Purchasing single family house in the Denver area

21 Replies

I live in California and am looking into purchasing a single family house in the Denver area. I have shortlisted 3 Denver suburbs(Littleton, Highlands Ranch and Parker).  I identified these suburbs primarily because of good schools and the fact that I should be able to find a property under 600k. The house will be managed by a property management company. The goal is to hold on to the house long term(10+ years and until it is fully paid off). Since will be my first investment property purchase, I was wondering if someone could provide me feedback on:

1. Would houses in these cities potentially hold their values in the long term? Which city should I prioritize? 

2. Any other Denver cities besides these that I should consider, something that might be a better long term investment?

3. Given the appreciation in the housing market, I am too late to enter the Denver housing market? 

Thanks!

I don't know too much about Denver but I do know some things about remote investing. First I would say you need to build your team this being your Realtor, Broker, contractors and Management company. I am assuming you are looking to do a BRRR on this property so learning the costs of rehabs in Denver should be a priority as well as any local nuances like Excise tax, permitting, and so on. When picking your area I would challenge you to look deeper than just schools and how it has currently appreciated. What's the population? Is it growing? How many fortune 1000 companies operate in those areas and how big are they? What is the median household income, as well as average sale prices of homes in those areas. Is the cost of living high or low there and what do property taxes look like. If this will all be done remotely you will need a solid team I saw a bigger pockets podcast on remote investing and the management company they used was mynd management I believe. Anyways they seemed to really have the investors interests at heart so I would recommend them if they operate in your area. Besides all that go into this with the end in mind and to some extend you have started this knowing this will be a rental. Now doing the market analysis figure out what your expectations for the property will be are you looking to cash flow and if so how much. Are you throwing a dart at a highly appreciating market hoping to take advantage of it? All great things to consider and I wish you the best on your journey.

-Jacob

HI @Jay Gil ! I would be more than happy to give some insight into the Denver Market. My first question would be what your goal is with this investment? I wouldn't bank on appreciation to be the motivation for investment. While the Denver area sees roughly 6% appreciation YOY, it's not guaranteed. I would say the areas you identified are strong performers, but definitely in the "already developed" category. If appreciation is truly your goal, then I would look into smaller pockets (Parts of Aurora, Athmar Park, Barnum, Ruby hill to name a few) that are currently being built up, and see more chance of great appreciation over the coming years. But that is still speculation.

The other thing that you'll probably start to find when you run the numbers (even more now due to the crazy year we had) is that traditional SFR rentals are not going to be cash flowing here in Denver, especially with a PM in place. The Denver market is a strong appreciation market, but if you want to see the cash flow as well you will need to get creative with your rental strategy. One of my personal favorites is the SFR turned into multiunit, whether through an ADU, or a mother-in-law suite in the basement. These work very well and aren't that much more work than a traditional SFR. They will typically be able to cash flow you over $500 after expenses and reserves. Other strategies that work well are STR (but have to be careful with regulations), medium-term furnished rentals, or rent by room. These all work here in the Denver Metro and will adjust what kind of property you will look for.

It's not too late to invest here in Denver, you just need to understand what kind of market you are playing in. Denver is not running out of steam, and Colorado, in general, keeps pulling people in. But like most investors, appreciation isn't really an investment strategy, you want to make sure the investment works from day 1, and if it appreciates then it's the cherry on top. 

@Jay Gil It really depends on your goals. Those are all great suburbs to invest in, but have you considered the cities Arvada, Wheat Ridge, Lakewood, and Westminster?  Those are some of the other suburbs around Denver that have properties in your price range of under 600k and still near good to great schools. 

The historical average appreciation over the last 40 years has been 6% per year in Denver metro (which includes Littleton, Highlands Ranch, and Parker and those cities listed above). Since this is an investment property and a 10+ year buy and hold and first investment property, have you thought about spending a few days here looking at different neighborhoods, rent ranges, trends, etc? 

1) All of the cities that you listed would be a great buy and hold investment property since those cities are very popular suburbs. 

2) See above, again, it really depends on your goals. You can definitely achieve higher cash flow in other Denver metro suburbs and similar appreciation. 

3) You are not too late, there is still opportunity for investors here, and Denver metro is growing and lots of room 

Hi @Jay Gil ,

1a. Yes, yes and yes. Home values are increasing every year in Denver Metro and the surrounding areas. I have plenty of data if you would like just connect with me if your interested. 1b. I would keep your search net wide as you will see more houses and learn the market. My personal area of choice would be Littleton of the three if you wanted to narrow it down, I think you would have a great family tenant pool in that area. 

2. The areas you have chosen are great, but you may have a little more difficulty purchasing a great cash flow property as an investor in those areas because of low inventory and every other investor/home buyer: just depends on your financing and your perimeters for the purchase. Are you looking for turn key, add value, etc and are you willing to/can work with wholesalers? Or just MLS? (I also have heat maps for Denver Metro if you want, too)

3. No, its fall the prices are dropping the market is slowing down (very seasonal)  I was just reviewing the houses in the Arvada area and found a flip that was purchased in March (the top of the market with the historically lowest inventory) for 330k then 349k (wholesale) now with about 75k flip it is listed in the 540k range. There are always deals and houses, sometimes it just takes a few more offers and patience to land one. 

If you need some references for a team in the area reach out and I can send you my recommendation. Also if there are any houses you want to preview, we can do a virtual walk through. Land that first deal and start your portfolio, Jay! Good Luck! 

Hey Jay, 

Just my two cents.....

1. I believe all of those areas, especially due to the good schools, will hold value - especially because you're looking to hold for 10+ years - here's a rental analysis of the Denver market (local agents could provide detailed info) - https://blog.recolorado.com/re...

2. Agree with some others on here - Arvada is a great location, we have two rentals and live here - and our properties have continued to appreciate 

3. I don't think it's ever too late to get into real estate if you have the funds - especially because you have long-term goals/holding plans 

Good luck with the search - Colorado is amazing! 

Wow, I am very impressed with the excellent feed back you have received thus far!  

@Jay Gil , One thing that I consistently notice that is overlooked when considering building your team is lending. Lending can make or break you early on when trying to get your first investment property especially if there are multiple offers. Find a lender that understands what your are looking to do and could potentially give you the option to close quickly (less than 14 days). 

There is a lot of great advise on the Denver Metro market but I also think the Colorado Springs market is highly undervalued.  Lower barrier to entry and with its strong military presents, you can manage less turnovers and very reliable tenants. For $600,000 you can find yourself a great multifamily with little upfront maintenance needed.

With this being your first investment property, I am sure there will be some disagreement but Keep It Simple!!!!! No need to do something fancy and sexy like BRRRR. Find something turnkey ready to go. Make your first investment property as smooth as possible that way you do not get burnt out and set yourself up for being a successful longterm real estate investor.

Looking forward to hearing all about your success story!

@Jay Gil

A few thoughts:

  • All those Denver 'burbs will hold their value plus some. I am bullish about most everywhere in the Denver metro area. Be ready to not cash flow much unless you do something creative -- buy a fixer-upper, do medium-term rentals, buy in one of the few Denver-area cities that allow short-term rentals/Airbnb, etc. I think the goal if you're buying in Denver should be to cover expenses and maybe make a few bucks but to hold for 10 years and watch the appreciation roll in . 
    • (Yes, yes, I know you can't guarantee appreciation, but the underlying dynamics of this market say that even a small correction won't last long and there's no crash coming. Smarter money is on Denver going the way of Seattle or San Francisco.)
  • What areas to consider depends on your personal desires. You can look in Barnum and Ruby Hill, Northglenn or East Colfax, etc., all of which might be a little lower price and a little more appreciation potential, but you also are going to have a different tenant pool. So decide what your priorities are for that.
    • Sidenote on cities to consider ... Colorado Springs to the south is growing faster than Denver and still has room to grow. 
  • Whether you're "too late" to Denver depends on your horizon. If you plan on flipping this for sale in two years, then you never know what the market will be like. If you're holding for 10 years or so, you can feel pretty confident that all this coastal money and diversified economy will support growing housing values over the next decade

Whatever you decide, good luck!

@Jay Gil As many people have said, the main point is to establish your goals. I haven't seen why you chose the Denver area? I have written a lot here on BP about my turnkey investing approach. One of the most important aspects in investing in residential properties is 'performance'. When does your money work the most for you with the least risk.

For a $600K property that performs well for you, by my rule, you would have to get $4800 - $6000/month in rent. That appears pretty unrealistic to me.

Maybe you have a special reason to invest in the Denver area. If not, I would rather suggest looking for areas that have good schools and meet all your other criteria and in addition, offer you much better performance for your money. Your aim to pay off the property in 10 year or even 15 years is unrealistic, at least if you expect to pay it off from cash flow.

If, on the other hand, you invest in properties that do perform, you can actually get them paid off with a 15-year financing, especially if you're not planning to consume any of the cash flow they might produce and feed it into the financing.

Just to be clear, I am not recommending paying off the houses you purchase, but if you really feel you need to, investing in well-performing proteins, instead of a location where you know you will not get good performance.

I'll be happy to help if you like

Thanks everyone for the great feedback!

These are the reasons why I choose Denver:

1. Given that this will my first real estate investment, I am psychologically inclined to buy something closer to where I live. Denver is a 2hr 30min flight from the California bay area, with plenty of flights operating on a daily basis. I understand that states in the South(Tennessee, Georgia, Florida, etc) make more financial sense, somehow the idea of being closer to my real estate investment seems more appealing. Again, I understand that this is likely just a mental hurdle. 

2. I want to avoid California(high cost), Seattle(almost bay area prices), Portland(tenant friendly). Since I expect this to be a long term investment, I want to avoid areas that are going to struggle with water supplies due to the droughts(Nevada, Arizona, Utah). I have done some research and read news articles published by reputable sources and it appears that several western states are going to be badly impacted by the worsening weather conditions and droughts in the coming decades. Colorado might be impacted as well, but seems it might not be as hard hit.

3. Jobs and people relocating from California to neighboring states(including Denver). With more companies allowing a hybrid work option, I feel that the migration will continue. 

4. Denver has lots to do in terms of outdoor activities(winter sking and summertime hikes, etc), so I feel that it will be a desirable place to live

With that said, I am also considering the Atlanta area as well. Given that this will be my first investment, it's certainly not easy to make a decision.

@Jay Gil Thanks for explaining. If you are in the Bay area you can fly direct to Cincinnati or Cleveland on Southwest, same from Los Angeles.

I fear you give up a lot of performance that your money could provide to you.

Originally posted by @Axel Meierhoefer :

@Jay Gil Thanks for explaining. If you are in the Bay area you can fly direct to Cincinnati or Cleveland on Southwest, same from Los Angeles.

I fear you give up a lot of performance that your money could provide to you.

 Alex, I do agree with you several parts of the country being easily accessible from the bay area. I see that you are a real estate investor. Are there any specific areas that you are focusing on? Sorry for the open ended question. Just trying to gain valuable insights from the BP community. 

@Jay Gil Thanks for pointing it out. Yes, right now I like Ohio and Alabama, but that's because for me the important first selection is the turnkey partner I want to work with. A passive investment is only passive and works well when the organization you work with is great.

Then comes the properties and how well they perform - basically how much I can get my money to work for me.

There are also aspects like economic development, crime rates, school system scores, etc. but I have learned that you can find good areas and bad areas along those criteria in every state and region. As much as it might feel that having people from California migrating to certain areas is a benefit, they are also driving up valuations because almost every place they go to appears cheap. I know that some of my friends in Boise love the appreciation but can't afford to live with their families there anymore because prices have gone crazy - by their measure - not by CA price measures.

I hope you can agree that you don't want to invest in an area that is dependent on that migration. If you can find locations with a growing economy, stable growth without a lot of high jumps up or down and all the other important criteria met - it all, in the end, comes back to: "Where can my money work best for me to accomplish my goals"?

For me, that is where quality and cash flow have a healthy relationship and I am not sure if Denver and/or Colorado is by now really that great a place for that approach.

In the end, you need to be comfortable with your decision. I assume you put the question in the forum to get multi-faceted feedback. You decide what you want - we can all just give you additional things to consider.

@Jay Gil have you run the numbers on example deals in any of these Colorado locations?  You might be able to cover your costs - i.e. break even every month, but if you put 25% down, that's $150K+ of your cash just sitting, while you break even and hope for continued appreciation.

I think being somewhat closer to your investment like you've said is a perfectly legitimate criterion - you have to pick a market somehow.  But what about Texas or Kansas?

And to ask again - what are you looking to accomplish?  And how will you be financing the initial purchase? 

Originally posted by @Jay Gil :

I live in California and am looking into purchasing a single family house in the Denver area. I have shortlisted 3 Denver suburbs(Littleton, Highlands Ranch and Parker).  I identified these suburbs primarily because of good schools and the fact that I should be able to find a property under 600k. The house will be managed by a property management company. The goal is to hold on to the house long term(10+ years and until it is fully paid off). Since will be my first investment property purchase, I was wondering if someone could provide me feedback on:

1. Would houses in these cities potentially hold their values in the long term? Which city should I prioritize? 

2. Any other Denver cities besides these that I should consider, something that might be a better long term investment?

3. Given the appreciation in the housing market, I am too late to enter the Denver housing market? 

Thanks!

 You should prioritize Columbus, Ohio. 

I started purchasing small multifamily in Columbus, Ohio about 4 years ago and have done extremely well. The cost of entry is low while the cash flow is high. Columbus is the only Ohio market that has seen rapid growth in jobs and population.

Originally posted by @Nicholas L. :

@Jay Gil have you run the numbers on example deals in any of these Colorado locations?  You might be able to cover your costs - i.e. break even every month, but if you put 25% down, that's $150K+ of your cash just sitting, while you break even and hope for continued appreciation.

I think being somewhat closer to your investment like you've said is a perfectly legitimate criterion - you have to pick a market somehow.  But what about Texas or Kansas?

And to ask again - what are you looking to accomplish?  And how will you be financing the initial purchase? 

 You can find cash flow in Denver without putting 25% down. I have two properties that I put 3% down and they both cash flow nicely.

Originally posted by @Axel Meierhoefer :

@Jay Gil Thanks for pointing it out. Yes, right now I like Ohio and Alabama, but that's because for me the important first selection is the turnkey partner I want to work with. A passive investment is only passive and works well when the organization you work with is great.

Then comes the properties and how well they perform - basically how much I can get my money to work for me.

There are also aspects like economic development, crime rates, school system scores, etc. but I have learned that you can find good areas and bad areas along those criteria in every state and region. As much as it might feel that having people from California migrating to certain areas is a benefit, they are also driving up valuations because almost every place they go to appears cheap. I know that some of my friends in Boise love the appreciation but can't afford to live with their families there anymore because prices have gone crazy - by their measure - not by CA price measures.

I hope you can agree that you don't want to invest in an area that is dependent on that migration. If you can find locations with a growing economy, stable growth without a lot of high jumps up or down and all the other important criteria met - it all, in the end, comes back to: "Where can my money work best for me to accomplish my goals"?

For me, that is where quality and cash flow have a healthy relationship and I am not sure if Denver and/or Colorado is by now really that great a place for that approach.

In the end, you need to be comfortable with your decision. I assume you put the question in the forum to get multi-faceted feedback. You decide what you want - we can all just give you additional things to consider.

Jay, if your goal is to have high cash flow in a C market you would be much better off buying in a tertiary city in Colorado that is still accessible to you such as Pueblo instead of out of state with a turnkey operation. Being able to self-manage makes a big difference and lowers risk substantially. 

My problem with C markets is that maintenance and management end up being a pretty large chunk of revenues. For example, if you need a $15,000 repair in Denver, that might be 7 months of rent. In a C market that might be 15 months of rent. The same goes for management. If a manager needs to charge $200 a month that might be 10% of your rent in Denver but 20% of your rent in a C market. A common mistake people make is using the same ratios to estimate costs across markets. If I buy a $500,000 home in Denver there is no way I am using the 1% rule to estimate expenses, it would be far too high. Similarly, if I buy an $80,000 turnkey rental home I should probably budget higher than 1%.

If I were you I would buy local, use favorable leverage, find something that cash flows, something that will attract quality tenants, and let the market work.





@Tanner Crawley I agree. Everybody should try to stay away from c markets. I always invest in B markets and B class properties. As you could see in my post for Jay I put high importance to the quality of the TK company. That way no self-management is ended and huge repairs like you describe never occurred in my portfolio, probably because the quality of the renovations was high.

That's something anybody and Jay should be concerned about as I am sure he will not fly in from CA for any repairs :-)

I had run numbers for a property priced at $600,000 with an initial down payment of 25%, assuming monthly rent of $2600 and financing $450,000(15yr mortgage at 3% APR). After factoring in property taxes, insurance, property management, repairs and maintenance, leasing fee, vacancy etc. I get the following numbers.

INCOME

Total Rent: $31,200

EXPENSES

Vacancy: $2,564

Taxes: $4,200

Insurance: $120

Repairs & Maintenance: $2,290

Property Management: $2,290

Leasing Fees: $1,300

FINAL NUMBERS

Total Expenses: $10,201

Net Operating Income (NOI): $18,434

Cap Rate:3.07%

I might be a bit off on some of the assumptions/expenses, but this is a high level estimate on what I expect income and expenses to be.

@Jay Gil , personally I am buying two SFH in the Parker/Castle Rock/Highlands Ranch area in the next 45-90 days through 1031 exchange. I'm very familiar with buy/sell and rental markets. You could very likely get more than $2600 for your rental (I have 3 other SFH already in the area). Happy to flesh it out with you further.

@Jay Gil I agree with Jimmy that some of your numbers probably need adjusting. The insurance is clearly more expensive and I am surprised that you don't show the cost of the mortgage. If I add that in I don't think there will be any cash flow. I recommend using the Bigger Pockets calculator for rental properties you can find under Tools on the site here.