Denver Investors - What Is Your Biggest Challenge Finding Deals Right Now?

Question

I am a local agent in Denver, and I am personally seeing a lot of shift in renovation margins lately. A lot of the neighborhoods that did well in previous years are a bit too tight now. For those actively investing in the Denver Metro Area, what has been your biggest obstacle lately? Finding deals that cash flow? Reliable contractors? Understanding Submarket Trends? Or Something else?

I look forward to hearing y'alls responses. This is a great community!!

Greg Weik · Answer

Hi @Noa Lukela, many of my clients (buy and hold) who are ready to buy additional rentals are seeing the same challenges you've alluded to.  Deals are still hard to come by (but this is rapidly changing), and contractors have gotten considerably more expensive for most things relative to 1-2 years ago.

I don't think contractors will drop pricing anytime soon, and interest rates are still holding, so home prices are the variable that is going to take the hit.  We are seeing that in earnest across the board.

Part of the challenge: uncertainty.  We are seeing homes, in excellent condition, in historically very desirable areas simply sit.  DOM keeps climbing.

For flips, even if you find what seems like a great deal, and even if you're pretty sure the numbers will work out... the hesitation of the buying public means the home could still sit.  You could still end up stuck with the property after you complete renovations.

No one wants to be a first mover right now; the margins are too tight.

In 6-12 months, there will be attractive deals for flips or buy-and-hold.

Noa Lukela · Answer

Thanks for the thoughtful insight. I really appreciate you taking the time to share this. I am seeing a lot of the same trends on the ground here in the Denver metro: longer DOM, buyer hesitancy, and a noticeable gap between list and close prices that is widening month over month.

You are absolutely right about contractors as well. Margins on flips have become extremely tight unless you have preferred crews locked in or can self manage part of the rehab. That is why I have been advising my investor clients to stay patient, keep cash liquid, and line up financing ahead of the inevitable correction window we will likely see in the next two quarters.

I would be interested to hear what markets or property types you are seeing your buy and hold clients shift toward lately, especially if any of them are reallocating from flips into long term holds or small multis. Always good to compare notes with someone seeing the same data patterns.

Noa Lukela · Answer

Hey Moe,

Thank you for your input and I couldn't agree with you more. It is very interesting that you are seeing similar trends in the Texas market! Also fascinating because it has been my experience that a lot of people in Colorado are choosing to move to Texas and vice versa.  Prices here are slowly taking a much needed correction, but it will likely be some time until the market is adjusted.

Thanks for your input, that is always greatly appreciated!

Moe Sidd · Answer

Hi @Noa Lukela,

Not in Denver, but I do think that in most of the country, deals aren't really cash flow positive when you take into account the mortgage, taxes, insurance, vacancy, closing costs, and low rental yields, among other factors.

In states where the numbers used to work, such as Colorado and Texas, it no longer makes sense in most cases. So I feel investors and even homeowners are thinking twice before diving deep into real estate investing, as they should.

In a way, the hype dying down is a good thing, as prices jumped way too high post-pandemic. A cool-down is much needed, especially for first-time homebuyers.