Investment strategies for the Denver market

13 Replies

Hello, my name is Justin and I am new to BP. I have been a real estate investor for about 8 years, with 1 property. However, up until the last 6 months or so, it was not much more than a hobby. I am taking the next step, beginning to treat it as a side business with more focus and looking to invest in more properties. I just recently bought my second property and while it was an ok deal, I feel like I could do better.

I am curious what others have been successful with in our market, with property prices being at what seems to be around the high point? I made my most recent deal work by buying one of the "cheaper" units in the area and putting 25% down to get the numbers where I wanted them. Unfortunately I do not have an endless stream of cash to continue to do that, so interested in other options :)

My focus is buy and hold with properties that produce cash flow immediately, pretty standard, I think. Right now I have units that are in either duplex or fourplex townhomes. My plan is to stick with those and hopefully entire multifamily's eventually. I am looking into how I can start the BRRRR process, as that seems to be a good option.

Thanks for your thoughts!

If you don't want to put up the 25% down, then you have to find something off market that is way undervalued(doable, but hard). If you have a primary home, then you might be able to pull some cash out for another deal. 

A third option is to buy a new place for yourself with just a little down, live in it a year, then turn it into a rental, and buy another one. The only issue is that you might not CF as much as you want. 

Originally posted by @Justin M. :

Hello, my name is Justin and I am new to BP. I have been a real estate investor for about 8 years, with 1 property. However, up until the last 6 months or so, it was not much more than a hobby. I am taking the next step, beginning to treat it as a side business with more focus and looking to invest in more properties. I just recently bought my second property and while it was an ok deal, I feel like I could do better.

I am curious what others have been successful with in our market, with property prices being at what seems to be around the high point? I made my most recent deal work by buying one of the "cheaper" units in the area and putting 25% down to get the numbers where I wanted them. Unfortunately I do not have an endless stream of cash to continue to do that, so interested in other options :)

My focus is buy and hold with properties that produce cash flow immediately, pretty standard, I think. Right now I have units that are in either duplex or fourplex townhomes. My plan is to stick with those and hopefully entire multifamily's eventually. I am looking into how I can start the BRRRR process, as that seems to be a good option.

Thanks for your thoughts!

  I feel your pain. I don't have much to add to what Matt said. Right now is a good time to be cautious. The price trends seem to be flattening out a bit so not buying for a year or two might not hurt you all that much. On the other hand interest rates are climbing so while the prices might not go up, the payments would. Funny how it sort of happens that way.

@Matt M. 's comments are spot on.

I'd look into the house hacking that he mentioned where you move into a place for a year and then move out. I've run scenarios comparing buying 10 properties as a house hacker vs 10 rentals w/20% down and the house hacking scenario wins because you acquire properties faster. I'll send you over a copy of that.

Yes, the BRRRR process is a great option, but it's hard to find the deals where you can pull out 20% when you're done.

I am a relative new rental investor in the Denver area. In the past, I only invested in single family houses. With the prices of single family houses in Denver becoming so expensive, I was wondering if duplex or triplex might be better options, though duplex or triplex might cost more. Can anyone shed some insights into how to finance duplex? Does it require a higher down payment?

Thank you!

Thanks everyone for the replies.

I agree finding undervalued properties is difficult, but will continue to look with my agent. That is a good idea about using some equity in my existing properties for another. I am just ultra cautious like Bill said with the way the market is :)

I've thought about the house hacking approach too, that is basically how I got my first rental property. What makes it hard is having to move my family (of 4) every year to new schools and all. It is enticing though, since my current primary has a small mortgage from when I bought it in 2012, it would cash flow really well. The flip side is my new primary residence would have a much higher mortgage from the current market...

Thanks @Ryan Rominger for reaching out with that. I actually just started looking at out of state investments with friends in other states. That seems like a possibility and at first glance, I could make my money work a lot more for me in other markets.

Originally posted by @Yimin Zhang :

I am a relative new rental investor in the Denver area. In the past, I only invested in single family houses. With the prices of single family houses in Denver becoming so expensive, I was wondering if duplex or triplex might be better options, though duplex or triplex might cost more. Can anyone shed some insights into how to finance duplex? Does it require a higher down payment?

Thank you!

Are you talking about buying a whole property, or just a single unit in a duplex/triplex?

My most recent deal was a single home within a fourplex. Purchasing it was no different than an SFR, but I think 15% down was the minimum for investment property purchase. The rates were about half a percent higher than owner occupied as well.

Originally posted by @Justin M. :

Thanks everyone for the replies.

I've thought about the house hacking approach too, that is basically how I got my first rental property. What makes it hard is having to move my family (of 4) every year to new schools and all. 

 I'm in the same boat. 3 little ones and we are stuck. I'm now looking at some multifamily syndications. 

Originally posted by @Yimin Zhang :

Thank you @ Justin, for your information! Yes - I am thinking of buying a single unit in a duplex or triplex.

 These are hot items moving in Denver over the last few years.  Caution: The plex is bought as a whole at today's high prices, then sold in pieces to several buyers like yourself, in order to make a profit. Kind of shady. The problem results in the single unit will be way overpriced and far from the 1% rule.  Also you are not in any real control or say, being a minority in the plex.

Originally posted by @Marland McKinney :
Originally posted by @Yimin Zhang:

Thank you @ Justin, for your information! Yes - I am thinking of buying a single unit in a duplex or triplex.

 These are hot items moving in Denver over the last few years.  Caution: The plex is bought as a whole at today's high prices, then sold in pieces to several buyers like yourself, in order to make a profit. Kind of shady. The problem results in the single unit will be way overpriced and far from the 1% rule.  Also you are not in any real control or say, being a minority in the plex.

 I would be curious how people are buying these as a whole complex? Most of them I have seen are all individual owners, and the one I bought I found out was actually nearing pre-foreclosure (hence my relatively good price).

I ask because I would love the opportunity to buy a whole 4plex or 6plex :) Just seems very rare.

@Marland McKinney How is it "shady" to purchase a multi-unit property and split the property into separate ownership and sell the individual units? How is that any different than building a building and selling the individual units as condos? The market is demanding this. The cost per unit of rentals is driving by the income generated from them, the cost per unit of individual units (aka condos or townhouses) is driving by the market demand for those types of units. When the spread gets too great the entrepreneur steps in and levels the playing field. It's market forces. Sure there maybe issues with management of small condo associations but again the price as reflected by demand levels the market. This is the very reason that it's hard to find 2-4 unit properties in the Denver metro.

That said, I personally wouldn't want to own a condo in a small HOA property. Too many wild cards. I also wouldn't want to own a condo in a large property for similar reasons. But to each their own. I know some folks that swear by the condo/HOA model. They are richer than I am as well.