A friend wants to buy a place for around $100k in Denver......what advice do I give them

18 Replies

Hi,

I'm a real estate broker in Denver. The parents of one of my buyers asked me to help them find an investment property in Denver. They have about $70k to spend and want to find something that they can almost pay off - so around $80k-$100k, perhaps fix it up themselves, then rent it out.

I also do some RE investment on my own. My analysis of the Denver market is that the returns aren't good enough to justify rental property investment here in terms of cash flow - it's just an appreciation play which can hit or miss. Instead I've invested in Indianapolis, Detroit suburbs, and Atlanta where I can get good cash flow.

Do I steer this novice investor into remote investing? If they don't want to do that - how can I help them search in Denver other than just MLS searching which I think won't find much that would qualify as a good investment property? Should I steer them into other areas within an hour of Denver? Brighton, Greeley, Ft Lupton, Fredrick? Any good ideas/notions about where I should be helping them focus?

Thanks

John

Hi @John Pruner  

As you know better than anyone, Denver has a strong economy but home prices have become quite high and it's hard to get good returns. I'm not real familiar with Denver so I don't know if there are areas where prices are more affordable but still in good working class neighborhoods. It all really comes down to if the numbers work for them. A lot of people are reluctant to go out of state but this is why I like Indianapolis and Kansas City so much.

@John Pruner I do still see decent cash flow deals in our Denver market, the prices are up but so are the rents. The idea of buying a property for under $100k is pretty difficult as you know, unless time is spent for an off market deal. 

I would be careful suggesting out of town/state investing if that is even slightly out of their comfort zone as you will likely be the contact for advice when things are not going well. Although if you have the contacts and proven systems for out of state it is worth a conversation.

I don't personally look outside of the Denver metro, but i hear there are deals to be had in Greeley.

Good on you for putting their interests first.

I'm in Boston with family in Denver and am in an eerily similar situation. Have similar capital and looked at both markets before realizing cash flow was nearly impossible.

I've been looking at Indy but am now exploring partnering to get into a bigger apt building in Boston.

Could that be an option in Denver? I've still yet to invest, but I'm starting to wonder if partnering is a way to access some of the properties I'm priced out of on my own.

@John Pruner  If you steer them out of town and things go bad then that's on you. If they buy in town and things go bad that's on them. Find them a property that meets their desires. Remember not everyone sees investing the same and it appears your clients don't share the same priorities as you do. Some (many-that's why prices continue to increase) people think there is lots of appreciation left in Denver. If they didn't they would stop buying and the price would correct.

I know folks that have the same condo that they had when they got married 25 years ago. Makes them some money most months. They seem happy with it but it doesn't seem to be a very good investment. It's worth now more than what they paid and they collect rent on it. 

Point them to BP and let them learn if they want. If they don't the school of hard knocks will provide the education. 

BTW there are a number of condo complexes that some of the local BP investor brokers like @Micki M.  recommend for investors in that price point who want to be in Denver. You should reach out to her. 

The very bottom of the market in Greeley is around $100,000. Prices have increased 30 percent in the last two years and it will be very tough to find a decent rental in that price range unless they want a 100 year old 2 bed 1 bath.  

Frederick and Ft Lupton are going to be higher priced. In fact I am selling a flip in Ft Lupton for 170k (already under contract) and it was the lowest priced home in the town. If you go out to small towns like Keenesburg, lochbuie you might find something, but if the market changes those are usually the towns to feel the changes the most and rental market will be spotty.  

The property in Denver could be like liquid cash if and when they want to exit. I am not sure the cash flow markets are as easy to exit in that respect. If they are long term buy and holders they might check the last 5, 10, 15 years backwards and forwards and see if that influences them. 

Denvers future RE projections are usually in the top 5 in the country. To pass that up being that they are local would require one hell of a cash flowing property.

I'm new to Bigger Pockets and to real estate investing, but we just spent a few months looking for an investment property to flip or hold in Denver and after giving up on finding something in our original budget (under $200k), we're about to close on something we found for $300k that we're going to fix and hold. If they really want in on Denver, they're going to have to increase their budget. I don't think that's a bad idea if they want to hold rather than flip, but I'm biased!

Great thoughts. Thanks. 

@Travis Sperr  - what pricepoint do you think they need to move up to if they want to find a place within 30-45 minutes of downtown Denver?

Would you just search MLS for them or is there a better way?

Micki's a friend of mine so I'll reach out to her as well on this.

Thanks

@John Pruner   A lot of factors to consider to give a great answer- 

30-45 min of downtown is virtually all of the metroplex - depending on time of day.

Buying for cashflow - is likely going to be on the lower end of the market $200k or less - more for multiunit. Not knowing their experience, risk tolerance and how hands on they want to be - all factors that are included in cashflow purchases as you are aware.

I would be looking in places like Thornton, South West Denver, parts of Westminster, Aurora, Park Hill.

Great deals are certainly not as plentiful as before, but patience pays well right now,

I'm really new at the real estate investing thing, but want to learn and understand.

How many people rent a $300K home?

Wouldn't the market for folks looking to rent a $100K-150K home be a great deal bigger than the market for a $300K home?

Where would one look to see what the rental demand is for $300K homes?

The only thing you might find is a condo here, but then the HOA will eat up the cash flow. Other option would be a Section 8 rental somewhere in Aurora, but that comes with its own issues. Denver is tough right now and for the foreseable future.

Maybe hold off for a year or so. There is a big push for construction defects reform and if that goes through the legislature there will be a rush of affordable and entry level condos in the Denver area. Good luck. 

@Mike Thomas   re: $300k houses

You might be surprised that $300k houses rent, houses, condos and town homes rent in the million dollar price points too.  All values rent - clearly some are better investments than others.

If you are looking for more information on the demand I would connect with a property management company in your area.

Originally posted by @Mike Thomas :

I'm really new at the real estate investing thing, but want to learn and understand.

How many people rent a $300K home?

Wouldn't the market for folks looking to rent a $100K-150K home be a great deal bigger than the market for a $300K home?

Where would one look to see what the rental demand is for $300K homes?

I currently do, while waiting for the next phase of our lives (build new, or buy new?).  While less common than below median, there are still plenty of high end rentals.  John Fox was renting his $2-3mm home, as was Jay Cutler and I would imagine lots of sports players.  All the way to executives who havnt found a home yet, to just normal families who are inbetween housing or hate owning.

Originally posted by @John Pruner :

Hi,

I'm a real estate broker in Denver. The parents of one of my buyers asked me to help them find an investment property in Denver. They have about $70k to spend and want to find something that they can almost pay off - so around $80k-$100k, perhaps fix it up themselves, then rent it out.

I also do some RE investment on my own. My analysis of the Denver market is that the returns aren't good enough to justify rental property investment here in terms of cash flow - it's just an appreciation play which can hit or miss. Instead I've invested in Indianapolis, Detroit suburbs, and Atlanta where I can get good cash flow.

Do I steer this novice investor into remote investing? If they don't want to do that - how can I help them search in Denver other than just MLS searching which I think won't find much that would qualify as a good investment property? Should I steer them into other areas within an hour of Denver? Brighton, Greeley, Ft Lupton, Fredrick? Any good ideas/notions about where I should be helping them focus?

Thanks

John

 Denver metro?  Not going to happen easily.

Colorado springs or Pueblo?  Possible for sure.

Originally posted by @Mike Thomas :

I'm really new at the real estate investing thing, but want to learn and understand.

How many people rent a $300K home?

Wouldn't the market for folks looking to rent a $100K-150K home be a great deal bigger than the market for a $300K home?

Where would one look to see what the rental demand is for $300K homes?

In our case (and we could be wrong) we're planning to appeal to fixie-riding 20-something hipsters who want to live in an excellent roommate house stumbling distance from the light rail in a neighborhood that hasn't quite up-and-come all the way yet. What I've learned recently from talking to realtors and friends who've been looking for apartments is that the rental market in Denver is absolutely out of control right now. We're hoping to catch the people who decide that instead of paying, say, $1,200 a month for an unexciting 1-bedroom apartment, they could just get a roommate and live in a cool house. Plus I'm stoked to get in on the neighborhood before it gets too, too expensive! 

@John Pruner  shhh don't tell @Bill S.  that we already know each other.  I'm glad I got called into the conversation.  It is doable but the challenge will be limited options and high competition (just like every other price point in Denver).  @Matt M. is correct that a condo is an option and if they're paying mostly cash there will still be cash flow. (Naysayers out there, both my condos cash flow just fine and I never have to fix anything) There was a condo on the market last week for $80k in Hale/Mayfair with a tenant in it paying $800 (which is low). SFH is going to be harder to come by and will likely be seriously distressed or so small that it will rent for less than a condo in a hot area would. And of course if it's on the MLS then the price will get bid up so off-market deals would definitely be the way to go. Good luck!

@Mike Thomas  Corporate rentals are a great way to go with higher end homes.  You have to furnish them but then your rents are massively higher.  A good corporate rental property manager can give you insight into what is in demand and going rates. On the downside they'll probably take 30%.

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