Pueblo Colorado Market Updates

32 Replies

Hello all, it’s been a while since I posted anything about the Pueblo Market.

Personally, I’m doing both Buying and Selling.

Properties have appreciated well and I’m cashing out on properties that are no longer producing good returns. This is compared to the equity locked in the property. Making $6,000/year on a property with $100k equity built up is only 6% and has to go.

I plan to redeploy the capital back into the market. Properties are still meeting and beating the 1% rule so I’ll buy.

I’m expecting this whole house of cards to come down, and crash. Then it’s back to buying more properties.

What is everyone else seeing? What are your plans for Pueblo

@Robert Herrera @Sam Dangremond

We have a couple of rentals in Pueblo and did several flips last year. There seems to be a lot of demand for rentals so we are looking for a MFR or more SFR for BRRRR. Do you have a PM in the area that you like? Robert, have you already listed your properties and do you find that they're moving fast? It's amazing how quick some properties are going!

I plan on picking up some mf lots and building some long term holds in north west proper of Pueblo.

Anyone interested in getting together to scope some properties or go down there and hunt?

Originally posted by @Robert Herrera :

Hello all, it’s been a while since I posted anything about the Pueblo Market.

Personally, I’m doing both Buying and Selling.

Properties have appreciated well and I’m cashing out on properties that are no longer producing good returns. This is compared to the equity locked in the property. Making $6,000/year on a property with $100k equity built up is only 6% and has to go.

I plan to redeploy the capital back into the market. Properties are still meeting and beating the 1% rule so I’ll buy.

I’m expecting this whole house of cards to come down, and crash. Then it’s back to buying more properties.

What is everyone else seeing? What are your plans for Pueblo

 I've been buying/selling land & building in Pueblo West and it's really crazy how quickly the market accelerated this past summer. Last spring I could still buy infill lots for $10-$12 on the market and on the north end of PW they're now $30-$40!!!!

Crazy, but so far appraisals are supporting the increased cost. I don't have any long term buy/holds there but it's been a useful market for creating income. 

Dan

From my experience, if you have a single family home rental that appreciates rapidly, the rents will also increase, but you have to wait 1-2 years. 

I have 3 rentals (4 doors) today. I bought a college rental in Fort Collins in May 2007. The original purchase price was 182K and I spent 10K of rehab, with me doing 75% of the work. After the rehab, it would have probably appraised for 210K. The rent was around $1250/month. Now 13 years later, the home value and rent both doubled. 

From what I remember, 2014 was the first really good year for housing appreciation in Fort Collins, since the housing recession. I do not remember the specifics, but I'm sure that you can look it up. In 2015, I raised the rent from $1450/month to $1900/month with a new set of tenants. 

I had quite a few people tell me that at $1450/month, it was horrible cash flow and I needed to sell it asap. However, later that year, I rented it for $1900/month. Then another 4 years later, it rented for $2500/month. 

When you are in a fast appreciating market, I personally would be patient and wait for the rents to increase instead of selling. 

I moved to Pueblo West in August 2019 and we bought a primary home in Pueblo West in November 2019. I hope to start investing in Pueblo County in May 2022. 

@Adam Christopher sounds like you’re not getting your money’s worth if you’re not hitting the 1% rule. Meaning you’re only getting $2,500/month on a property that’s worth $420k+. You should be renting for around $4,200 or I feel you’re selling yourself short.

I’m guessing you’re around $300k in equity.

$30,000 per year / $300k is only 10% return on your equity capital. Also, if you have even more equity, your returns are even lower.

If you would have sold that property by now, you could have redeployed it into those properties that have better returns.

Personally I would have bought around 15 properties in Pueblo for $20k down with a cashflow of $6,000 per year each.

That’s $90,000 per year instead of $30,000 giving a 30% return on your money.

Also 15 properties that could all appreciate together. 15 properties appreciating $100k each would be world $1.5M in equity.

Good job building it up so far.

What about all the transaction costs with your example? Closing costs, realtor fees, capital gains? Could you walk me through it?

Yes, I know about the 1% rule. I have 3 rentals (4 doors). One of them was a 1% deal and it will be the worst performing rental out of the three rentals long term (10 years minimum) because it will have least amount of appreciation. 

Over the years, I have had quite a few people tell me that I could do better with the 1% rule. However, all the examples have been theoretical. I have yet to have a real person share real numbers and do better.

I do agree with you about avoiding dead equity, especially with the current low interest rates. For the Fort Collins rental, I did a cash-out refi in 2017 to buy more real estate. However, I did not buy any 1% deals. I pulled out 146K and I used the money to buy a primary house with a mother-in-law suite in 2018 for 603K in Hawaii. I did 50K of rehab and that house is now worth 900K. That house now rents for $4500/month (2 units). Market rent is $5,000/month but I can't raise the rent right now due to COVID-19. My PITI right now is $2650/month, but I'm going to refinance in June and payment will go down.

One more thing about the Fort Collins rental. The lot is big enough to have two houses. However, the current house is located in the middle of the lot. In about 10-15 years, I will probably knock the house down and build two separate houses. 

I'm also more of a lifestyle person. I work about 1,100 hours/year at my day job and another 100 hours/year self-managing my four doors. I'm pretty close to my perfect life. Real estate has been more of a lifestyle choice for me. If I bought another 15 properties, I do not see my lifestyle improving. 

We have 19 properties in Pueblo consisting of 26 doors. Most were purchased and rehabbed between 2013 and 2016. The Pueblo market has been amazing for us. We are in the middle of a refinance to pull out a significant piece of the equity which we will use to buy rentals in northeast Ohio, where the purchase prices are signficantly lower than Pueblo and Colorado. We are dropping our rate on the loans by about 2%, so our monthly payments will only go up a minimal amount. We have a great property management company in Pueblo we have been using and have a lender we can recommend as well, if anyone needs them.

Mike

@Adam Christopher

I can do that with some basic napkin math. According to Nerdwallet, long term capital gains tax on anything above $441,451 is taxed at 20%

$1.5million equity portfolio sold. Let’s figure $2,500 closing cost per property if sold individually (worst case). That’s 15 properties X $2,500 = $37,500 closing costs.

6% realtor fees = $90,000

Total fees = $127,500

$1,500,000

-$127,500

= $1,372,500 Profit

- $274,500 (20% capital gains)

=$1,098,000 take home profits.

Purchase a property @ $3,660,000

30% down of $1,098,000.

According to Zillow mortgage calculator your payments PITI (4% interest) will be $18,161/month

I know this isn’t correct because insurance is actually another $1,250/month.

Foe conservative numbers let’s say $20k/month payments.

1% rule on $3,660,000

=$36,600/month

-$20,000 (payment)

=$16,600/month

X 12(1year)

= $199,200 annually

/ $1,098,000 (down payment)

=18.14% on your money conservatively.

Rents go up year over year increasing this return.

If you sold when the market goes to 7% cap rate, your rent rolls would be valued at $360,000/year.

$360,000 / .07 (7%) =$5,142,857. You’re already up another $1,482,000. Rinse and repeat (I know easier said than done.)

None of this factors 1031X where you differ the taxes and put the whole thing into another property. That’s an additional $274,500 worth of down payment on a bigger property cashflowing even more and creating more wealth.

@Adam Christopher

Personally I like to get $500/month profit per door. (Some I paid more on and cashflow quite a bit more as well)

If you don’t feel your lifestyle, and the people you can help, and the reduction in work time isn’t worth $7,500/month on 15 more doors, keep doing what you’re doing.

@Robert Herrera I'm curious, now that Grant Cardone's Undercover Billionaire is airing, where he was in Pueblo, CO. Have you seen a strong uptick in investor interest in Pueblo?

@Rene Owczarski

I was actually almost on the show. I just never came down and visited with him. He was going by another name, but I found out it was him later on.

The fix n flippers from Denver are already in Pueblo. They started coming before the show. Still plenty of opportunity for buy hold investors

@Robert Herrera  

You told me that I would be better off selling my original rental with 300K of equity and buy 15 properties. It seems like you changed your example from 15 single family homes to an apartment complex. Is this correct? "Purchase a property @ $3,660,000" I can support the purchase of an apartment complex that hits the 1% rule, but not single family homes. In addition, if I was to buy single family homes, I could buy another 6 homes, not 15. My math is below. 

Selling price of 410K with 110K left on the loan. I would first pay 6% in realtor fees ($24,600). Then I will go with your number of $2500 in closing costs, so I'm left with 273,000. I will then pay 20% on 190,000 of appreciation of capital gains, which is 38,000. After selling my house, I am left with $235,000. 

If I put 25% down on a 100K house that hits the 1% rule, I would need 25K + closing costs, so call it 30K. Each one will probably need about 5K in repairs, so 35K for each door. I could buy 6 of them and have 25K in reserves. You actually need 6 months of mortgage payments in your checking to qualify for the loans. I would then own 600K of property instead of 410k. I'm guessing $2500 to $3000 in cash flow? With 6 lower end properties, I'm going to need a property manager or add at least 10 hours/week to my plate, in my opinion. 

Instead, I did a cash-out re-fi (146K) in 2017 and bought a single family home with a mother-in-law suite in 2018. Purchase price of 603K with 50K of repairs. It was my primary, but it's now a rental. Since 2017, the value of rental #1 went from 360K to 410K. Since 2018, the other rental went from 653K to 900K. I got 297K in appreciation and I get about 2,000/month in cash flow between the two.

I'm not saying that my way is the right way. To each their own. However, I do not agree with other people telling me that I would have been better off buying 1% deals at 100K/door. It's always theoretical. I have never seen any examples of someone build wealth as fast as my example with 1% deals of single family homes. Yes, it's possible with apartment complexes, but that is a different conversation. If anyone is out there and has done very well with 1% deals, please share your story. Please include the cash flow along with the appreciation. I would like to learn from you. 

My wife and I went from zero to 925K in net worth in 9.5 years (August 2011 to February 2021), while averaging 81K/year at our W-2 jobs. During the first 4 years we worked around 70 hours/week combined. About 5 years ago my wife transitioned to part-time work and we now work about 35 hours/week combined. When my wife transitioned to part-time work, we started spending about $500/month of rental cash flow on our living expenses. If we re-invested all of the cash back into real estate, we would probably have another 30K to 40K.  

 



@Adam Christopher

Interesting take on purchasing properties. I personally wouldn’t put 25% down on a property that needs $5k in repairs. Why not just buy a good property off the market to begin with?

My story: quick version

Most of my properties are SFH with only a few exceptions.

Started flipping mobile homes in 2012. I got tired of finding a new deal just to make money so I wanted rentals.

Bought our first Family home with FHA end of 2014, rented it out year later for $1k/month cashflow.

Sold mid 2017, walked away with $75k.

Purchased my first rental in 2015. Put $5k down. Put on the market for a lease with option to purchase. Got $7k back on the contract (option fee) and cashflow $500/month.

Used the lease option strategy to jump years ahead in purchasing properties. I used the option fees and the $75k for continued purchases and got more option fees.

All while increasing total cashflow $500/month on each property.

Most were purchased around $50k-$75k. Most down payments were around 10%. Some I purchased for more and paid no more than $15k down.

Most are owner carry, or private investor carry. I took some properties subject to existing mortgage (we did not assume the mortgage). One was converted to a bank loan to get the old mortgage removed.

I’ve closed on average 1 property every other month. About 12 I have with my business partner. The rest are mine.

I also purchased raw industrial land for my oil company we started. Purchased 1 raw lot as speculation to sell later.

Purchased 1 Industrial building New Year’s Eve 2019 (25,000 sqft building on just under 2 acres I-3 heavy industrial) for $1M with only $35k down. (Long story, great negotiation skills)

Currently appraised at $2.5M

I was at 34 properties, sold 1 to a tenant who executed lease option contract.

Currently have 3 more I’m putting on the market as we speak, possibly a 4th.

All properties appreciated around $50-$100k+

Estimated $2.25M Net-worth over 5 years.

Cashflow around $15K/month and growing. I’m selling because my cash flow is low compared to the equity I’ve accumulated.

@Robert Herrera "Interesting take on purchasing properties. I personally wouldn’t put 25% down on a property that needs $5k in repairs. Why not just buy a good property off the market to begin with?" I have found that I get a 10% discount for buying ugly houses. That 100K house that put 5K into it should be worth 115K when I'm done. 


Lease options and only 10% down seem like a great way to grow fast. If you are putting 10% down on your deals and I am putting 25% down on my deals, you will grow faster. No question. However, I am still looking for someone to show me that they grew quicker because they only stuck to 1% deals. I haven't seen it. 

My original investment was 50K in 2007 and now it's about 750K in equity. It should be closer to 800K because I spend about 500/month. I think my return is around 23.5% over the past 13 years. I would like someone to show me that they did better than 23.5% over 13 years by only doing single family home 1% deals. I'm not saying my system is the best or cannot be beat. However, I still haven't seen anyone do better by limiting themselves to 1% deals. 


@Robert Herrera - thank you for sharing in such detail!

Am I understanding your big pictures correctly that you've done some 34 properties over ~5 years *all* with lease options? And only one sold to the tenant? That's a lot of nice lease option fees!

Originally posted by @Sam Dangremond :

@Robert Herrera - thank you for sharing in such detail!

Am I understanding your big pictures correctly that you've done some 34 properties over ~5 years *all* with lease options? And only one sold to the tenant? That's a lot of nice lease option fees!

Thanks for sharing. I agree. Lots of good info. 

I was on another forum sharing my story of about $2500/month cash flow. I was told repeatedly that I was doing it wrong because I wasn't following the 1% rule. I asked the forum if anyone could beat my numbers using the 1% rule. No one could do it. They finally mentioned, "Investor X" because he had 15K/month of cash flow. I was told that he was following the 1% rule and doing much better than me.  

"Investor X" joins the discussion and shares that he used 300K of his W-2 income to fund his rental properties. I used 50K. He has 6 times more rental cash flow because his initial investment was 6 times more. He also self-admittedly worked about 50 hours/week for about 10 years straight to build the portfolio of about 12-15 properties.  

It seems like you got a good deal on the industrial building. Great job. Were you following the 1% rule when you bought it? I have no idea. I'm just curious.