Beginning your investing in a lower income city and moving?

32 Replies

Prices in my city (Colorado Springs, CO) are extremely high. Here is what the average rent looks like according to apartmentguide.com:

  • 1 bedroom: $1233
  • 2 bedrooms: $1441
  • 3 bedrooms: $1847

That being said I can't find even a duplex for under $300,000. I plugged one of these (https://goo.gl/aMtM7K) into the rental analysis calculator here and it would require a $73,000 down payment. Something will be pretty unobtainable for me starting out. So that being said, my question is this.

There is a city south of me called Pueblo, CO, according to the same site rent looks like this:

  • 1 bedroom: $650
  • 2 bedrooms: $765
  • 3 bedrooms: $963

Would it be worth it to start off living there and invest in Pueblo with the eventual goal of selling my Pueblo properties and buying a few in Colorado Springs? Would it be wise to stay down there? Or not even start there at all and just focus on Colorado Springs? Am I looking at this in the wrong way?

Thanks!

I think the obvious answer is that if you can't afford to invest where you live, invest somewhere you can afford. I don't know anything about pueblo but if prices are reasonable and it's a place you can cash flow, I don't see any reason not to Invest there. My first requirement for a rental is "would I live in the neighborhood?", so if it's a decent area, start looking. If it continues to make you money, there may be no reason to sell at some point to invest in your current city.

I live in fountain due to being military and I read the other day that they may be looking into building a commute railway from pueblo to ft Collins. That would most likely raise the rents in the future and home prices.
-Matt Moore

Originally posted by @Jason D. :
I think the obvious answer is that if you can't afford to invest where you live, invest somewhere you can afford. I don't know anything about pueblo but if prices are reasonable and it's a place you can cash flow, I don't see any reason not to Invest there. My first requirement for a rental is "would I live in the neighborhood?", so if it's a decent area, start looking. If it continues to make you money, there may be no reason to sell at some point to invest in your current city.

I'd probably not live in any Pueblo neighborhood if I could avoid it to be completely honest. Not the nicest area of the state. Is it normal to have to look at lower income areas to avoid costs like that of Colorado Springs? Having to put $73,000 down starting out just seems absurd.
What about looking at more creative ways to get investing. Are there opportunities for BRRRR investing? Or house hacking a multi family so you cam use an FHA loan and start with a lower down payment?

@Carter Rinaldi If you're planning to live in the property you purchase, that opens the door to owner-occupied financing. Down payments in the 3.5% - 5% range are available depending on which program you go with. 

I will say that I think those rent numbers are pretty high for a multifamily property in the Springs. In my experience for clients purchasing multifamily in Colorado Springs, I see a range of $750 - $1,100 or so per month depending on number of rooms & square footage of the unit.

@Jared Bouzek Wow, that is a lot more manageable. Plus if I'm going to be living there then I'll be able to apply the VA loan that I'll have at the time to it to make it even better. Whew. I really wasn't enjoying entertaining the idea of moving to Pueblo. Thank you! I really appreciate it.

@Carter Rinaldi : Don't limit your potential to a four-plex right away. Keep your options open to a Single Family Home with at least 3 bedrooms and House-Hack your first home if you can't find the right multi-family home.

Personally, I purchased my first home using a VA home loan last year in Colorado Springs for $200k. It's a 4 bed, 2 bath house that is just large enough to house-hack. Currently, 2 tenants occupy rooms, while I take the lower half to myself. Once I've filled another renter in the 4th room, the Total Monthly Income is around $1,600 and expenses total approximately $1,300 per month. Opportunity is everywhere, but you've still got to be wise about what you're buying and WHY. :)

@Trevor Kolb That would probably be best, but I'm not sure how much my girlfriend now, probably wife then would feel about not having a living space that was private. I'd be fine with it, but it probably wouldn't fit my future situation. Ideally I'm looking to house-hack a 4-plex and get ~1000/mo cash flow from the other 3 units and just save until I can start snowballing properties.

@Carter Rinaldi Yep if you're VA eligible that would be a huge advantage for you. One thing to keep in mind is that the VA loan does require some landlord experience in order to count your rental income from the other units as qualifying income. Have you ever owned any rental properties or maybe worked for a property management company? Anything that has a link to being a landlord or managing properties could potentially be used to me the experience requirement if it makes sense to an underwriter.

@Carter Rinaldi I love investing in Pueblo. I always beat the 1% rule and have great Cashflow. I know of a duplex that is $120k. Owner/creative financing, so no banks.
Both units 1br 1ba up down. At your calculations that's $1,300/month rents. Beating the 1% rule.

Originally posted by @Jared Bouzek :

@Carter Rinaldi Yep if you're VA eligible that would be a huge advantage for you. One thing to keep in mind is that the VA loan does require some landlord experience in order to count your rental income from the other units as qualifying income. Have you ever owned any rental properties or maybe worked for a property management company? Anything that has a link to being a landlord or managing properties could potentially be used to me the experience requirement if it makes sense to an underwriter.

Do I only need landlord experience if I want to claim the cash flow from the property as income for the loan? My job in the military once I'm in should hopefully translate into a good civilian job, so would I be fine in that case?

Originally posted by @Jason D. :
I think the obvious answer is that if you can't afford to invest where you live, invest somewhere you can afford. I don't know anything about pueblo but if prices are reasonable and it's a place you can cash flow, I don't see any reason not to Invest there. My first requirement for a rental is "would I live in the neighborhood?", so if it's a decent area, start looking. If it continues to make you money, there may be no reason to sell at some point to invest in your current city.

 Completely agree. If you want to invest in real estate but can't afford it locally, then move somewhere that makes sense for you. I live in LA and can't afford to invest here so have been investing out of state because thats the only place I can afford right now.

Originally posted by @Robert Herrera :

Mindy Jensen Carter Rinaldi puebloriverwalk.com. Here you go, do some research. Also do you research before investing in Colorado Springs or Denver. You should pretty much do you research anywhere you invest, wondering why moderator feels the need to jump in and explain that.

I'm aware of this. I was simply asking if this is common practice to move somewhere with the expressed purpose of investing to be able to afforda different location. I'm still many years out from buying a property. Just trying to plan.

@Carter Rinaldi If you want to self-manage, invest where you want to live.  Everyone always has grand ideas about 1031ing over and over again to get themselves into bigger, more valuable, better cash-flowing properties.  It's not a bad idea but very few of those ambitious people think about the costs.  It's not "free" to sell a home, it's not just the realtor fees but getting a home "sale ready" is often different than "rent ready" and that doesn't even include potential for vacancy expenses and holding costs during the sales process.  I completely understand if you've had a property for 25 years and it's 2.5 year away from being completely depreciated.  A lot of the time it's worth the time, cost, hassle, etc. to reset that depreciation timetable.  But the last "analysis" I looked at for someone thinking about doing a similar strategy had a timetable of 3 years.  At which point where's almost no principal paydown, etc. so if the market just stays flat you actually *lose* money when you exact the strategy.  

So, I'm basically saying that I loathe the idea of your Pueblo strategy :-)  

But I'm assuming your timeline is closer to 3 years than 25 years so, who knows, I could be all wrong...

@Robert Herrera - I know you're a big fan of Pueblo, and I honestly don't know much about the area. I'm curious where you think future job growth will come from? My experience has always been that for a community to grow at an above average rate, there needs to be outside jobs coming into that area. I haven't seen "self-contained" communities, i.e. communities where most of the jobs are local to the community, e.g. teachers in local schools, workers in local restaurants, etc. ever "boom".  For Pueblo to really experience price growth, at some point it will need to have jobs that are exporting goods or services outside the area. I'm not saying that isn't, or won't happen, I'm just curious where you believe that will be coming from? Has the city been courting any major employers with any success over the past decade?

@Mike Stephens new businesses and growth have been coming to Pueblo like crazy. Every time I go down there, I see the growth. Go to puebloriverwalk.com and watch the videos. Not only that, but the marijuana boom in Pueblo hasn't hit, as they aren't fully allowing dispensaries. As well, Springs is only 30 minutes away. I live in Denver, and drive 30 minutes to work every day. It's such a short drive, people are moving there to avoid the high rents in Springs. Also look at my other posts. I've been over this same topic over and over again with other investors.

 @Carter Rinaldi I am a bit late to this party but wanted to offer some perspective not directly mentioned in this thread. As a disclosure, my family owned rentals in Pueblo. They did ok but IMO were not sophisticated investors either. They actually did not enjoy the experience as they did not have the where with all to deal with the type of tenants that came to their properties. They owned in the lower price points. NE and SW of the intersection of the river and I25. Rougher areas as I understand it. 

In addition, you might look at this thread if you are still considering investing there as a counter perspective to what has been posted.

Obviously you can make up your own mind.

@Bill S. Just wonder why you continue to push this thread on everyone looking to invest in Pueblo. These people bought a GANG House. It doesn't mean EVERY HOUSE in Pueblo is a GANG HOUSE. That thread is also a YEAR OLD, so why aren't there more of these, if this is an Every Day thing, as this is always what you post when someone talks about pueblo? You're family didn't do well in the old pueblo market, they would be killing it right now if they were still in it. Like you said, they were not Sophisticated Investors. I am almost at 20 properties, Most of them are in Pueblo. The cash flow they keep throwing off allows me to grow every month or 2 into another property. My cashflow is more than my Salary here in Denver. So again, I ask, WHY do you continue to try and SCARE everyone away from Pueblo with that thread (that I was part of, and i amwilling to purchase that house)?

@Robert Herrera I push the thread to provide perspective. You obviously like it there, which is fine. Readers deserve both sides of the coin and full disclosure. Investing in Pueblo is not like investing in Wash Park here in Denver. People need to know that and be reminded of that. A year is not that long of a time. Do you think that gang has gone to jail by now and that neighborhood only has good upstanding citizens in it? That house is still there, the people who broke into it are also probably still there, and there are neighboring houses like for sale. You as a seasoned investor should not mind the post. It should actually be good for you because it will keep away those that will overpay for a property in your market. 

I really have nothing against Pueblo and my families' investment performance there does not color my perspective. For someone willing and able to put in the time, I'm sure it can have good returns (just like most any market). My objective is to simply make people aware that it's not easy and if you don't know what you are doing it can turn out really bad.

@Carter Rinaldi , @Matthew Moore , @Robert Herrera , @Jared Bouzek

I love all the perspectives. We have been in Pueblo area for about 15 months and just started looking at real estate investing for both hold and flips. There are definitely areas here that are considered risky (primarily East end), but I've lived in several states near major cities and you of course see pockets of "bad areas" everywhere. There are investors like @Robert Herrera that are experienced enough to do well in those areas, which is great because people need to rent and he can cash flow. I've only had a couple rentals and don't have the confidence to buy in the high risk areas yet. Aside from researching online, I find it invaluable to physically drive areas and get to know the streets. Driving the areas at different times of day, night and weekends and talking to people (other investors, agents, etc) will also give you more insight as to whether you want to invest in an area.   Best of luck @Carter Rinaldi

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