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James Carlson
  • Real Estate Agent
  • Denver CO | Colorado Springs, CO
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Rent by the room investment in Denver

James Carlson
  • Real Estate Agent
  • Denver CO | Colorado Springs, CO
Posted Dec 13 2019, 12:09

I helped two buyer clients close on this deal last week in Aurora, Colorado, just outside of Denver and thought I'd share it. It's a good example of how even in a hot market like Denver, if you get creative, you can still cash flow. In this case, they are doing a medium-term rental, rent-by-the-room model. It's a straight-up investment property for them, but it would definitely work for anyone wanting to house hack in Denver.

The deal

A 1500sf, 4br/2ba SFH

The seller had remodeled it a bit. 

How did we find the deal?

The MLS. Sure, off-market deals are great ... if you can find them. We had looked at some other houses in the same neighborhood and missed out on one that was about $10,000 cheaper, but it was also in older shape. This one will photograph well, which is important for the tenants the clients want to attract.

Rent-by-the-room model

The clients are furnishing the property for about $4,000 and renting by the room on a medium-term basis. They had 13 showings for potential tenants before they closed. Most were doctors and nurses who are working temporarily at the hospital. 

What was nice about this space is that A) it was ready to go and looked good in photos so it attracted a higher price and more quality tenant and B) it had two living spaces which will allow the roommates to spread out a bit. This second thing may seem trivial or meaningless to your bottom line, but I see it as a way to keep people happier longer, which may also keep them out of your hair and keep them renewing a lease.

The numbers

Purchase price: $325,000

All-in monthly expenses: $2,050
-- That includes principal, interest, taxes and insurance (they put 25% down); 5% savings each for repairs and CapX, 5% for vacancy and about $200 for utilities

Rents: $2,900 
-- That's an average of $725/room, though two of the rooms were for more and two were for slightly less

Cash flow: $850/month

Again, the above numbers show me that anyone wanting to house-hack in Denver could do this and live rent free, or even cash flow a touch. Because if you lived in one room, then, you'd lose about $725.

Considerations

Anyone wanting to house hack needs to be aware of the laws around the number of unrelated people that can live together. For instance, in Denver the cap is two unrelated people. In Aurora, it's four. This can certainly change your model.

Also, for those house hacking and wanting to incorporate a short-term rental or Airbnb in one of the rooms, you should know what your STR laws are in that city.

What's next?

They're going to get this up and running and then rinse and repeat.

Pictures

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