got a 4br/2ba medium-term rental in Colorado Springs. We're getting about 35% more than we would as a LTR. You attract more families that are A) moving to the area and don't know where they want to buy yet or B) families displaced by a major renovation on their home for 3 months.
Yeah I would love to get an extra 35% than my current LTR. I have a 2 bedroom 2.5 bath 4 story condo with the 4th floor being an open roof top. Do you think by me posting this on FurnishedFinder myself is something that I can manage alone? I do currently have a PMC that is charging me sub 10% so that scenario is also not bad but more monthly cash flow would be great.
- Member since 2022 · 7 posts · 6 votes3y
Quote from @Steve K.:
Central Park is a great location, you have a very low interest rate and high cash flow, so I'd hold personally. One thing to consider however is capital gains taxes. Seeing as this was your primary residence, you may be exempt from capital gains taxes on the first $250,000 if you are single and $500,000 if married filing jointly. You need to have lived there for at least 2 of the last 5 years however, so if you recently moved out you'd have just under 3 years to sell. I'd probably hold another few years and then sell. I have some clients in Central Park, I'm bullish on the location over the next few years. I think there's still a lot of upside potential there (probably not what we've seen over the past few years but the area is still improving and likely to continue seeing good appreciation). https://www.investopedia.com/a...
Hey Steve! Yeah that is what I was planning on doing but I was also open to exploring other ideas from other people on here as well. I might sell in 2.5 years prior to me hitting that 2 out of the last 5 years rule. Nice to hear from other people that are utilizing the MTR method and that it pays more than LTR but I am having an issue with getting started on that. Don't know how long it will take me to recover my cost from furnishing it and how that will all play out.
- 3yJames DainardPro MemberReal Estate Broker · Bellevue, WA · Member since 2015 · 415 posts · 1k+ votesHey Emanuel,
Quote from @Emanuel Caldera:
Hello Everyone, I am wanting to get some insight as to what others would do in my situation.
I have a home that I own in the Denver area and currently have about 250k in equity after paying the agent fees. In todays market even. I know that will go down eventually if homes are staying on the market longer and as rates slightly rise. So worst case scenario I am thinking would be I walk away with 200k and lose out on the $350 it is currently cash flowing monthly or should I pocket the 200k and look into getting other properties either here in Colorado or possibly out of state? I want to grow my real estate portfolio just don't know what I should do next.
Thanks for reading and helping out!
If you're able to hold on to the property and continue to cashflow you should keep it. You can access the equity in the deal by getting a HELOC for now or a cash out refi once rates normalize a bit.
If you analyze some deals and realize that you can get a better return on your equity somewhere else you can 1031 it into that as well.
If you're looking to grow your portfolio you want to either keep it for growth or trade up using 1031s where possible.
Best of luck! - House Hacking Specialist · Denver, CO · Member since 2016 · 411 posts · 396 votes3y
@Emanuel Caldera, you have started looking in the right place. My answer will contradict a lot of suggestions mentioned above. I look like to look at 3 key metrics when deciding what to do with a rental property:
1. Cap Rate, >4%
2. LTV (Loan to value) >50%
3. and my favorite metric of all!!!, ROE (Return on Equity) >10% (highly overlooked)
If your property failing to meet any one of these 3 metrics, it is worth looking into selling. My personal opinion is to not get so fixated on $350/month cashflow or cashflow in general. That does not move the need that much from a wealth building prospective.
Now selling that lets say $500,000 asset and using that equity to purchase a +/- $900,000 asset that you will be receiving more dept pay down from your tenants, more appreciation, and more depreciation. That will greatly change your wealth building trajectory long term then $350/ month cashflow.
I have a few case studies I have ran in similar situations. I DM you the details that will help you go into you next business transaction eyes wide open.
Thanks,
Join the conversationCreate a free account to reply, vote on answers and follow this thread.