Colorado Real Estate Investor

16 Replies

I am a new real estate investor from Colorado.  I am looking for my first investment opportunity for a rental income property.  I have been doing a lot of analysis on properties in Colorado and have been having a really difficult time finding any opportunities that would be cash flow positive.  I am new to this so I'm sure there are opportunities but I may just not be finding them.  For the people investing in the Colorado market, is my assessment off?  

Also, how risky is it to start with long-distance investing for rental property investments?  I am finding a lot of other markets were the economics and cash flow make much more sense.

Thanks,
Shane

@Shane Malloy

Hello to my fellow Castle Rock BP member! Your findings may or may not be very far off. If you are looking at active MLS deals in the Denver Metro it is going to be tough to find cash flow positive properties, especially with detached homes. The ones that hit the MLS that are cash flow properties are sold very quickly (0-3 days). I have found several cash flow positive townhomes in Denver (around $100- $200/month cash flow after debt service, taxes, insurance, capex reserve, maintenance, and a small vacancy). That said, you would have to be ready to move quick and have an active agent that can quickly submit competitiveness offers.

Before looking out of state, I would consider looking South instead of north. There are plenty of cash flow positive properties in Colorado Springs, especially if you consider multi-units (although again, the best deals go fast and you have to be ready to jump on them). You are in a great position to do this living directly between Denver and COS.

Quick FYI the Denver Metro and Colorado Springs markets are served by different MLS's - if you use an agent to help you find a cash flow positive property make sure they belong to both for you to compare the two markets.

Thanks for the advice Phillip.  You could be right.  Most of the listings that I have been viewing have been on the market > 3 days so that may be the problem.  

Good advice looking south.  I have not checked out a lot of Colorado Springs to a great extent but will start taking a closer look.  My father in-law is a real estate investor and has had some good results in Pueblo with cash flow properties.  I am starting to include that area in my search as well.

@Shane Malloy

More than likely your assessments are correct. Unless you've got a pipeline to off-market deals, the Denver area is tough for investors. 

Out-of-state investing sounds scary, but if you are good at setting up a team and getting processes in place, you could totally do that. If you want to stay closer to home, then I'd get creative. In Denver, I have clients who buy the smallest units we can find -- studios, small 1br -- furnish them and rent them to traveling nurses. The numbers work pretty well for that. 

I also concur with @Phillip Bicker about Colorado Springs. It's nearby, becoming less-uncool than it used to be, and the prices allow you to cash flow. Plus, the appreciation potential is still there. (As the area's Airbnb nerds, we also like it because Colorado Springs' Airbnb laws are favorable to investors.) This guy just posted some stats about the Colorado Springs market . Not a lot of responses yet, but it might be interesting to watch. 

Good luck!

As the others have said.  Look at Colorado Springs/Pueblo area.  The northern part of CS is starting to go up but not nearly as bad as Castle Rock/Denver area.  I'm personally looking at West & East CS for primary residence/house hack.  No luck yet, but I've had a couple that were promising.  You could also try Monument, but even those prices are high because it seems to be a "retirement" community. 

Thanks James.  Out-of-state does seem a little intimidating as a first time investor.  I was actually looking in the Baltimore, MD as well, where my parents and brother live there.  The numbers look a lot more attractive in that area and I could lean on them for help building a team.

I'll be taking a look at CS based on Phillip and your advice.   Appreciate the link to the post.  Good info on the job growth and rental growth in that market.

Thanks Nathan.  I have Monument in my research but have not seen too much over the past month or so.

@Shane Malloy Baltimore continues to be the dark horse, and there are very interesting submarkets that are very strong in MD. 

Hey @Shane Malloy   and @Phillip Bicker , small world, when I was at Wells Fargo a number of years back I did the loan for the development and stabilization of the Castle Rock Outlets. It was struggling a bit at the time for tenants, how's it doing now?

Shane - We invest full time in Baltimore, would be happy to share what we're doing if you're interested. Good luck!

Hi @Ola Dantis .  Good to hear you confirm about opportunities in Baltimore.  Would love to connect at some point to confirm some of the markets I'm seeing but pretty basic research so far on my end.

@Brad Cogswell you wouldn't believe how much Castle Rock has grown since then.  I've lived here since 2008 and the growth has been incredible.  They have actually build a whole new outdoor mall complex next to the outlets.  It's really tough to find a single family homes under $350K these days.

@Shane Malloy Lots of good advice from others on here. 

What are your investment criteria? How much capital do you have? What are you looking for in returns? etc

Aside from the numbers, you have to look at how hands-on you want to be. I know investors who HATE the idea of having their properties far away (It's a matter of WHEN something goes wrong) and I know investors who LOVE having their properties far away. What's your personality?

My general investing and business observations are that people have very few issues when others are in control or out of the area when the market is great and making money, but what happens when the market turns or something goes wrong? Personally, the control factor is a huge factor for me. I've been through good and bad times as a business owner and know the importance of control for when things go sideways. It's always a matter of WHEN, not IF. 

Years ago, a Canadian friend invested $500k+ with someone in the Alberta market when the oil boom was going on. He was making a killing for years and his investment was worth close to a $1,000,000. Then the market turned and he lost everything. The guy he invested with his is someone he trusted and 100% faith in. That's hard to recover from. 

I've got many more stories like this from the business side. Enjoy the good times, but make sure you are prepared for the bad times as well! 

I invested in a medical office in the springs this year and have been very happy. I think deals are still to be found outside of Denver. Springs isn't even really that far all things considered.

@Chris Lopez   My criteria is single family or multi-family 2-3 bed 2 bath at least 1200 square feet. On the financial side I am looking in the $100K to $170K range at 10%-20% below market and $250 cash flow minimum.  Ideally somewhere driving distance from where I live (Castle Rock, CO) but I'm not opposed to a long distance opportunity.

As far as capital, I have around $45K right now but should have closer to $100K by later this year.  Would be looking for 8%-10% in returns.  

As far as planning for the bad times, I would be interested in getting perspective on how you've done this (e.g. how much do you save to protect yourself for these situations).

@Shane Malloy

That is great that you have identified your investing criteria is very succinctly - this is definitely attainable in Colorado Springs on the active market - they one criteria that would be hard would be 10-20% below market value unless you build a system in place to attain off-market deals. 

There are currently a handful of properties that meet all of the other criteria available now, with a cap rate of 6.3%-8.2% (including PITI, 3% vacancy, 10% management, 5% capex) and CoC 6.8-14.5% with 25% down (and about a dozen currently under contract that would have also met the criteria). Cash flows with 25% down would currently range $226-452 after the aforementioned fees included.

To get the best terms on your investment property (25% down) your $45k would be enough on even the high end of your budget at $170k, although cutting it close with closing costs.

Hope this helps to get a good feel for the Springs Market with your criteria considered.

As a side note, there are tempting homes on Chateau At Antelope Ridge that appear at first glance to have good prices and rents, but be aware they are actually manufactured/modular homes that have a $500/month lot rent

If you do the same criteria search in Denver: 0 currently active with the closest match in Keenesburg, CO. There was 1 match for under contract homes that went under contract in 2 days (I'm assuming with many offers above asking price). 

@Shane Malloy as you head South in search of returns please be very careful about the areas you buy in. Just because the price is low doesn't mean it's a good buy. Those that only follow the numbers end up with nasty properties in the worst neighborhoods. That is fine if you are equipped to deal with the types of tenants that those properties attract. If you are not, it can be an expensive education. Also know that a property manager won't insulate you from these tenants. Good pm's won't want to deal with those types of tenants. Spend some time thinking about the kind of tenant you want. Do some market research and see if those numbers will attract those tenants. 

@Shane Malloy I have a few more questions for you...

Would be looking for 8%-10% in returns.

Is that a cash-on-cash? IRR?

If it's cash-on-cash, you can find those returns in Denver, but not in a home or multi. Condos or townhomes are giving those returns currently. They are in your price range as well. @Justin Cooper just picked up a condo that's right around the 1% rule (200k purchase, 1896/rent) in Aurora. It was a townhome on the MLS that many others passed on. It's a solid deal.

10%-20% below market

Why are you saying this? Is it because that's everyone on the Internet says? Denver, and many other markets, are sellers markets. You're chances of finding those deals, especially as a new person, is extremely low. I'm assuming that you're looking for buy and holds. If that's so, then in 30 years, you won't care about paying market rate. But, if you are fixated on getting a great deal, then you may never buy something. 

I'd much rather buy a good asset in a good area at a fair market price, rather then a mediocre deal at a great price.  That's my attitude towards most things. 

As far as planning for the bad times, I would be interested in getting perspective on how you've done this (e.g. how much do you save to protect yourself for these situations).

I wasn't in real estate during the bad times. In terms of business and general investing, I took quite a few black eyes. Live below your means, don't get lifestyle inflation as your income increases, and remember that the good times can end at any moment. Keep 6+ months in savings for personal expenses.

General plan for real estate:

  • 20-25% down
  • 7 months in PITI for each property (6 to cover costs, + 1 month for repairs)
  • 10k minimum (hopefully a lot more) in an opportunity/ general "oh **** fund" 
  • 6 months in personal savings and in my business accounts.

HELOCs and credit cards don't count!! They are great to use, but don't count on them in the bad times. I had a business Amex card for years that I charged everything to (10k/mo) and always paid in full. Then the credit crunch happened and my card stopped working all of a sudden. Called Amex, and they demanded two years of tax returns before making my card active again. They got the middle finger.

Cash (or stocks/bonds) are cash, not credit or real estate.

@Chris Lopez 8%-10% would be cash on cash.  I realize 10%-20% lower will be tough in Denver given the current conditions.  I may have to lower the criteria.

As far as preparing for the bad times, I have always planned 12 months of personal savings. I can probably uses some of this money to cover some of some of the items you mentioned (7 months PITI and $10K reserve). Thanks. This was helpful.

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