Where to invest in Colorado's high-priced market?

26 Replies

I'm looking to purchase my first income property to rent out and build an income stream, undecided on LTR vs STR (AirBnB). I plan to buy one this year, and hopefully another 1-2 next year and go from there. I have owned properties before, but never as an investment. I have been doing my homework and am pretty well-informed for a newbie and am ready to take the plunge. BRRRR, here I come!

My problem is, I'm uncomfortable buying OOS especially my first time, but prices in the Denver (and whole Front Range, really) are just too high to be attractive. I don't want to flip, so I'm not looking for a cheap fixer-upper. I'm very handy and could renovate myself, but I have a full-time job and a family so there's no time to do my own work. So basically I need something that doesn't need a ton of work (contractors are hard to come by, I hear, thanks to the building boom). What I do have going for me is down payment and renovation cash -- enough for several properties.

So I am struggling to find a niche. I feel like I need something close to home to get my feet wet and learn the ropes, but from what I read it's hard to be profitable buying in the Colo market. Denver/Boulder/Longmont/FtCollins all look too expensive.

What's my best option here?  Colorado Springs?  Greeley?  Pueblo even? (hey, I know it has problems but does that rule it out?)

Many thanks, Tim

Hi Tim, I think where you live and your situation, colorado springs wouls be great. There are some nice duplexes avaliable for under 250 or so and you could even use that as a hybrid str on one side and ltr on the other (depending on zoning) there was also a nice duplex in dacono. It all depends on how much you want to spend. 

In the colorado market the margins are sometimes tight and thatbis one reason people buy out of state. I havr heard good things about cleveland.  They boast double digit returns with high rents and low purchase price (duplexes around 150k.)

@Tim Schroeder

Airbnb vs LTR: If you go Airbnb, make sure the numbers can still work (or you have an exit strategy) for converting to LTR. Denver has banned short term rentals unless it's at your primary residence. Will other areas follow? who knows... but worth considering the 'what if.'

Best area? Talk with @Travis McChesney about Pueblo. He just bought a rental property and Pueblo was on the list, but quickly got crossed off. I don't know the details, but it wasn't positive!

Have you looked at properties yet? My recommendation: Find a realtor in each of those areas and spend an afternoon looking a 5 or 6 properties. I think it's the best way to get a feel for the market, areas, prices, etc. Plus if you're with an investor friendly realtor, you'll gain a ton of insight. It's about finding a market and property that is good for you.

BRRR is tough with the current market. Many homeowners know they can list their run down property and still get multiple offers. Very hard (not impossible) to find a deal where you can actually pull out all the money in a true BRRR scenario.

Have you looked at condos or townhomes as rentals? SFR's (fixer up or turnkey) are hard to find. Attached properties are providing good returns now. @Charles Roberts   and I have found good deals in Aurora for clients. They are turnkey for the most part and ready to go. Definitely, put Aurora on the radar. 

@Tim Schroeder Welcome to Bigger Pockets. If you're going to be traveling to the property to do renovations yourself, I would second Colorado Springs. You could find something relatively affordable there if you're turned off by prices in the metro Denver area and be within a reasonable drive from Castle Rock.

@Tim Schroeder To echo the others on Colorado Springs, it could potentially be a good market for STRs since they have no primary residence rule.  @James Carlson does a class down there and has been very informative about doing STRs for investors in the Springs. Here's a word of caution on the STR route: from my research I've found that prices are generally too low to get the cash flow most investors are looking for from a managed Airbnb. I recently purchased a market report from AirDNA on CO Springs and would be happy to share if you're interested. I think it is definitely possible, but you'll have to be careful because generally travelers aren't willing to spend as much visiting CS as they are Denver.

Thanks for the shout-out @Tyler Work

@Tim Schroeder If you're open to short-term rentals, Colorado Springs, Castle Rock and Littleton have no restrictions on doing Airbnb in an investment property. As Tyler said, though, doing so with enough margin to get a professional manager in there might not produce the results you want. You could look into a co-hosting option, where Airbnb provides you with a local host who will manage your property. 

Not sure if it would make it easier for you, but what about buying a home with a basement apartment. You live upstairs, get an Airbnb rental out of the basement and you get a rental out of the home you currently have.

Originally posted by @Kevin Grinstead :

Hi Tim, I think where you live and your situation, colorado springs wouls be great. There are some nice duplexes avaliable for under 250 or so and you could even use that as a hybrid str on one side and ltr on the other (depending on zoning) there was also a nice duplex in dacono. It all depends on how much you want to spend. 

In the colorado market the margins are sometimes tight and thatbis one reason people buy out of state. I havr heard good things about cleveland.  They boast double digit returns with high rents and low purchase price (duplexes around 150k.)

I have been considering COS for a while (in fact we nearly moved there but chose Castle Rock instead) so I knew it was cheaper than other areas but I had not looked in detail at the rental market. I spent some time last night looking at properties and the Zillow numbers for the area. Price gains last year and forecasts for next year are both well above other Colo areas. In particular, the southeast of COS (known as the "bad" area of COS) boasts a 14% gain last year and a projected 6% gain next year (IF you believe Zillow, anyway), AND southeast property prices are well below Denver, Castle Rock, and the desirable NoCo towns. Looks like a good LTR to me, and as others have said it's an easy drive from CR.

Originally posted by @Chris Lopez :

@Tim Schroeder

Airbnb vs LTR: If you go Airbnb, make sure the numbers can still work (or you have an exit strategy) for converting to LTR. Denver has banned short term rentals unless it's at your primary residence. Will other areas follow? who knows... but worth considering the 'what if.'

Best area? Talk with @Travis McChesney about Pueblo. He just bought a rental property and Pueblo was on the list, but quickly got crossed off. I don't know the details, but it wasn't positive!

Have you looked at properties yet? My recommendation: Find a realtor in each of those areas and spend an afternoon looking a 5 or 6 properties. I think it's the best way to get a feel for the market, areas, prices, etc. Plus if you're with an investor friendly realtor, you'll gain a ton of insight. It's about finding a market and property that is good for you.

BRRR is tough with the current market. Many homeowners know they can list their run down property and still get multiple offers. Very hard (not impossible) to find a deal where you can actually pull out all the money in a true BRRR scenario.

Have you looked at condos or townhomes as rentals? SFR's (fixer up or turnkey) are hard to find. Attached properties are providing good returns now. @Charles Roberts   and I have found good deals in Aurora for clients. They are turnkey for the most part and ready to go. Definitely, put Aurora on the radar. 

Re: BRRRR, it seems to me (even being new) that BRRRR works when you can pull most or all of your initial investment out during the re-fi. But to do that your appraised value needs to go up significantly on the refi appraisal, and that isn't going to happen unless you got a really good deal on the purchase, or it was in terrible shape and you rehab'd it well but at a low cost, right? And in this market buyers are generally paying fair market or "above" market just to beat other buyers. Please, correct me if I'm wrong. 

If this is the case, is it true that BRRRR is still a valid strategy, but perhaps you only get, say half, of your initial investment out and that's still better than nothing and still gives you leverage to buy more properties.

Or, to speculate even further, should the "Refi" step of BRRRR be delayed until market values rise enough to make the refi worth it, at which point you DO get your initial investment out thanks to the increased appraisal value?

@Tim Schroeder there is no one answer on how to do BRRRR. Do what works for you.

I would say that waiting to get appreciation after the rehab can be an iffy proposition. Make sure your plan doesn't fall apart if the appreciation slows or doesn't come. One area of real estate investing that income really impacts is rent growth. If wages don't support rents, then rents will flatten out. When rent growth ceases, then income property values will flatten out. I don't see much rent growth in the 5 years and it could be as much as 10 years before they turn North again.

Originally posted by @Tyler Work :

@Tim Schroeder To echo the others on Colorado Springs, it could potentially be a good market for STRs since they have no primary residence rule.  @James Carlson does a class down there and has been very informative about doing STRs for investors in the Springs. Here's a word of caution on the STR route: from my research I've found that prices are generally too low to get the cash flow most investors are looking for from a managed Airbnb. I recently purchased a market report from AirDNA on CO Springs and would be happy to share if you're interested. I think it is definitely possible, but you'll have to be careful because generally travelers aren't willing to spend as much visiting CS as they are Denver.

I was thinking self-managed, but with a good cleaner and local handyman. My fear with COS AirBNB is as you said it's less of a destination. Especially in winter, right? The COS attractions such as Pike's Peak, etc are summer-oriented. Who goes to COS in the winter? No skiing, no hiking, an airport with poor connections and high prices. Maybe LTR is better there, what with all the military families.

I was actually on AirDNA a couple days ago looking at COS, yes I would appreciate discussing the market report with you. PM me.

Originally posted by @James Carlson :

Thanks for the shout-out @Tyler Work

@Tim Schroeder If you're open to short-term rentals, Colorado Springs, Castle Rock and Littleton have no restrictions on doing Airbnb in an investment property. As Tyler said, though, doing so with enough margin to get a professional manager in there might not produce the results you want. You could look into a co-hosting option, where Airbnb provides you with a local host who will manage your property. 

Not sure if it would make it easier for you, but what about buying a home with a basement apartment. You live upstairs, get an Airbnb rental out of the basement and you get a rental out of the home you currently have.

I would love to manage my own AirBNB here in Castle Rock close to home, but worry that with the high property prices I won't be able to turn an adequate profit, plus that ties up more of my capital compared to a cheap duplex in Ohio as somebody suggested, or a SFH in COS. Plus, is CR enough of a "destination" to keep it full? I guess I should buy an AirDNA report and look into it.

It's funny you should mention a basement. I just bought a 5BR home in Crystal Valley Ranch in CR. The basement is an unfinished 1,200 sq ft walk-out and I plan to finish it (mostly myself) with an eye toward a future double-rental. When the kids are gone in 5 years or so, I could move out with the wife and rent both units out separately which might work out nicely.

Originally posted by @Bill S. :

@Tim Schroeder there is no one answer on how to do BRRRR. Do what works for you.

I would say that waiting to get appreciation after the rehab can be an iffy proposition. Make sure your plan doesn't fall apart if the appreciation slows or doesn't come. One area of real estate investing that income really impacts is rent growth. If wages don't support rents, then rents will flatten out. When rent growth ceases, then income property values will flatten out. I don't see much rent growth in the 5 years and it could be as much as 10 years before they turn North again.

Good point. Income investors are not supposed to rely on capital appreciation, right? They're after cash flow, and cap gains are just a bonus if and when they happen, or 20 years from now at retirement when you cash out

@Tim Schroeder not saying it's a bad idea. I do have a property that I was trying to do the BRRRR on. It still has about $70k of my cash in it some 10 years later due to the market moving the wrong way during my rehab. When I went to cash out, there were no comps and underwriting criteria changed as well. It was only 6 month time too. Just know it doesn't always go the right direction.

@Tim Schroeder I think @Steve K. has been an active BRRRR investor in the Denver market and has become a big proponent of it. You might connect with him to get his thoughts on it.

One of the main sticking points with BRRRR is the refinance part. That generally hinges on how you choose to acquire the property. If you have the ability to purchase in cash or at least pull from a HELOC attached to another property, it opens the door for you to pull cash out immediately. You will want to work with a lender who understands the delayed financing exception to do this. If you finance the initial purchase, you have a six month wait to pull cash out with conventional financing.

@Tim Schroeder , @Jared Bouzek , while I'm a big proponent of the BRRRR method, I only have been at it 18 months. My first 2 duplexes in Denver in 2016 had successful value-add renovations.....and got the new ARV appraisals I wanted....so, bought and renovated for 75% of ARV....new 75% LTV mortgages....fully a BRRRR.

On my current project, I compromised on the full BRRRR and likely will end up with a nice property at 85% of ARV on our 3rd duplex, to get into a nicer neighborhood than the first 2.

IT's tough to find a BRRR-able duplex in Denver. I've missed out on several in the past 6 months, but they get 30 cash offers in the first 24 hours, sight unseen in many cases. Investors started making the earnest $$ go "non-refundable" before inspections....if you can imagine.

Check out an older thread, wherein @Robert Herrera was giving up on Denver/Aurora, and investing in Pueblo....you might find useful:

https://www.biggerpockets.com/forums/48/topics/464...

While I've thought about Pueblo or COS, I haven't looked into it seriously....we're part-time, and all our contractors are local...can't justify going south yet.

Hello Tim,

I'm a broker up in the Boulder/Denver area and I know what you mean about price.  That being said there are deals to be found.  It may take making a lot of offers until you find the right deal, but any investor-friendly agent should be okay doing that for you (present company included).  Personally I think locations that are less susceptible to downturns or vacancies seem like good options for LTR... even if they cash flow a little less and/or cost a little more.  Nothing wrong with COS, just some food for thought.

@Tim Schroeder - thanks for posting. As far as buy and holds are concerned, my advise is to base your decision on the respective area's long term prospects for building wealth because, that's what the game is all about, correct? I'm talking things like population/employment/infrastructure growth - which of those markets can you project will fare best, twenty - thirty years down the road? 

I recently tested a listing (and flip) of mine on AirBnB. A nice though somewhat nondescript, bread and butter rancher in Central Colorado Springs, I put it up on a Thursday. By the next day we had four inquiries and two reservations which I had to cancel due to my partner's lack of interest in holding long term. 

The potential is there. Find the path of least resistance where STRs are concerned and get some!

I hope this helps and wish you all the best!

@Richard Galdieri

That's why I just started house hacking in Boulder... despite the high prices, it seems relatively insulated from downturns.

I don't see myself being able to finance a deal of that size again soon, so I'm curious where you might consider for a "small potatoes" investment in the area?

@Tim Schroeder If you would like some insight managing a property in Castle Rock I can share the story of a 5 bedroom house I rented in Castle Pines.  Let me know say it did not fare well on Airbnb... I might be able to save you some time and money if you decide to go the short term route.

Originally posted by @Jared Bouzek :

@Tim Schroeder I think @Steve K. has been an active BRRRR investor in the Denver market and has become a big proponent of it. You might connect with him to get his thoughts on it.

One of the main sticking points with BRRRR is the refinance part. That generally hinges on how you choose to acquire the property. If you have the ability to purchase in cash or at least pull from a HELOC attached to another property, it opens the door for you to pull cash out immediately. You will want to work with a lender who understands the delayed financing exception to do this. If you finance the initial purchase, you have a six month wait to pull cash out with conventional financing.

I can afford to acquire the property with cash and do delayed financing. As long as I get all or most of my capital back in the refi, I should be able to rinse and repeat.

I know this is an older thread, but I've been looking into this myself in Colorado.  One thing to keep in mind is that Colorado Springs has a huge demand for rentals due to multiple military posts around the City.

@Kurt Henninger keep in mind a simple policy change could create a huge swing in demand. Perhaps a different administration might look at the budget and try and balance it in part by making large military spending cuts which would translate to a significant decrease in personnel. It happened in the 70s.

Originally posted by @Bill S. :

@Kurt Henninger keep in mind a simple policy change could create a huge swing in demand. Perhaps a different administration might look at the budget and try and balance it in part by making large military spending cuts which would translate to a significant decrease in personnel. It happened in the 70s.

 Sure, there can always be decreases. But Colorado Springs is home to no less than FOUR military bases, and the Air Force Academy. So it's not likely you'd see the elimination of it all.

All it would take to point things in a different direction is one of those bases closing or a significant (>20%) troop reduction and you would see rents and vacancies impacted in a significant way.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here