What would you do? First time home buyer/investor in Denver

Question

Hey, Bigger Pockets People!

I'm writing my first post hoping for some ideas or insight into what you would do if you were in my situation. Currently, I am pre-approved for a conventional 3% down loan for up to $365k. As anyone in Denver knows, real estate is COMPETITIVE right now and we have submitted several offers for our first home but have been outbid.

As a new investor, I do not know what is possible in my current situation. My thought right now is to get into one of the growing neighborhoods (west of 25, south of 6) and just get a property knowing that it will appreciate over time.

If you were in my situation, what would you do? Would you buy a SFH? Townhome? Condo? Commercial? Help me understand what is possible and how I can start growing my portfolio.

Jeff White · Answer

@Kayla Govier Ideally, it sounds like you are using a 3% conventional down payment for a primary residence loan, correct? If so, in that price range, I would try to do what @Ben Rhodin is suggesting to qualify for a little bit more because once you get to that 400k+ range, it opens up more single family houses that are available in decent condition.

On average, single family  homes have appreciated about 6% per year the last 40 years in Denver metro. Condo and townhomes appreciate a little bit less, but they are still a solid investment long-term.

As of today, for homes under 400k, there aren't many single family homes available that don't need a lot of work or located in upcoming areas of Denver.

Townhomes aren't a bad idea because usually they are in good shape and would fit your price range and sometimes have nice yards and good parking. The key thing with townhomes is the HOA, make sure you do extensive research on the HOA reserves and how often they have raised their monthly HOA dues per month, some raise it every year!  Not all HOAs are created equal, and ideally, you want the HOA to well-managed.

Condos are little bit tougher since they are smaller than townhomes and harder to make the numbers work unless you go out to east Aurora where you can find 3/2 condos for 200-220k.

Ben Rhodin · Answer

Hey @Kayla Govier

Getting those first offers out there is an important step. @Greg Weik mentioned some great advice above regarding different areas that might work for you. An option that might be open to you, if you are planning to house hack, or rent any portion of the home (Or maybe something you are open to) is to get a lease in place before you close on the property. If you have a signed lease in place you can put a portion of that up against your mortgage payment, and qualify for a higher amount. I would chat with your lender, but this is a strategy that my clients have used in the past, and it is a great way to get into something a bit bigger and help you be competitive when it comes down to a market like Denver.

Especially if you have some friends or just a friend that wants to tag along with you, and rent one of your rooms you should be able to get an extra boost on your loan amount.

Greg Weik · Answer

Hi Kayla, 3% down is usually not possible for an investment property, so you are asking where you should buy your primary residence?  Just trying to make sure I understand.

If you're planning to live in the home and rent it out in the future, the area west of 25 and south of 6 isn't too bad.  We manage a number of properties over there and they do pretty well in terms of stable, long-term tenants.  Appreciation should be decent in that area as well.

My advice is generally to shoot for a single-family home if you can swing it.  The area you're looking at doesn't have any HOAs, so that's also a plus when investing.  $365 definitely isn't what it was 10 years ago!  I'm sure it's a frustrating process for you to find a property.  If you are open to different areas, Englewood tends to be strong, and so does Littleton.  Parts of Aurora would be great for your budget too.  Even a small single-family home is a great place to start.

I'm guessing you're working with a Realtor.  If you're not, my very strong advice to you as someone who wants to become an investor is to get your real estate license.  It's pretty easy, doesn't cost that much and you will be paying yourself $10,000 back on that first home.  (2.8% of $365k) That's a lot of money to walk away from, IMO.

Mike Wadsley · Answer

@Jeff White is spot on. A client of mine couldn't qualify for a mortgage on a townhome, because the HOA was $550 per month.

Kayla Givens · Answer

@Jeff White that's great information - thank you! Ideally we will get into a SFH now that I've thought about it more. This market is just so crazy competitive I'm worried that everything will go UP in value and I won't have any other options than a townhome or condo in my price range.

Kayla Givens · Answer

@Ben Rhodin that's a great idea! I just put an offer in on an SFH this weekend and we are waiting to hear if it was accepted or not, but if it's not, I was planning on potentially changing course to have more leverage in this market. Have you had success with a lot of your clients using that strategy?

Kayla Givens · Answer

@Greg Weik thank you so much for the info! Appreciate you!

Greg Weik · Answer

Hey @Kayla Govier, unfortunately, I don't know muich about Airbnb.  And you're very right, there's always another!  :) Good luck!

Kayla Givens · Answer

@Greg Weik thank you so much for the response! I just signed up to get my license as I know it will be useful in the future but will use my realtor for this first property.

I love your advice and am curious if you know anything about Airbnb in that area? That's another option I'm considering for a house hack--we just put an offer in on a SFH in Mar Lee so fingers crossed but if it's not this one there will be another!

What would you do? First time home buyer/investor in Denver

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