Hello all, I am looking to invest in the Denver area. My lease is ending in a few months, so I am looking in to buying a property with the thought of living in it for 1-2 years and then starting to rent it out. I am pre-approved for a $580,000 loan, but financially I am more comfortable with something around $450,000 or less. I am open to different options (condo/townhomes/single-family), but I am trying to find a place that does not have crazy high HOA fees ($400+). My goal is to enter the market and start learning the intricacies of owning a property before I eventually purchase more and start renting them out. Any advice would be greatly appreciated.
@Kyle McGeough Are you working with a Real Estate agent yet? Hopefully they are investor friendly. Don't limit your self on where or what. Find a property that will be a good rental. Many people are renting out other rooms in there house to help cover the mortgage. If you can find a house with a mother in law or ADU buy those. Remember, it's all about numbers. Look at craigslist to see what places are renting for in the area.
@Kyle McGeough The best advice I can give is to spend less and live in an area you wouldn't normally. It is going to be difficult to cashflow a $450k house on a whole house lease, much more doable at $300k ish. I fully understand that that price point is difficult, but the less you spend the greater your ability to do it over and over. I see people all the time that "want to buy rental properties" but then get a mortgage that requires all of there savings down and eats up their DTI to a point they can't buy another property. Go get uncomfortable for 2-3 years and buy your "home" when you have 3 - 4 rentals under your belt. While all your friends are living it up in RINO, you can build wealth in Aurora or Montbello. It's not sexy, but it works, and cash flow is sexy.
@Tim Emery Yes, I am working with my aunt who is an agent. She lives in Denver, and she will kick back the 2.8% fee which will be nice.
@Travis Sperr Thank you for your advice. I am open t many different areas, as I know my money will go farther outside of the Denver metro area. I am looking at this strictly as an investment, meaning I am not planning on this to be my "home". I guess you could look at it as myself being Tenant #1, with the thought that the monthly costs will replace my current rent, and during the time I live there I will be able to complete any rehab work.
Hey @Kyle McGeough !
I’ll throw my two cents in regarding a popular investment practice in the Denver Metro area, which is house hacking. This is an awesome strategy for a first time home buyer because it allows you to use special loans that allow you to put a smaller down payment on a home, removing a portion of that barrier to entry.
The easiest way to cash flow in the area, is to purchase a 4+ bedroom home and rent out the extra rooms in your house. Using one of these first time home buyer loans (there are conventional and FHA options), you'll need to live in the house for at least a year, which sounds like is already your plan. Then once you move out, you can rent out the room you were living in, which will increase your cash flow. And then can rinse and repeat, building your portfolio while living for cheap/free!
Here’s a link to a thread where I gave a more detailed example of this.
Feel free to reach out if you’re ever interested in learning more, and there’s ZERO pressure on the agent front, I see you and your aunt have got that figured out. I just am passionate on the topic!
@Kyle McGeough Outside of House Hacking, if you are looking in Denver County I would recommend being cognizant of zoning. If you find something with multi-unit or ADU zoning you'll be setting yourself up for some great investing options in the future.
My 2 cents:
If you're approved and willing to look at 450k+ and can swing the monthly payments, I would steer away from townhomes, condos, and HOA fees if you can afford it. They are a cheaper entry, but they are also the first to drop when the market falls (I'm not saying it's going to), slower to appreciate, and harder to sell.
Again, condos are a good entry point into the market for some. If that's the only way to start building equity, then start there. If you're going to hang on to it for a few years, it's much more advantageous to do that than rent. Personally, I'd rather invest in SFH or MLF. In fact, it's what I do. And, then I house hack: my mortgage is cut dramatically and I'm saving money towards the down payment on the next one.
Also, if you're looking to rent the property out down the road, a 3BR/2BA set-up with a private outdoor space (yard, patio, etc) is the most desireable. You'll find much more tenant interest (families, ppl with dogs, etc) with that set-up.
Hey @Kyle McGeough ! I have been house hacking for the past year and am going onto my second property soon. This is such a great way to get into the real estate game. You learn how to screen tenants, how to manage your property, the purchasing process, etc. As for as the different options you mentioned, I personally love the single family game plan especially when you're able to find a place for $450k or less. Feel free to connect, as I'd be happy to speak about my experience or answer any questions!
I agree with @Travis Sperr . Don't max out that first purchase. Find a middle-to-outer ring of Denver to buy in. (He mentions Montbello and Aurora. Good places. I'd throw in Barnum/Barnum West and Westminster as well.) While there, you can house hack the rooms if you want or a basement if you find a home with a separate entrance. Save the money you would have spent on the extra mortgage, buy again in a year or two. Rinse, repeat. You might get a little tired of this in a few years, but that's fine. You've got a good start to the portfolio at that point. Good luck!
Kyle- We work with a ton of investors... and here are my top tips for being in this market:
- Be flexible (a lot of people get dug in on multifamily and there are other ways to get a strong Investment around here without it being a duplex+)
- talk to a lender early, and make sure that lender is local (it truly matters in this market and makes your offer more competitive)
- If it's priced well, plan on the price being the start of the conversation and know that in the Denver and Colorado Springs' markets, a lot of properties are going for well over asking (and they include appraisal gap coverage)
- Ask any potential agent you are interviewing, how long they have been doing real estate in this market? More important: ask them how their last inspection objection went: did they get money back for the client, did the seller get everything they wanted, etc.) For buyers, I think this point is particularly important bc emotions are high for the buyer when you put the contract in (give up a lot there) but inspection, the seller is locked in a bit/more invested, so your agent should be fighting harder at the time to get you money back.