Rental Property Investor · Denver, CO · Member since 2019 · 18 posts · 20 votes
Hello BP! I'm a fifth-generation Denverite and marketing writer who just moved back after a decade living in the San Francisco Bay Area. Denver sure has grown up! I recently closed on a primary residence and now have my sights set on a first buy-and-hold rental property. I already have financing lined up and am reading tons of REI books to educate myself. Given the high prices here, my goal is to start with a SFH or even a condo or townhouse just to get my feet wet. My husband has some construction background and we are not afraid of a mild-to-moderate rehab. House hacking or a live-in rehab is not an option, as we have three young children.
However, I’m quite discouraged by all the numbers I'm running. I’m trying to decide if I should try to hunt for illusive deals here in the Denver area or switch my focus to out-of-state, although distance investing as a newbie scares me.
I know COVID-19 my be a game-changer, but I'm wondering: What strategies are working for you in Denver and surrounds? Is anyone attempting BRRRR here right now? Are flips a better bet? For a rookie, is finding--or creating--a cash-flowing property (while crisis homeschooling 3 kids) even in the realm of possibility? Outside of Denver, what suburbs should I investigate?
I’d really appreciate any insight into how people are making this work locally, or sub-markets to explore. Thanks!
Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes
6y
Hi Madigan, Welcome home to Denver!
If you look at my profile I explain my deals a bit and talk about the strategy that has been working well for me (small multifamily with a value add component).
Here are some other strategies that I see people doing here successfully:
--Starting off with a condo. They are less expensive and thereby easier to find one that has positive cash flow due to the lower price point than a single family home. With condos it's important to verify that the association allows rentals and that the association is managed well and has reserves for Capex such as roofs and driveways, (in order to avoid getting hit with a big special assessment unexpectedly). Condos generally appreciate slower than other property types, and are the first sector to lose value in a downturn, but they offer the lowest barrier to entry and in Denver its easier to find a condo that cashflows as a rental than it is a single family home.
--Renting by the room. It's more management intensive but you can get a lot more in rent by renting the rooms of a home out individually. People are making this work in this market. Covid-19 has probably made this strategy a little more challenging due to people being less inclined to live with a bunch of roommates right now, and occupancy limits for non-related residents is also something to consider with this strategy, but it can be a great way to maximize rent in a single family home that otherwise wouldn't provide cash flow.
--Buying a fixer, fixing it, and renting it. Sort of like a fix and flip but holding it instead of flipping. This is an active strategy but I like it because you build in initial equity, and you can create positive cashflow (assuming you get enough of a discount on the property due to its condition). It can be harder to find financing on truly distressed properties, so many people use cash or hard money lenders to get started and then refinance into a conventional loan to access their equity when the project is completed.
--Investing out of the metro area. I have friends and clients who are building their portfolios in areas about 45min to 1hr. outside the city, where prices are much lower and price to rent ratios are more favorable for rental properties. Some examples include Frederick, Firestone, Johnstown, Longmont, Loveland, or even areas closer to the metro that are less expensive but rapidly improving like Aurora (especially north Aurora), Cole, Barnum, East and West Colfax, Commerce City, etc. There are still pockets of affordable areas all over the city that are on the upswing.
--Long distance investing. I know several people here who have gone this direction. I also know several who got burned pretty badly so be careful. It can definitely be done but comes with additional challenges and risks over investing locally. If you consider this avenue, I would recommend looking at places where you have someone on the ground you can trust 110%.
--If you can afford to go straight into multifamily, the economies of scale in this category make it much easier to generate initial cash flow. However MF properties are hard to find and have a high barrier to entry (25% down on a $600k+ purchase is basically where MF properties start).
It all boils down to what your goals are. Most people are looking for at least some initial cash flow and many are priced out of multifamily so they start with one of the other above strategies. Other people are just looking to park some money and are okay without much initial cashflow, so they might go for a small multifamily with a low cap rate, in a low risk sub-market, and bank on getting their return from rent increases over time, appreciation, principle pay-down and depreciation tax benefits.
Flipping I'd say is a risky strategy to get into as a beginner at this point in the market cycle especially considering the current economic uncertainty, but I know a few people who are having continued success flipping as well so it can certainly be done.
For me the strategy that makes the most sense is small multifamily, in areas that are improving, and I like to buy somewhat distressed properties where I can make improvements, increase rents over time, and add value.
It helps to consider what your personal strengths are and play to your strengths. For example if you or your husband is handy that opens a lot of doors for you in terms of the condition of the property you're comfortable with taking on. Since you're a Colorado native, you may have connections here and be able to source off market deals through your personal network of friends and family which could be a huge competitive advantage (finding deals may be the biggest challenge here). Maybe you're good at managing and the best strategy for you is finding a poorly managed property and turning it around. Consider what you can bring to the table and go with a strategy that fits you personally.
Good luck and let me know if I can help further. I have 3 young kids too and I'm pulling it off, so you can too. Just don't trust anyone who talks about owning rentals being "passive income"! That hasn't been my experience. It's work. But it's worth it.
Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes
6y
Hi Madigan, Welcome home to Denver!
If you look at my profile I explain my deals a bit and talk about the strategy that has been working well for me (small multifamily with a value add component).
Here are some other strategies that I see people doing here successfully:
--Starting off with a condo. They are less expensive and thereby easier to find one that has positive cash flow due to the lower price point than a single family home. With condos it's important to verify that the association allows rentals and that the association is managed well and has reserves for Capex such as roofs and driveways, (in order to avoid getting hit with a big special assessment unexpectedly). Condos generally appreciate slower than other property types, and are the first sector to lose value in a downturn, but they offer the lowest barrier to entry and in Denver its easier to find a condo that cashflows as a rental than it is a single family home.
--Renting by the room. It's more management intensive but you can get a lot more in rent by renting the rooms of a home out individually. People are making this work in this market. Covid-19 has probably made this strategy a little more challenging due to people being less inclined to live with a bunch of roommates right now, and occupancy limits for non-related residents is also something to consider with this strategy, but it can be a great way to maximize rent in a single family home that otherwise wouldn't provide cash flow.
--Buying a fixer, fixing it, and renting it. Sort of like a fix and flip but holding it instead of flipping. This is an active strategy but I like it because you build in initial equity, and you can create positive cashflow (assuming you get enough of a discount on the property due to its condition). It can be harder to find financing on truly distressed properties, so many people use cash or hard money lenders to get started and then refinance into a conventional loan to access their equity when the project is completed.
--Investing out of the metro area. I have friends and clients who are building their portfolios in areas about 45min to 1hr. outside the city, where prices are much lower and price to rent ratios are more favorable for rental properties. Some examples include Frederick, Firestone, Johnstown, Longmont, Loveland, or even areas closer to the metro that are less expensive but rapidly improving like Aurora (especially north Aurora), Cole, Barnum, East and West Colfax, Commerce City, etc. There are still pockets of affordable areas all over the city that are on the upswing.
--Long distance investing. I know several people here who have gone this direction. I also know several who got burned pretty badly so be careful. It can definitely be done but comes with additional challenges and risks over investing locally. If you consider this avenue, I would recommend looking at places where you have someone on the ground you can trust 110%.
--If you can afford to go straight into multifamily, the economies of scale in this category make it much easier to generate initial cash flow. However MF properties are hard to find and have a high barrier to entry (25% down on a $600k+ purchase is basically where MF properties start).
It all boils down to what your goals are. Most people are looking for at least some initial cash flow and many are priced out of multifamily so they start with one of the other above strategies. Other people are just looking to park some money and are okay without much initial cashflow, so they might go for a small multifamily with a low cap rate, in a low risk sub-market, and bank on getting their return from rent increases over time, appreciation, principle pay-down and depreciation tax benefits.
Flipping I'd say is a risky strategy to get into as a beginner at this point in the market cycle especially considering the current economic uncertainty, but I know a few people who are having continued success flipping as well so it can certainly be done.
For me the strategy that makes the most sense is small multifamily, in areas that are improving, and I like to buy somewhat distressed properties where I can make improvements, increase rents over time, and add value.
It helps to consider what your personal strengths are and play to your strengths. For example if you or your husband is handy that opens a lot of doors for you in terms of the condition of the property you're comfortable with taking on. Since you're a Colorado native, you may have connections here and be able to source off market deals through your personal network of friends and family which could be a huge competitive advantage (finding deals may be the biggest challenge here). Maybe you're good at managing and the best strategy for you is finding a poorly managed property and turning it around. Consider what you can bring to the table and go with a strategy that fits you personally.
Good luck and let me know if I can help further. I have 3 young kids too and I'm pulling it off, so you can too. Just don't trust anyone who talks about owning rentals being "passive income"! That hasn't been my experience. It's work. But it's worth it.
Denver, CO · Member since 2020 · 6 posts · 8 votes
6y
Hello Madigan, and welcome back to Denver! My husband and I are in a similar situation with two young kids, which does limit some investment possibilities, but not all. We're currently under contract on our first SFH in Aurora, though we did some looking in Colorado Springs (also a good option).
Chris Lopez has a great Denver-based REI podcast and focuses a lot on condos as a way to get started in the Denver area. We were also strongly considering condos as a possibility before we found our SFH. Good luck with your search!
Real Estate Agent · Arvada, CO · Member since 2016 · 13 posts · 5 votes
6y
@Madigan Tumilowicz That’s a great question! I personally bought around Denver a few years ago, but have been focusing over the last year in Colorado Springs. There are more unique properties that either have multiple units on one lot, can legally be rented as an AirBnb, and are close to downtown or Old Town. The numbers definitely work there, but you have to hunt for those investments.
Rental Property Investor · Denver, CO · Member since 2019 · 18 posts · 20 votes
6y
@Steve K. Thank you for this detailed response and all the ideas! I think a condo or townhome could be a great entry property in this market. I've been looking a bit in Aurora and will continue to dig there, as well as the other sub-markets you mentioned. It's nice to know that this game is possible, even in a competitive market and with three kiddos at home! Best of luck to you and your family, too. Hope to connect more in the future.
@Emily Martorano Congrats on your first deal, and making it happen with 2 young kids nonetheless! I'd love to talk to you about Aurora. I'll PM you.
@Forrest Wade I'm definitely interested in learning more about the CO Springs market and will plan some day trips down there once things open up more. It does seem like the barrier to entry is lower there. Thanks for the reply!
Rental Property Investor · Tyler, TX · Member since 2019 · 72 posts · 39 votes
6y
@Madigan Tumilowicz There are some good markets in Colorado but the beauty of remote investing is that you can pick the market to your own personal goals. Appreciation strategy? Larger expending cities. Cash flowing / low price entry / moderate appreciation = there are hundreds. What is your main concern?
Real Estate Agent · Post Falls, ID · Member since 2016 · 1k+ posts · 1k+ votes
6y
@Madigan Tumilowicz - Welcome home, Madigan! Looks like we made a similar transition. Before living in Denver, I was also living in San Francisco. It sure is hard to make anything work out there.
As for strategies that work in Denver, a true BRRRR is very difficult. The main reason being that you need to find yourself a killer dealer. If you purchase a run-down property here, you will need to add $60k to $80k (or more after rehab costs) to take your money out.
The best strategy that works in Denver is house hacking. I am going on my fourth and have helped dozens of other people do so. It works every time if you put in the effort and work to make it happen. If you and your husband are OKAY with living with people, buying a single family house and renting it by the room is a pretty good strategy.
If not, finding a property with a downstairs separate entrance (or figuring out an inexpensive way to create one) will allow you to AirBnb the bottom or even rent it out full-time. This will likely offset most of your mortgage payment and likely even cover it during Airbnb summer months.
Otherwise, you can do the live n flip strategy. Since you and your husband aren't afraid of a little bit of sweat equity. You can buy a smaller property that isn't in the best shape. Fix it up over the course of 2-years then sell it tax-free (up to $500k).
Realtor · Denver, CO · Member since 2013 · 2k+ posts · 1k+ votes
6y
I'd avoid flipping until you have a decent network. As a 5th generation Denverite, maybe reach out to your friends/family and tell them what you are trying to do. That's where I find the best deals.
Since the Spring selling season was killed, Summer is now heating up. But I'm waiting to see how long this flame is going to burn. If it fizzles out, then look to the Fall/Winter for a good deal from a desperate seller.
We've got 3 kids as well, so a house hack won't work, and a live in flip might not work either. You might just have to come up with the 25%+ down to get a deal.
Watch out for the HOAs on condos/townhomes. Make sure to do your research into their rules, etc.
Rental Property Investor · Denver, CO · Member since 2019 · 18 posts · 20 votes
6y
@Craig Curelop I think there's a big migration from the Bay Area to Denver in general--I know many people who are fleeing the insane RE market and tech-focused culture there. A house hack or live-in flip isn't really an option for me, as I have 3 young children. So I'll have to make a deal work another way. Thanks for the advice though!
@Matt M. Thanks for the reply! Great tips about working my personal network here and digging for end-of season deals. I'll definitely be careful when approaching any condo or townhome HOAs.
@Account Closed I know other markets are much friendlier than Denver from a cash flow perspective. However, the intricacies of distance investing as a newbie seem daunting. Do you have any tips for entering a non-local market? (I'm reading David Greene's book right now.) Thanks for the reply!
Rental Property Investor · Tyler, TX · Member since 2019 · 72 posts · 39 votes
6y
@Madigan Tumilowicz You might be able to find a market outside of Denver that piggy backs off the Denver economy but has a lower entry point and better Rent-to-Price Ratio. Characteristics to look for are 1) Ability to cash flow (I target R/P=1.5%+) 2) Future appreciation 3) Rental demand (ie - don’t invest in a town with few people).
Lots of numbers put out publicly on markets that help you evaluate those numbers.
Rental Property Investor · Poquoson, VA · Member since 2014 · 13 posts · 8 votes
6y
You can purchase residential property every 12 months if you live in it for 1 year which gets you the best rates with the lowest down payment requirements if you can tolerate the extra risk associated with low down payments.
Get 1 a year for a few years then start using the equity from your earlier homes to fund expansion.
Welcome back to Denver! You're coming back from one of the few places in America that makes Denver look affordable. ;)
There are no easy answers for you because there are very few "deals" in Colorado as a whole. Denver's a tough city to cash flow in. We have two rentals in Denver going well but we bought right and are in it for the long-term so are happy to take our small cash flow and watch our values go up. ($100k appreciation on one condo bought in 2015.)
There are some creative ways you can increase your cash flow but that's going to require more work. Rent a 5br house by the room, for instance. (Or a 4br works as well.) There are also some interesting ways to try to do Airbnb, but it requires finding a home with a basement apartment or mother-in-law suite and having a higher risk tolerance.
Colorado Springs is a little better. We have a duplex and a SFH there and are happy about them, but the market is crazy. Have had offers in for multiple buyers in the last week, and all were multiple offer situations.
This should in no way be a discouragement. Just find the right people who can guide you. And you have to believe in the long-term appreciation potential of these markets, which is huge, IMHO.
Investor · Denver Colorado, USA · Member since 2018 · 15 posts · 16 votes
6y
Hi Madigan, the "house hacking strategy" that Craig Curelop detailed can certainly work for a family with children BUT would be better suited if you can secure a multi-family with up to 4 units to stay within residential financing. This way, your family won't have "roommates" but you will have tenants in the other units. Because you're returning from a high-priced market, you may be able to stomach the price points for such a quad-plex in the Denver area. If you don't currently have an outstanding FHA mortgage and can owner-occupy, go with that to finance and minimize your acquisition expense (3.5% down). Now do consider that any quad-plex that comes on the market and makes $ence will come under contract very fast, like 48 hours from listing fast, so do all your homework and get pre-approved if using lenders so you can act swiftly. I hope this gets helps to get your creative juices flowing!
Welcome back to Denver! You're coming back from one of the few places in America that makes Denver look affordable. ;)
There are no easy answers for you because there are very few "deals" in Colorado as a whole. Denver's a tough city to cash flow in. We have two rentals in Denver going well but we bought right and are in it for the long-term so are happy to take our small cash flow and watch our values go up. ($100k appreciation on one condo bought in 2015.)
There are some creative ways you can increase your cash flow but that's going to require more work. Rent a 5br house by the room, for instance. (Or a 4br works as well.) There are also some interesting ways to try to do Airbnb, but it requires finding a home with a basement apartment or mother-in-law suite and having a higher risk tolerance.
Colorado Springs is a little better. We have a duplex and a SFH there and are happy about them, but the market is crazy. Have had offers in for multiple buyers in the last week, and all were multiple offer situations.
This should in no way be a discouragement. Just find the right people who can guide you. And you have to believe in the long-term appreciation potential of these markets, which is huge, IMHO.
I'm thinking about getting a 4 plex in COS to house hack. In an appreciation market, what kind of returns would you look for with Cash on Cash? I'm getting less than 5% with a 5% down VA loan and about $200 in monthly cash flow. So this deal doesn't meet a lot of the benchmarks thrown around on BP like 12% CoC and $100-$200 per door, but it's in an expensive, appreciating market.
I'm new...any advice? I want to purchase the 4 plex because I think we can up the rent and get the returns higher, but also I believe in the Springs market to continue appreciating much like it has over the past decade.