All Forum Posts by: James Carlson

@Cole Holloway

First off, congrats on taking a big step. I've got a couple thoughts on this. 

1. Do you own the property you live in? If not, then like @Ian Whitney, I think your first "investment" should be the place you live. You can house hack if you want by the room, though I find most couples aren't super psyched about that. I'd suggest trying to find a home with a basement apartment or other mother-in-law setup that you can Airbnb or medium-term rent. We have searches set up to find those properties for our buyers. It allows you to offset your mortgage a bit while also maintaining privacy for your own residence.

2. My suggestion on how to handle all the information is ... to not try to handle it. Read a book or two. Listen to a few podcasts but then take the plunge. You'll never learn as much in a book as you will by doing it. We didn't know much when we bought our first place in 2015 but we learned a ton. We have four investment properties (five doors) now, and each new one teaches us something. I am prone to analysis paralysis myself, so I try to keep it simple. Can I cash flow on this place? Even a little? Is it in an area with appreciation potential? (Like most places in Denver.) Great, let's get it, work it, learn some things and move on to the next.

Not the traditional advice, I know. I wish you luck. 

@Kyle Donath

Thanks for the note. And good question.  

In general, I kind of hate all the "rules" I see floating around here. The 50% rule. The 2% rule. Th3 1% rule. Etc. I think it's good to have a marker to gauge an investment's worth, but it feels a little strict and doesn't account for other big money-making aspects of real estate. (Namely, appreciation.) You're hard-pressed to find a property in Denver that meets the 1% rule, much less the 2% rule. That doesn't mean properties aren't a good buy. The above buyers will cash flow for them about $700/mo while living there and house hacking. And Denver is a strong market with low supply and high demand, and every indication is that over the next 10-15 years prices will continue to rise and with that, their equity goes up. 

(Side note here: Since 1975, Denver's home values have risen an average of 6% every year and that's accounting for two big downturns. That's crazy amounts of equity if you hold for the long-term.) 

And the 50% rule in my experience is a bit ridiculous. We have five doors, many of them for five years now and none of them require 50% of the rent to cover all expenses. I think a simple 5% vacancy, 5% capX, 5% repairs budget is strong. (So essentially, 15%)

Anyway, for me, I try to keep things simple. Can I cash flow a bit? Is this home in a good location with appreciation potential? If so, great. 

Perfect Denver home for those wanting to offset their mortgage with rental income. Charming Clayton neighborhood ranch with totally remodeled basement apartment (yes, with a separate entrance). Looking to house hack but have some privacy? This is an ideal set up. Basement rents on Airbnb average $2,500/mo. If you want to rent it as a medium-term rental, it goes for about $1,600. Spacious backyard, 3 blocks to light rail, easy access to City Park, RiNo, downtown and 9th & Colorado development. 

$489,000

Thanks for the insights, @Brett Goldsmith. I'll watch for more guidance in the coming days/weeks.

@Brett Goldsmith

I don't know if that's true. I have a client who went ahead with a forbearance plan online with PennyMac. At the end, she got a note that said -- among other things -- "In no case will the full amount of missed payment be immediately due when your forbearance period ends."

@Brett Goldsmith

Thanks for the thought. Under the scenario you're talking about, I'd think it'd come down to whatever the agreement was. If the service provider is just tacking those -- for example -- three payments on to the end of the 30-year term, then would you be penalized right away?

No, no, you got it. You technically only have to be 500 feet from a non-owner-occupied permit. (If you have an owner-occupied permit within 500', you're fine.) But you still have to have the license, and when you apply, they'll run your address through their list and their map to see if you qualify.

I have a number of investor clients here in Denver and Colorado Springs worried about coronavirus and their tenants' rent (and therefore worried about their mortgage payments). They're all asking me the same question: Will a mortgage forbearance either A) affect my credit score or B) impact my qualification for a loan in the future? 

I'm seeing mixed messages. I hear other agents advise clients to just dip into their reserves. Totally. That's what we're doing personally. But not everyone has those reserves, especially new investors who just bought. 

Here's what I'm finding. Any lenders out there? Institutional bankers? Thoughts?

Law firm advisories to banking institutions

A little context: in normal times, any loan modification is considered a "troubled debt restructuring," which is a negative on your credit score. I hear some lenders say that after this is all over, loan servicers will then list any forbearance period as a loan modification and that it will be seen negatively. 

But what I read in several advisories sent out by law firms that represent financial institutions indicate something else: 

Like this advisory from Thompson Coburn, that quotes a joint statement put out by all credit agencies (FDIC, etc.): "The agencies have confirmed with staff of the Financial Accounting Standards Board (FASB) that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not troubled debt restructuring."

Other sources

I see the same message in many other law firm advisories (here, and here, for example) and in an FAQ put out this week by the FDIC.

Again, if you can pay, it might be smart to pay to avoid any risk of a hit to your future credit or lending ability. But it sure would be nice to know for our clients, in concrete terms, how a mortgage forbearance would affect them.

@Colin Smith To me, that sounds like the best plan. Just to be clear, if you're zoned R4, you still have to either have had an existing STR permit before Colorado Springs' new Airbnb rules went into effect, or -- if you didn't have an existing permit -- then you have to be outside of that 500-foot buffer of any other non-owner-occupied STR. (You can contact Susanna Dalsing at planning to check the 500-foot buffers.)

Sounds like you already know that, but just making sure. If you are outside of a 500-foot buffer but you don't currently have your STR license, I'd apply for it now just to blot out any other STR from getting inside your bubble.

@Colin Smith

Interesting question. Is this an investment property in Colorado Springs as an non-owner-occupied Airbnb? (If so, you have to be grandfathered in under the old rules or be outside of a 500-foot radius of any other existing non-owner-occupied STR) Or are you talking about a basement apartment/mother-in-law suite in a primary residence?

Short answer
What would I do? I'd get a 12-month tenant in there and plan on furnishing and listing next March/April. I'm a pessimist about the coming months and want the stability of a long-term tenant.  

Long answer
A lot of this depends on the course you think the market and the virus/economy will take. I see two factors here: 1. When to list; and 2. Whether to furnish now or later

When to list
If you think the virus will go away quicker and the economy (and therefore travelers) will come back quicker, then you could get a 3-month tenant (furnished or not) and plan to list as an STR in July or August on Airbnb. You'd get some summer and early fall prime times.

I'm more pessimistic and think we're not going to see a big increase in traveling for months at the earliest. I wouldn't want to list for the first time in the winter when most short-term rentals are seeing anywhere from a 30-50% drop in their revenues. So I'd wait till spring next year. 

Furnished or not
Side note on listing now as an STR. No matter what, I wouldn't do that. Airbnb definitely gives a boost to new listings, and you want to take full advantage of that when people are looking. List right now, any boost you'd get would be waste when no one's traveling.

Even though you're not listing as an STR right now, you could still furnish right now and get it rented as a medium-term rental for 3-6 months. That would give you some flexibility to see how the market goes and then switch to STR if you want.

The thing I'd worry about is how quickly you can get it listed and rented. There are going to be a lot of STRs transitioning to medium-term rentals soon, so you could be facing stiff competition in the coming weeks. 

Which brings me back to, get it rented now for 12 months, ride this out, and come out next spring/summer with a bang. My two cents, at least. What are your thoughts?