Just last month I purchased my first property in the Denver Area! It is a very exciting time. My partner and I purchased a 1 bedroom condo together for $154,500 in Northglenn, CO. We used FHA financing so this will be our primary residence for at least 3 years, according to the terms of the loan.
The bond program I used through my lender covered a considerable amount of the closing costs. I was given a $7,586 grant that went towards the 3.5% down payment and closing costs. We bought the home at the asking price and negotiated to pay half of the closing costs, not all of them.
Price: $154,500, Sq Feet: 890, 1 Bed/1Bath, 1 Car Garage
30 year Fixed Rate Interest: 4.5%
Taxes: $1192/year , $99.33/Month
HOA: $1800/year, $150/month
Principle, Interest, PMI: $873.48/month
Total Mortgage Payment: $1122.81
Earnest Money: $1500
Home Warranty: $175
Closing Costs: $22.80 (Left over money from $7,568 grant after down payment covered a majority of the closing costs)
Total Money in the Game: $2397.80
My Half: $1198.90
Partner's Half: $1198.90
Since it is in FHA loan our lender told us they MIGHT come after the $7,568 grant if we ever sold the property or rented our the property within the first three years. His emphasis on the word "MIGHT" kinda through me off. Sorta implying that this could be done without them finding out. Has anyone else attempted this?
I was kinda bummed that we ended up with a 1 bedroom. I was approved for $200,000 by the lender and everything in that price range wasn't very appealing in the Denver market as of now. Since this our primary residence I was more concerned with find a place I enjoyed rather than living in a 3/2 property that cash flows.
We don't plan to live in this condo long term, so I would like to rent it out once the 3 years is up. However, I believe that would be difficult being a 1 bedroom. I'm not sure I could get more than $1300/month? Although rents have been increasing quickly in the last year, I'm not sure that will be sustainable three years down the road. We only have spent $2397.80. If I can cash flow $100/month that would be $100*12/$2397.82 = 50.04% ROI? (Not including future expenses, repairs, and upgrades)
In short, am I calculating the possible ROI Correctly?
Was this a good deal?
Do you think I'd have trouble cash flowing a 1 bedroom when the Denver market as cooled off?
Well congrats on getting a property. I will say that 1 beds are always a little difficult. They are desirable, but usually at a lower price point for renters. You have a place to live in for now and if the numbers don't work out the way you want them to as a rental down the road then you just unload it and get something that works better. You can always look into doing the condo as an AIRBnB for medium term tenants who are transfers to Colorado. You could likely pull a little better cash from it that way. Generally a rule of thumb is minimums of 1 month leases to keep it legal with the city. What part of Northglenn is it in?
Thanks for the congrats! It is pretty much in the middle off of 112th and Huron, fairly close to 1-25. There is a park and ride on 120th and Huron/Melody that is about a mile away. It is scheduled to be a light rail stop sometime in the next 2 - 4 years, so that may help add value to the property.
I actually have been looking into Air BnB. Could I rent out to multiple air BnB guests during the month? I remember signing a document at closing saying I wouldnt not rent it our for more than 30 days, so that must mean I can rent it out at my leisure for days at a time? However finding multiple "tenants" each and every month to meet a mortgage does sound like a challenge.
There won't be light rail coming to that area, just the express lanes on I-25. There will be a train which is currently being worked on, but that will be further east closer to York.
As for renting it out I don't specifically know your loan, but it's up to you on what you want to risk with your lender. To keep the city happy you technically should have at least a month for each lease, but if your loan will not allow that before 3 years then you're stuck there too. I'm not sure on the particular rules in Northglenn or how close they watch things like AirBnB, but it's likely that it's not nearly as much as places like Boulder and Denver. Something to be aware of is in a condo it can be your neighbors who would report you. Everyone is so close and pays for the common space so conflicts can arise easier if they notice lots of different people coming in and out of your unit. It's always good to know your neighbors in those scenarios so that they are more likely to call you and talk things out instead of just trying to screw you over.
Oh wow, you are right. What I heard about the light rail was from the previous owner so I didn't check to see if that was correct.
My plan for now is to stick it out for the next 3 years. If the home appreciates in value to the point it will cover the grant money I need to pay back, plus some, then I sell the property and move out. If it remains relatively the same, I'll attempt to rent it out to tenants.
@Shawn McMahon you are likely paying private mortgage insurance with such a low down payment. If you refi when you have equity that should lower your payment since you are able to loose the PMI. Something to keep in mind in a year or so. You won't likely get the 20% increase in just one year but when you move your payment downhill and rents go uphill you might be able to swing it.
It's really no harder to rent a 1 bd than a 2 bd. It's all about price. What a 1 bed does do is make for more turnover which costs you dollars. At the same time, as rents increase, those units renting near the bottom of the market will have the most tenants looking at them.
Also - check with your homeowner's insurance about minimum leases. Mine specifically denies if they think you're renting out short-term, or "hotel" status. I'm sure there are ways around this, but my guess is that it would be more expensive!
I would love others' feedback on one issue - maybe it is loan specific. FHA typically only asks one year occupancy, and I will have to check my paperwork, but I seem to remember them saying two years owner occupancy. Are there different terms for different loans?
@Tess Tari Tess I had the same thought about FHA and 1 year, but the grant is what is likely requiring 3 years. When they had the $15000 grants last year they had a 5-yr prorated agreement, ie if you sold in 2 years you owed 3/5ths of the grant back.
@Shawn McMahon Congrats on your first purchase, and finding a way to make it work for you. definitely check your HOA guidelines on minimum rental periods, I've seen them as low as 30 days and as high as 1-yr. As for the grants, those programs are truly for owner occupiers so I would be very cautious about breaking the rules, and make sure you're aware of any penalties involved.
yes - I think you're right. I was looking at these grants yesterday and already forgot about that!
Free eBook from BiggerPockets!
Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!
- Actionable advice for getting started,
- Discover the 10 Most Lucrative Real Estate Niches,
- Learn how to get started with or without money,
- Explore Real-Life Strategies for Building Wealth,
- And a LOT more.
Sign up below to download the eBook for FREE today!
We hate spam just as much as you
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing