I've read through quite a few posts and gotten some fairly good advice, so now I'm looking for some situation-specific advice. I am in my 20s and wanting to get in to the real estate investing market. However, it is quite difficult to get good advice elsewhere!
I currently live in the Denver area, I own a home, and rent to roommates, which is awesome for living expenses. I am looking to purchase an investment property in the very near future and do have a substantial amount to put down for the necessary 20%. I have primarily been looking for single family houses that are $350-$385K in the Westminster/Arvada area. The problem I am running in to is that a $375K house would be great, but every house is going for at least $25K over asking price, if not up to $50K over asking price! This definitely does not follow the 1% rule. It doesn't seem worth wile to spend $400K on a property, even with 20% down, especially since most places going for this need work or are quite small.
Does anyone have advice as far as price point vs. rental income goes? Is it worth it to get a property in this market? Should I be looking for a condo/townhome instead of a single family home? If my rent to mortgage ratio is something like $1700 to $2500, is this worth it? Or am I getting into dangerous territory?
Ideally I would like to purchase in the Denver area, since I live here, but am open to suggestions. I have heard Colorado Springs is a good market for investing, but I'm not sure yet.
Bottom line is that I know real estate investing is worth it, but I'm not sure the parameters. Especially with a ridiculously competitive market that every property gets 20 offers in the first day!
First abd foremost congrats, I wish I had found the "light" of real estate investing in my 20s. I agree that prices are nuts right now. If I had to give advice, I would look at the situation you have now, buy a new property to move into and then do the same thing. Reason for that is you can generally get lower rates and have the ability to essentially rinse and repeat with another property quicker than saving up a 20% down payment. I'm sure you will get plenty of advice and additional insight but if I were in your shoes, this is the path I would likely follow. Best of luck no matter hoe you choose to attack, and look forward to hearing your about your progress.
Hello @Katelin M Barson , I am in a similar boat to yours I just live in Colorado Springs. In the Denver and Colorado Springs area it is almost impossible to find 1% deals. But keep in mind this is just a rule of thumb. You can still cashflow great with more expensive properties that don't rent for 1% of the purchase price.
Are you looking for appreciation or cashflow? If you are looking for appreciation the markets here are great for that even if the barrier to entry is higher. If you are looking for cashflow I would highly recommend investing in the Midwest. You can make your dollar stretch a lot further and they are typically a lot better for cashflow.
It sounds like you would like to stay in the Denver area. I believe it is definitely worth it to invest in the Denver market if you can find a good deal. I would recommend connecting with a Denver agent from BiggerPockets to explore your options. I'm sure they will jump in on this thread soon.
But Colorado Springs is worth looking at as a second option as a great market! :)
@Katelin M Barson
The reality you're seeing is the same one everyone else is facing, so you're not alone! The reason the market is so tough right now is that inventory is 50% below where we were last year at this time. Buyers are moving here in droves from more expensive markets (think LA, Boston, etc.) and their equity goes a lot further. It's supply and demand
With remote working a reality for the foreseeable future, more and more people are moving to markets where they can get a higher quality of living (i.e. Colorado). The population on the front range was already projected to double by 2050 and with these trends we will likely be there much sooner.
As stated above, Denver is an appreciation market and even before the recent market craze, finding 1% deals in Denver was difficult. Now the appreciation wave is that much bigger (10-20% in just the last month)!
As mentioned above, Colorado Springs is a cheaper market, but we're seeing just as much competition there. Homes are closing for 10-20% over asking, as-is no inspection, cash appraisal gap coverage. It's just the state of the market with such limited inventory.
I echo @Jeremy Gaal and suggest putting your cash to use with an owner-occupied loan that only requires a 5% down payment.
There are cheaper entry points for townhouses and condos, but they may not appreciate as well or hold their value. When they're easier to buy now they are also harder to sell in a downturn.
Hi Katelin! Congratulations on already house hacking a property to have your renters handle the majority if not all of your monthly expenses! I've personally been talking to agents for properties near Arvada myself and it's just a big competition with less than 1 month of inventory. What this means for you is that you'll likely have to work closely with an agent daily for a few months and be ok with having many good offers you make slide through before you get something that's over the asking price a bit.
As Spencer Abeyta said, the 1% rule is just a benchmark and an old benchmark that is, in my opinion, quite outdated. They even had a 2% rule before the 1% rule. So, run the numbers on properties after narrowing down what property you want by things like price per square foot, curbside feel, etc. Even if the cashflow might now be great, the appreciation for Colorado overall with the outdoors and the spaciousness and everything is projected to be amazing according to people I've been talking to for the next 20 years.
Denver market is tough right now. Townhouses and condos are definitely an option and can be found in the $300k range or less, although as @Chris Freeburg said there are positives and negatives from an investment standpoint. I would expand your search beyond Westminster/Arvada.
@Spencer Abeyta Thank you for the advice! Ideally I would be looking for monthly cashflow, but appreciation wouldn't be a bad thing! What area do you recommend as far as the midwest goes? I would be hesitant looking there as I have never been to the midwest and it is my first rental income property that I do not live in. I appreciate the advice about the 1% rule! That is one of my bigger hesitations right now. If I can rent a house for $2600, but the house costs $370K, would that be enough of an income to cover costs and still make a profit?
@Peter Pham Thank you for the advice! Yes, we have already had several offers get taken off the table by cash only investors, so hopefully soon. My concern is how much I am going to be spending vs. rental income. How much is too much to spend on a place to be worth the rental income? You are definitely right though, Colorado property value will continue to increase either way.
@Garrett Jordan Great advice, thank you! A single family home is the best bet right now, but the market is extremely frustrating. I am starting to stretch the search a bit. Do you suggest any other areas of town that would be good potential areas to search?
@Chris Freeburg Thank you for the advice, thank you! I also replied to your message, so you will be hearing from me twice. I actually was looking into the owner occupied home cost, and moving/renting my current place. My problem is that the future plan involves moving at the end of the year and fully renting both places. An owner occupied rate seems great, but if I have the cash to put down 20% now, why wouldn't I want to do that? Even if I do end up moving in to the new property for a short time, a bigger down payment would mean my rental income would be higher either way. Would there be any benefits to an owner occupied loan that I am missing?