Is Denver cooked for investments?

Question

Hi all - new to the community here.  My wife and I have been following BP for some time.  We've been very methodical and feel like we've reached the end of our research into real estate investing.

We've decided we're going to focus on small multifamily units that need some work.  Nothing major though, no foundation, roof, or large system replacements but we are capable DIY'ers and don't mind pouring sweat equity into a property to increase the value.

Our plan is to do a modified BRRRR.  We want to buy a property that needs some work, refurbish it, re-rent at a higher rate, and then re-sell to buy and hold investors.  Our goal would be to build a capital base until we could more comfortably buy and hold.

My question is, for those of us in the Denver market, do you think this is a viable plan or would it be best to sit out this year to see how the market shape up?

Steve K. · Answer

I think the value-ad play is still a good one in Denver. There are a lot of properties that got neglected in the 80's-90's that can be brought back to life, especially in Baker, Cole, 5 points, Barnum, etc. Just be careful of "mission creep" aka opening too big of a can of worms. If you're not comfortable with foundation work or roofing you may find yourself outside your comfort zone. Sellers still expect buyers to overpay for these gems, but if you negotiate well and are willing to get your hands dirty I think there's still opportunity with MF fixer-uppers in Denver.

Kevin M Cooney · Answer

@Mike Nedved small multi family is tough, and not impossible. It would be best to try and find one off the market. Turning around and selling it on the back end with new tenants in it, at higher rents may not pay off as well as you think.

I know I don’t necessarily like buying multi family with tenants already in place. Plus duplexes are hot items for owner occupied units as of late. Seen a lot of people buying them to live in one side and rent out the other.

I like the plan, and it could work. Just probably have to find off market deals, and special situations.

Nate Marshall · Answer

@Mike Nedved If you are looking to multi family that's good because it doesn't have the same issues as single family homes do when a market adjustment is negative like in 2008. Colorado has a lot of opportunities in B, C and even D classes that can be repositioned. I would suggest looking at properties where you have deferred maintenance, a poor property management company and can adjust rents upward and expenses downward. Using RUBS can help you cut utility costs.

Get a 36 month bridge loan that can refi into a long term 30 year product. You can even consider syndication and start looking at 50-150 doors or more. Some good syndicators in Denver.

Joe Massey · Answer

Hi Mike,

My first question is what do you mean by "shape up"?  The Denver market has been UP consistently by 6% per year for the last 40 years.  Many Denver investors are afraid of the dreaded bubble. One thing to keep in mind, when the market did tank rents held mostly steady while the value of homes plummeted.  It didn't take long for those values to come back either!  Matt is right.  Small multi-family and distressed properties have an exceptional price tag.  When one buys a high priced distressed property, fixes and flips, there isn't much meat left on the bone.  Fix and flips could be too much of a  headache for the profit one is likely to obtain.  In the current Denver market, one would be better off fixing and holding or buying a turnkey property with minimal issues.  @Chris Lopez co-instructs a BRRRR strategy class where you will learn about finding that gem and refinancing after placing a renter in your property.

Mike Nedved · Answer

Great!  Thanks Bill.  That's really helpful and points us in the right direction.

Bill S. · Answer

@Mike Nedved Unless you have some experience in flipping or in buy and hold rentals doing both at once could eat your lunch. I would 2nd the idea of starting with straight up flipping which about all that is supported in our current market unless you find a really good deal off market.

Mike Nedved · Answer

Thanks Matt. That’s helpful

Matt M. · Answer

Small MF is at a premium across the metro area. And your buyer pool is smaller on the back end. If you really want to flip, start with something small like a condo.

Brian Ploszay · Answer

We can't predict the future - although we definitely discuss it on posts all the time.  The long term growth and demographic strength of Denver is very viable.  But that unfortunately translates into high prices /  low cap rates.  If you find a true value-add property, you should be fine.

Is Denver cooked for investments?

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