New Denver Flipper/Investor!

21 Replies

Hi all current Denver flippers and investors!  I am currently in the research stage of becoming a real estate investor and looking for advice, tips, etc.  I am looking to fast track this process since I am currently not working and my hubby will no longer be employed after June 1st.  We have talked about doing this for 15 years as we have rehabbed our own houses and believe this would be a good time to strike.

Our ultimate goal is to obtain 10 rental properties in the next 5 years to create enough passive income to run our household.  We are also interested in fix and flip opportunities since we have experience rehabbing our own homes.   My thinking is that the fix and flips could give us more capital to invest into rental properties.  Right/Wrong?

Thanks in advance for the responses!

@Stacey Yates   Welcome to Biggerpockets. No question that flips will provide capital to acquire rentals, but a steady income will also be important for the financing of the rentals. Knowing that your husbands income will not have a steady income after June 1st and  nothing about your financial situation - you could get a few rentals before the income goes away or just hit it hard looking for flips to replace that income. If you can get a deal going soon, you may close it out shortly after his employment ends and keep moving in stride.

Best of luck [removed]

@Stacey Yates  the challenging thing right now is finding anything for sale. I know flippers are scaling back because of low inventory and prices have driven out investors months ago despite increasing rents. Do some looking and run some numbers on a few properties to see if you can make money on them.

What kind of properties are you wanting to flip?

Not sure on your timing...

The real estate market in Denver is operating in waters not seen before, or at least not for a very, long, long time.

Might be a good idea to have one of you employed...

it's going to be a risky nove in this market starting from zero with no prior experience and no jobs / steady income. 

You can PM me and call me to talk about the current market if you want, I can at least be a wall to bounce ideas off of.   Or you can come to our BP Denver meet up, I'll be posting the march thread today. 

Anson Young, Real Estate Agent in CO (#14161n)
303-475-9999

Thanks for the replies!

@Travis Sperr   the discussion today did turn into what if we bought 2 rental properties instead of trying to flip.  We also started talking about house hacking which is essentially what we have been doing but speeding up the process and holding on to properties for only a year then deciding whether to rent or sell.  The tricky part about that is schools.  We are limited to the area we could do this because we do have school age children.

@Bill S.    we are looking for town homes or single family homes.  I am finding in my research that we could get frustrated pretty quickly not having the buying power of experienced flippers.  

@Anson Young   it is seeming like the flipping market make be a too risky for us.  Do you have any advice or tips on house hacking.  Our end goal is to get into real estate investing we are just trying to figure out the right avenue to take.  

I think house hacking could be a great way to go, if you could buy a up/down or side by side duplex and house hack it, covering most if not all of the mortgage payment.

Anson Young, Real Estate Agent in CO (#14161n)
303-475-9999
Originally posted by @Anson Young :

I think house hacking could be a great way to go, if you could buy a up/down or side by side duplex and house hack it, covering most if not all of the mortgage payment.

 @Stacey Yates  This is what I did. 

As an owner-occupier, I bought a duplex in foreclosure using FHA financing. In particular, I found a property that was available through Fannie Mae's HomePath program - meaning that investors were ineligbile to offer on the property for 20 days (only people who intended to live in the property, like me, were eligible).

The rent from a roommate plus the other half covers the mortgage payment, making my cost of living cheap, while I get to learn about the market, practice making improvements to the property, and get experience managing tenants.  

One of the huge benefits to this house-hacking approach is that cashflow properties just aren't as available in Denver right now.  The market is too crazy.  As a new investor, it seems a little crazy to try to compete with experienced investors in what they consider to be the most competitive market they've ever seen.   

My goal is to yes take advantage of the "cashflow" of the property (vs what I'd be paying as a renter), but more so to take advantage of appreciation.  With 5% down, I'm leveraged 19 to 1.  If the property goes up just 1%, I get a 19% return on equity.  It's my bet that the neighborhood I carefully selected will appreciate a little faster than that.  House-hacking is a relatively lower risk way to take that chance at appreciation because if things don't work out, I can just continue living happily in my house and renting out the other side...

PM me if you have more questions about getting started.  Best of luck!

@Stacey Yates I'm happy to give some insight. We just closed on a duplex in Englewood and we will be house hacking starting in April. Good luck!

(720) 295-6725

Not to pry, but how are you going to get financing without income? Honestly as others have stated, you are picking a bad time to move in this direction. Deals can be had, but you will have to put boots on the ground to find them. I wish you both the best.

@Matt M.  I agree that from what my research has been showing this is not a good time to get into flipping.  

Now we are kicking around the idea of holding onto our current property and turning it into a rental then buying another property to live in and renovate over the course of a year or two.  After that we could count the rental income in house #1 as actual income and purchase house #3 to live in and renovate while holding the previous two as rentals.

Thoughts?

Thanks so much for all the responses!

@Stacey Yates  I like that strategy. I tried that with my wife, but she fell in love with our home! Anyways your best bet would be to find something on homepaths, hudhomestore, or homesteps.com during the owner occ period. 

That was the only way we could compete for our home, & that was almost 2 years ago! Make sure your financing is in order before you start. Good luck!

So does anyone know how the rental market for single family homes is going in the north Denver area?  Thornton, Northglenn, Broomfield, Westminster?

@Matt M.   and @Stacey Yates  probably a silly question, but how effective is it to count rental income towards applying for/being approved for another loan. Lets just say you are able to cash flow your current home at 500/month (just throwing a number out there not knowing your situation at all) you are still only making a little over 5000 per year on that property. Will lenders look at this as reliable enough income to approve you for a third loan? I too would be interested to hear people's thoughts on the rental market north of Denver.

I am not a lender, but iirc it takes at least a year of solid income for it to be counted. Also, they may only count 75% as income; AND depending on your write-offs, etc on the property, it may count against you! I have a great CPA/Loan originator that could clear all of this up in a phone call if you want. Just PM me for his number.

I live in Westminster, and I would say the rental market is strong across most of the Metro area and here too. It is obviously cheaper the further away you get from Downtown.

FYI I did catch a 9.5% CAP rate on 4 rental units for $140k total, but they are units in a mobile home park. Found it on craigslist.

Originally posted by @Stacey Yates :

So does anyone know how the rental market for single family homes is going in the north Denver area?  Thornton, Northglenn, Broomfield, Westminster?

 Through the roof.

It seems almost weekly for the last 2 years another article appears in the paper about the lack of available rentals, and the increases in rent prices, in the Denver market which basically covers all of these areas.

4th Quarter 2014 Vacancy & Rent Report Released

Published Friday, February 6, 2015

by Jennifer Von Stroh

Given an increase in the number of new additions to the inventory this quarter and over the last two plus years, the recent trend in the Denver metro unemployment rate, normal seasonal vacancy changes, continued immigration, and an increase in metro area natural population, rent increase and a low vacancy rate are both expected, with some variation across certain submarkets. Historically the vacancy rate is higher in the fourth and first quarters than the second and third quarters, which we see again this year. The number of new units added to the inventory during 2014 as expected increased, as seasonal construction was completed and permitted construction obtained certificates of occupancy. 2286 new units were reported for this quarter. Thus as expected there were jumps in sub markets vacancy while new units are absorbed, and a slight increase in the Denver overall vacancy. The overall average rent for the last ten years has increased from around $800.00 in 2002 to over $1,168.65 this quarter. The overall vacancy rate was at 4.7%. Absorption was negative for the quarter. The absorption and new supply numbers will continue to be watched closely with significant new additions expected to the apartment stock over the next several quarters.

Its good to here the market is strong.

Know we will not be able to count on rental property income until we have a few properties and a few years under our belt.  Another source of income will be necessary to secure loans for the properties.  

@Mike F.  Thanks for the article.  I have heard these reports over the past couple years and had wondered if they are for downtown properties only.  After seeing a family member looking for a rental in the past few months not in the metro area I realized that prices where high in most areas.

What are the opinions on the type of property that makes the best rental?  Single family higher priced homes or smaller lower priced townhomes/condos?

@Stacey Yates  this is what I experienced when I started my investing. You do get to count rental income when you are starting. For me, banks counted 75% of rent as income until I owned the property 2 or more years then they use my tax returns. The income offsets your debt. So if you have a $1,000 per month payment and rent the property for $1,350 per month, it's basically a wash which means you have a debt to income ratio of 100%. When I was using bank money they wanted debt to income about 45% so I needed another $1,200 of income from somewhere to keep my overall debt to income ratio below the 45% mark. It's not too hard with two wage earners working good jobs to get 2-3 properties. After that it gets more challenging.

I hope the answers @Lauren Barkley  's question as well. It's not just the net income it's the total income and total debt that banks evaluate.

Originally posted by @Stacey Yates:

What are the opinions on the type of property that makes the best rental?  Single family higher priced homes or smaller lower priced townhomes/condos?

It depends on your investment / lifestyle / business objectives.

SFH and Townhomes have different criteria, management theories and appreciations, pros and cons to each, different types of tenants, different challenges.

SFH historically appreciate better than town homes, town homes are typically much easier to manage and maintain. And there are many other factors to consider.

@Bill S. yes, that answers my question, thank you. With both me and my husband working, I don't think that we will have an issue getting approved for a second loan (we currently are using a VA loan for our primary residence), and hopefully for one more, like you said. Looking ahead, I get very intimidate by the prospect of 'creative financing' and just the thought of it can scare me enough to not even jump into our first rental. There's just so much to learn

@Lauren Barkley  please don't be scared of creative financing. In many ways it's so much easier than the brain damage of banks and mortgage companies. Lots less paperwork and adversarial. There are some aspects of creative financing like subject to that have lots more moving parts and require a specific skill set but most other types of financing is actually more user friendly once you get there. 

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