All Forum Posts by: James Carlson

@Jason M.

Yeah, we saw that as well, but I think the CoreLogic report has some misunderstandings about our market. Local lender Lonnie Glessner had a great post about this report. Couple points:

Incomes don't keep up with home values? So what.
People have been saying for years that our market is over-valued if you use the disposable income per capita. But Denver's home values have been outstripping income levels for decades. This hasn't stopped homebuyers for a number of reasons, a big one being that mortgage rates have been in the 3s and 4s for much of this boom time, whereas rates were in the teens in the 80s. (Glessner included a great stat in his post. If you bought the average home price in 1980 for $75,000, your interest rate was 18% and your monthly payment was $1074. Today, at 2.875%, you can borrow $258,000 and have the same monthly payment.)

Denver's unemployment rate to soar?
The CoreLogic report also makes an interesting claim that Denver's unemployment rate will soar because "A large share of Denver jobs are in industries that have suffered as a result of Covid-19, such as mining, logging, and construction and trade, transportation and utilities." Not sure where they get that. We're not a mining and logging city. And most jobs lost in Denver are in the service sector, a pool of people that on average don't own homes.

Inventory
We have less than 1 month of inventory right now and have been under 2 months of inventory for seven years. That doesn't lead to price decreases.

Waiting for the distressed properties
Usually we see an influx of distressed properties on the market before home prices drop. Pre-Covid, Denver had the 2nd lowest delinquency and foreclosure rate in the country. That will have to change before we start to see a huge drop.

I'm interested in any pushback on this or blindspots to the above logic. 

Anyone else read the Denver Post article last week about average rent prices in Denver dropping for the first time since 2010? Looks like the average price to rent an apartment in the Denver metro area was $1506 from April through June. That's $30 cheaper than the same period last year.

Before tenants get too excited about some trend, it seems worth noting that a global pandemic fueled fears of losing tenants and likely fueled a drop in prices. (I know we dropped our prices a touch just to be sure we got someone in during these months.) We'll probably see the next quarters' numbers down a touch as well. The question is whether that will sustain after Covid, or if this is purely a virus-related drop. 

Just following up on this post with this story from a few days ago that talks about the "Recovery Index" put out by Realtor.com. It lists Denver as the third most recovered real estate market in the country. That's not surprising with record low inventory and record high demand, it appears even pessimists like me have nothing to complain about. That said, I still wonder if we'll see a slow down if Covid-19 comes back strong in Colorado in the fall and if that effect on the economy starts to filter into the white collar jobs. Right now, it's still mostly service sector jobs that are suffering, which isn't the bulk of the buyer pool. 

@Steve K. @Kelly Sennholz

Yeah, it seems like Denver's intent at the outset was to address affordable housing. (The initial draft expanded the number of allowable unrelated residents in the same house from 2 to 8. Now the draft allows for 5 unrelated adults.) But this sudden turn not allowing it unless it's some sort of group co-living space counteracts that intent. I think I need to hear more about the law before and the law as it would go into effect and make sure I'm not misreading something. 

And to Steve's point, these rules were rarely if ever enforced before, so I'm not sure this will change anything anyway.

@Young Kim

First off, that's exciting to undertake a new journey. Erin and I quit our W2 jobs to become real estate agents in Denver and Colorado Springs only about five years ago. It was the best decision we ever made.

About being a real estate agent. There are so many paths to getting started. I'm interested to hear others' stories, but I'll just tell you what worked for us: Find a niche. Burrow in. Dig deeper. You don't need to know everything at first. You need to know one or two things and know them well and then reach the people who want to know them.

For us, we saw a gap in knowledge around the Airbnb laws in Denver and Colorado Springs. We talked to the city planning department about, we wrote reports about it and blog posts and held free classes where we talked about the laws. 

Not to blow our own horn too much, but we became the experts in Airbnb in these markets. That led to clients who wanted to invest in Airbnb real estate and has also opened up a seamless transition to helping people house hack in Denver and Colorado Springs as well. 

I think people get overwhelmed by the steps to "making it" in real estate. Don't think about that at first. Just dive in and take a few concrete steps. Start studying for your license now. Start learning about a niche -- maybe it's topical like "how to do this type or that type of investment" or maybe its geographic like you know and write about and talk about a few neighborhoods. 

I wish you luck!

Well, this is interesting. There's a new high-end condo development in Denver's LoHi neighborhood called Espadid. It's partnered with an STR property management company to obtain a hotel license for the whole complex. If you work with the STR management company, then your unit falls under the hotel license and ... voila! You've got a full-on Airbnb investment property in the heart of Denver.

I've been watching the short-term rental laws in Denver for years, and I've been waiting for someone to try this end-around the primary residence rule. It will be interesting to see how they do. Some rough numbers:

• $430-$450k for a studio; $490k for a 1br (Yikes!!)
• $50,000-$60,000 gross revenue for a studio or 1br
• Guessing 20% management fee (though the owner told me they might start at 15%)

Those numbers can give you better cash flow than most properties in Denver, but that's a not insignificant outlay. And with the city seemingly so anti-Airbnb, you still have to worry about the regulatory certainty. (I.E. are they going to pass a new rule to outlaw this?)

@Nelson Henry

Been meaning to update this. You're correct. Under the new proposal, house hacking in Denver in a place you don't live -- or more to the point, renting by the room if you don't live there -- will be prohibited. Yikes!!

If you want details, read through pages 15-22 on this document. Here are the details:

• If the owner lives there, it allow up to 5 unrelated people to live together.
• If the owner does not live there, it aAllow up to 5 unrelated people to live together only if they are a "non-profit housekeeping unit." (see pg. 18)
• A "non-profit housekeeping unit" is defined as a group that shares chores and maintenance. (Okay, that's alright.) But here's where it changes: The definition specifies that "The choice of specific adults comprising the single non-profit housekeeping unit is determined by the members of such housekeeping unit rather than by a landlord, property manager, or other third party."

So essentially, you can't move out and then rent a house by the room. I'm awaiting clarification on how many unrelated adults can live together if they're not this so-called "non-profit housekeeping unit."

@Vasily R.

Also, to address a question you did not ask. What is your goal with this property? Is it to offset your mortgage as much as possible? Is it more to have a great 10-year home and the rental income is secondary to your needs?

I ask because in Denver, $550,000 will get you a pretty good little home. At $850k, you're obviously looking at a different class of place, but you're also going to have a higher mortgage and likely less of it will be covered by whatever your rental portion is. (Though in our searches for our clients, I've seen some truly awesome homes lately with amazing rental units.)

So your initial question of whether to wait or not is also affected by what you want to do. If you want to offset more of your mortgage, then having a lower mortgage -- and therefore not needing to wait for that $800k+ qualification -- is your answer. 

Cheers!

@Vasily R.

First off, a premature welcome to Denver. It's the best city to live. Great beer, beautiful urban parks, 300 days of sun, legal weed, countless good food and bar options, and proximity to the mountains. 

I always recommend reaching out to a lender sooner rather than later. They can help you talk through the pros and cons of waiting or not. And they -- better than a real estate agent like myself -- are going to be able to tell you whether they can count that incoming income or not. 

@Account Closed

Erin and I initially were skeptical about the markets we work in -- Denver and Colorado Springs. But like @Daniel Haberkost posted, there has been no slowdown at all. In fact, I'd say this has been the busiest we've ever been with clients, which is kind of nuts. But it's all market to market, right? In Colorado Springs and Denver, inventory remains at records lows and demands remains near record highs. That dynamic leads to price increases and competition. 

I could see how some of the house hacking crowd we work with would rethink living with others during Covid times, but in a way, we're hearing from clients that it's even more of a priority right now. They're unsure about the economic future, so having someone else cover as much of your mortgage as possible is very attractive.

Our own rentals have done fine so far, as well. We have a slightly different model though. We have two condos in Denver -- one a 1br, the other a 3br -- and a duplex in Colorado Springs -- each 2br units. They're all furnished medium-term rentals for the traveling nurse type. We've seen a huge demand for them. Again, I'm not sure if that's market specific or if that type of rental is in demand everywhere.