Denver metro

6 Replies | Denver, Colorado

What is everyone's opinions on the condo/townhome market in the Westminster, Broomfield, and Thornton areas?  Do you believe these are areas that will continue to grow?  From my research, it doesn't seem there is a large price difference between 2-5 bedrooms.  What market rent do you believe we will see for these kinds of properties in the upcoming years?  Thanks for your input.

It's dependent upon the place in each city. Along the 36 corridor there is a lot of rental inventory being built, but of course class A. They're not overbuilt yet so the prices still have some room to grow. As the remaining land in the corridor builds out it will become more desirable and public transport will become a higher priority if it is actually reliable. We don't have the space to accommodate all of the building in terms of transportation so something will cause a change. With rates where they are with the C and low B units it's hard to imagine they can get much higher due to income limitations of their tenant pool, but people do what they have to, so again there is still room for growth there. In terms of units if you can pick up a 2 bed for 150k or a 4 bed for 200k the 4 bed is a much better deal and you can get a noticeably higher return if you use the right methods. 

Thornton has some good potential based on the rail getting finished up over the next year or 2. I'll be curious to watch the prices along that line as people start to actually realize it's going in. You'd be amazed how many people don't know that it is happening.

I think you might have unintentionally asked two questions here. 

The first question is "Are Broomfield, Westminster, and Thornton going to continue to grow. I believe that the answer to this is YES, like the rest of the front range and Denver metro, I believe that these areas are going to continue to grow rapidly over the next few years, and that values will rise faster than inflation here in the front range of Colorado over the next 30 years, and compare favorably to much of the rest of the United States.

Next question - condos/townhomes.

This is a fun discussion that has come up several times over the past few years here on BP.

Currently there is a real shortage of condos in Denver. I think that you may find that the price to rent ratios on luxury condos will leave you with a low rental cash return and that you risk competing heavily with higher quality condos in the near future. This situation is largely due to a set of laws that I heavily criticize regarding builder defect laws. Check out this link:

http://www.westword.com/news/has-condo-development...

Basically, it is super easy for the builders of condos in the Denver area (and all of Colorado for that matter) to get sued on a large scale for relatively minor problems in the construction of these structures. This results in the situation we have today in Denver - a situation where a very tiny fraction of available housing is in the form of condos - a small percentage compared to other similar markets. Instead, apartment buildings are constructed with apartments that are often hard to distinguish from condos but are currently rented by apartment style tenants.

It is my view that investors should be wary when purchasing condos in the Denver area, because I tend to believe that the mounting pressure to protect builders and incentivize them to bring condos to the region will drive down the price of existing condos over time. Further, there is already quite a bit of inventory in place ready to be converted to condos when/if the legal status of these current apartments ripens them for sale as condominiums. Now that said, the market fundamentals here in Denver might continue to be so strong that EVERY type of residential property increases in value, including condos. In that case, you might still do OK, but probably not as well as if you had invested in property that has a yard.

I think that if you buy a condo today in the Denver market, you are simply betting that you will unload (sell) the condo prior to when the flood of apartments going up hit the market. I don't know anyone who can predict with confidence exactly when these apartments will convert, but it's going to happen at some point. 6 months, 2 years, 7 years, I don't know. 

I am certainly not going to buy a condo at this time, as I think that at the very least that they aren't going to appreciate as rapidly as other types or property.

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Hi Conner, there are some big economic plans for the cities north of Denver including an outlet mall and a nothern tech center. These bode well for the growth and development of these areas. 

Thanks for the really great comments guys, they are extremely helpful.  The reason I ask is that as a young guy, I plan on living in a property and renting out the other rooms for the next year or two.  When it's time for me to move out, I will see what prices are doing, but most likely to continue to rent out the property.  Ideally, my goal is to be able to cash flow while living in the property, and if nothing else live rent-free.  So, as @Scott Trench pointed out, I like to ask twofold questions...haha.   1) Do you think this strategy is feasible in the Westminster area? and 2) What would you be willing to pay for a 4 bed room condo with a pool and club house within 1-2 miles of the new outlet mall?

If you buy it right, it wont matter. Condos and townhomes can be good plays in the areas mentioned, I live in the area. Condo naysayers always focus on the on the defect law loosening and a flood of for sale condos hitting the market, killing your value. If builders start building condos again I see little effect on existing inventory, the new product will be more expensive - it has to be the cost of construction is higher per ft right now than you can buy existing property. Today's buyers demand amenities - further driving prices and making the product much different than existing condos and townhomes.  I would also argue that this product is and most recent has appreciated faster than other residential properties because it often falls into a price point that is still affordable.

@Conner Carrier to your question about what should one pay for a specific property - to vague to answer your question. You will need to look at your specific situation, what you can rent rooms for and how much it might rent for upon moving in.