2-4 Units in Denver Advice

20 Replies

Hey All! I’m new to BiggerPockets but this seems to be exactly the resource I’m looking for. Looking forward to learning from you!

I’m currently in Austin but will be moving to Denver end of June for work. My goal is to buy a property before the end of the year. I’ve been toying with a couple of different ideas based on books I’ve read / research I’ve done. I was hoping to run my thoughts by more experienced eyes with hopes I can get feedback / better direction.

I’m looking for a Residential Multi-Family (2-4 Units) in Denver, the closer to downtown the better. I plan on living in one unit with my girlfriend for the first year or two and then renting out the others. Because I’m not there yet physically, I’ve been resorting to Redfin/Zillow to try and get a sense of where these sort of properties are and what they sell for. Are there typically these sort of properties available regularly or are they more scarce? I plan on doing more off-market prospecting once I’m there, but I’ve found Redfin/Zillow to be decent resources…does anyone have a preferred technique to be able to find these sorts of properties?

From my initial research, it would appear that while deals are out there in Denver, finding high cash flow properties is going to be harder and require digging deep / networking which I don’t mind doing. I understand that a property has to cash flow positively, especially as a newbie. But for me, I figure that with 2-4 units, that will be a quicker way to build equity to then refinance to buy other units in two years or so where then I’d be much more familiar with the area and be better at finding good deals. Is it bad to care more about building actual equity over the next two years than caring about finding the most cash flow? Because where my head is at, I’ve been paying way to much in rent over the last 10 years without owning anything so if I can find a 3 or 4 unit that’s not negative cash flowing and have tenants that are helping with equity build, then I’m in a much better spot than current. Any red flags with that thinking?

And lastly, I was thinking FHA loan for this where they have maximum loan amounts for the type of property you want. The pros: 3.5% down, seemingly easier to get. The cons: MPI, takes longer to close which can be important if I do find a good deal that I'm competing for with cash offers. The alternative for me is a conventional loan, but particularly for 3 or 4 units in Denver, I'm then approaching down payment size that's probably a bit outside my budget. Any thoughts based on what I've described what would be a better financing route?

Know that is a lot of general topics where each could be discussed in depth that also depend on specific numbers a ton, but those are my general thoughts as of now. Any people who can weigh in, I’d really appreciate it. Or if you know of anyone who can help, I am very serious about buying before the end of the year so would love to chat further.

Thanks!

Anthony

Reach out to an agent, they can get you set up with the actual MLS listings instead of zillow/redfin. I'm sure you'll have half a dozen reach out just on this post.

As far as expectation management, you wont find a cash flowing 2-4 unit on the MLS using FHA with 3.5% down and PMI in Denver. You may, however, find that you can live for less than market rent doing this, while squaring away money via equity paydown. Which can be just as good as cashflow. But it's gonna feel more like getting a rent discount than making money.

The best place I believe to find these kind of properties is not just an real estate agent but a real estate agent that specializes in real estate investment. In my personal experience they are much better at being able to evaluate the deals from an investment stand point as well as having loan agents in their network that are better at structuring loans to better fit you and the cash flow you are looking for.

good 3-4 unit places are very difficult to find in Denver, but if you have time and the right people looking for you it is definitely possible.

Hope that helped and good luck on your hunt!

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@Anthony Manning there are several forces against you. There are many willing to pay more for a place to live (multi units) where they have an equity position then they would if they were paying rent for the same space. Around the urban core (Denver City Center), Denver allows for side by side multi-units to be split and sold individually. This has created the effective price of side by side units being valued nearly the same as individual units. This severely decreases the supply. Only very expensive units ($600k+ each) are currently being constructed. 

Generally speaking, finding units that come close to cash flow are found further away in the outlying areas. 

Digging Deep / Networking will not likely yield better results. Everyone is looking for the same thing. IMO your best approach is likely to find people who own such units but who have not yet marketed their property. If you approach the situation properly you might find an owner that might sell directly to you. You will need lots of time (for marketing directly) or lots of money (for marketing to owners). You can do it but, it will be very challenging.

Hey Anthony, my name is Alaska.  I'm equally new to BP and have been running these same questions through my head.  I'm currently living in Orange County and it seems to be pretty hard to house hack here too.  Just wanted to drop in and offer my support as a like minded newbie! 

Hi @Anthony Manning , I am also a newbie investor. I had a few thoughts on your questions, take or leave! I am in the Denver area market and it took a little over 6 months to find a SFH rental that cash flows positively. I am in the process of expanding my business to include a multifamily property. Granted, I am analyzing deals off the MLS for now, the immediate Denver area has not yielded anything I would be willing to buy as an investor. I know that isn't new news for listed properties! I have expanded my search out around metro Denver as a result. As the front range continues to grow at a fast pace there are opportunities to invest elsewhere, perhaps a little easier than downtown at this point. One example I am looking at is certain areas of Aurora.

There are close to 20,000 jobs in healthcare just between University of Colorado Hospital and Children's Hospital Colorado. Buckley Airforce base is in Aurora. And it looks like there will be future large developments just south of DIA - industry and housing project called Aerotropolis. There is much more there, and there of course are parts of that city I would not buy in. But there are exciting developments like this in nearly every city center around Denver, of different design of course.

When you arrive, I would recommend you consider taking a look at some of these other areas that may be a bit more affordable than downtown, and may have great equity potential in the longer run. Best of luck on your move and future multifamily purchase!

Yes!  Thanks all for the feedback, this is great.

@Brendan Morin , I see what you're saying. In Austin, a buddy of mine and I were paying pretty ridiculously high rents combined to live in a newer building, so anything less than that is a huge bonus. That combined with splitting with my girlfriend, whatever we end up doing should have pretty positive impact, so I'll take discounted rent if the numbers line up. If I could do that until 20% is paid off where I can refinance, I could get the PMI removed / restructure the debt to be cash flowing in theory, right?

@Adam Ferro , from what you've seen, are duplexes more common or in general are 2-4 unit properties in Denver going to be scarce?

@Bill S. , so what you're saying is not only will multi-units in downtown be very difficult to find, but any that you do find, the competition is tough because I'm competing with people that are much more established who will pay more to do what I'm trying to do?  I guess if you have money and believe in the area appreciating, cash flow becomes less of a focus for some investors.  

@Christy Browning , Aurora was actually on the map for me...I understand they've been developing quite a bit.  I plan on looking around a bit more at surrounding areas.  Have there been any particular parts of Aurora that you've liked or found appealing properties near?

Again, really appreciate you guys...the comments help paint a picture I didn't have before.  

@Anthony, yes. People on here seem to gloss over this a lot, keep in mind a refinance is not free. Expect this to cost a couple thousand at a minimum, probably wrapped up in the loan amount, with risk for an increased rate.

When I started out people talked to me about refinancing like it was some magic bullet but if you're on an owner-occupant loan and refinance into a conventional/investment loan, there is a real chance your rate will go up substantially. I just refinanced out of a VA loan into traditional investment on a 4plex and my rate jumped from 3.5% to 4.85%, and my principal increased $9k. Now for me, this was worth it to access the VA benefit again for future use, but it's not always easy to pull the trigger to restructure into lower-quality debt.

Hi Anthony, the ability to buy the house that cash flows in Colorado can be a challenge. House hacking a duplex or quadplex is possible and the bidding is fierce for a good property.  There are many conventional programs that you can have 3% down or less for the property and you can gain equity and reduce your rent payment.  

There are some other potential properties out there with carriage houses as well.   

A lot of it depends on what you can qualify for and how much competition there is. 

Good Luck and Happy Investing

I second the advice about Aurora. I'm a broker and I live in NW Aurora. The changes in the area are happening at an amazing pace but there is still a real price difference between Aurora and Denver. There is more long term development coming that will shift a lot of energy out to the eastern part of the metro area, IMO.
Yes, small multis are hard to find. We don't have as many of them as some eastern cities and right now there is high demand. I am encouraging people to look at SFR properties that have zoning that allows two units and has the potential to split. Not a ton of those out there, but some. Another idea is to get a SFR with an area that you can rent out -a guest suite or something that can be used for either short term or long term rentals.
LMK if you'd like me to set you up with an autosearch for duplex/quads that emails you listing as they come up on the mls. That would perhaps give you a more immediate picture of what's going on than the consumer sites.
You'll like it out here, I'm sure!

You are probably looking at $400k+ in Denver for a duplex. Your best deal would come from getting in your car and driving for dollars and door knocking. Forget looking on the market unless you have cash. With an FHA loan, it will be near impossible for you to compete on a plex let alone a home right now unless it's off-market. Too many buyers with cash or more to put down.

Your best chance would be to house hack like many of my clients are doing. Several are on their 2nd home with this strategy. One has 8 units with this strategy in under 3 years. 

All the comments above are valuable. There are a lot of people looking for the same thing and it is hard (but not impossible!) to find. The things that will give you an advantage are 

1) being willing to live where you find a deal rather than prioritizing neighborhood / lifestyle. A short term sacrifice like a longer commute or fewer amenities will open up your options. 

and 2) finding better financing for acquisition. An FHA loan does not fly in Denver, because of the level of competition for properties. It can be advantageous to find private/hard money or a strong conventional loan just to purchase the property, and then you can refi into something you're more comfortable with.

@Anthony Manning From what I've seen multifamily homes are very scarce in Denver. The only real way to find a decent deal for cash flow is to find off market deals. Depending on what you are looking for it might be worth your time to look at Lakewood or Arvada. They are still close to Denver just a little north. I've noticed more duplexes out there.

Hey Anthony,

Although not directly related to your question, being a native in the Denver area and working for a home inspection company in the area, I recommend you take a look in Arvada and University (DU) areas. 

Arvada has some great fixer upper multi-families and prices are not as crazy as closer to the city.

University has a ton of mid-century duplexes that will be a little more expensive, but rents are higher due to the college nearby.

Good luck with the move!

the MLS just had a duplex in Commerce City listed at $325 with remodeling done. That is about the best I have seen in the Metro area.

@Anthony Manning you have gotten awesome advice here! I particularly like the area around Tower and Hampden. I have not yet found a deal that meets the criteria I am looking for - so I continue to learn and prepare, along with saving, for when I do find a good one.

@Anthony Manning good advice given here, just curious why not in Austin. i was thinking about looking for multi's where you are at now. I thought Austin is a good place to invest. I too eventually want something around Denver. my wife has family out there.

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@Chris Sukala from what I understand, the markets are fairly similar.  The only difference is that I'm moving to Denver in 3 months where I'm looking to owner occupy.  Even if I end up not owner occupying and just getting rental property, until I have some skin in the game, I'd like any of my future rentals to be local so I can manage them.  I'd consider rental investing at a distance once I have more experience.  But as a first property, it makes sense for me to buy where I'm going to live.  

But, there are some cool spots in Austin if you are interested! 

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