Denver Multifamily Investors: Thoughts on This Value-Add Triplex?

Question

Looking for feedback on a Triplex deal in the Denver/Aurora market.

Seller needs to complete a 1031 exchange quickly, and I can close within the required 17-day window. Property is a 1971 build but has had major capital improvements completed in the last 12 months:

• New metal roof
• New sewer lines (cast iron replaced)
• Full plumbing replacement to PVC
• New water heaters
• Mini splits in all units

Current layout:

• Two 2bd/2ba units with unfinished basements
• One 3bd/2ba with finished basement

Business plan:Finish the basements and convert all units to 3bd/2ba.

Current rents are below market:

• 2/2 units rented at ~$1,700 (market appears ~$1,900–$2,100)
• 3/2 rented at ~$1,800 (market appears ~$2,100–$2,400)

Current gross rents: $5,215/month

Deal details:

• Purchase price: $795,000
• 25% down / loan amount: $596,250
• Interest rate: 6.3%
• P&I: ~$3,691/month

Comparable triplexes in same area sold between $900K–$1.1M over last 24 months, with another currently listed at $1.025M.

Near-term strategy:Raise rents conservatively to:

• $2,000 / $2,000 / $2,200
• Total projected rent: $6,200/month

Projected metrics:

• NOI: ~$48,540
• Cap rate: ~6.1%
• DSCR: 1.10x
• Cash flow: ~$354/month
• CoC return: ~1.8% on ~$232K invested

Main questions:

• Would you move forward with this in today’s Denver market?
• Is the appreciation + forced equity upside enough despite weaker initial cash flow?
• Any concerns with Aurora specifically heading into the next few years?

Appreciate any feedback from folks active in Denver multifamily.

Ryan Thomson · Answer

Denver triplex cap rates are running 5-6% going in right now, and that barely works with DSCR financing above 7%. So the value-add spread is doing a lot of heavy lifting to make these deals pencil.

First thing I'd want to know: what's the seller carrying on this property? If they bought in 2020-2022 with FHA, that loan is assumable by law. On a $600K balance at 3.25%, you're around $2,600/month. Same balance at 7% is closer to $4,000. That $1,400/month difference can flip a marginal deal into a strong one, and it's a real competitive edge when you're trying to hold versus flip.

Outside of financing, value-add plays in Denver basically need one of three things working: buying at a steep enough discount to force appreciation, having a creative financing angle, or house hacking unit 1 and tolerating thinner returns while rents catch up.

What does the rent roll look like vs. market? If they're 30%+ under market, the upside might justify tight going-in returns. If they're already at market rents, you're really underwriting future appreciation and that's a different risk profile.

Also curious about the unit mix. Three 1-beds vs. a 2/1/1 split vs. all 2-beds changes the refi potential significantly after you do the work. What are you looking at on the rehab estimate per unit?