All Forum Posts by: James Carlson

@David Chen

What a great question and one loaded with all sorts of factors. A couple thoughts:

Other goals?

You talk about your investment goals but it seems like you have other goals with this purchase as well -- mainly proximity to downtown Denver and new-build, ready-to-go condition. (It sounds like you're looking in Villa Park or Barnum area.) Those goals are probably competing with your financial goals. That's alright, it's just something to be aware of.

Gotta live somewhere

You're right. It can be difficult to find a cash-flowing property in Denver. House-hacking can help, but it's not a cure-all. That said, we always tell our clients that you have to live somewhere and you might as well own that property. If you offset some of the costs along the way, then that's a win. 

Other areas?

When weighing your goals, if the financial aspect is more important, then I'd look for a not-new house further out. That doesn't mean run-down or in need of rehab; just not brand-spanking new. A 4br/2ba SFH in an outer perimeter like Thornton/Westminister up north, or east Colfax/Aurora to the east can be in the lower-to-mid $300s and you can actually cash flow once you move out then.

Appreciation

I know it is a blasphemy here on BP to even consider -- even say the word -- appreciation. I get it. Cash flow you can count on more. Appreciation is kind of a gamble. But I'll dive in. My wife and I totally consider appreciation when buying. Most of Colorado looks good for that. The midwest does not. Since the mid-70s, home values in Denver have dipped twice -- in the mid '80s during the savings & loan crisis and problems in the oil industry; and in the 07/08 housing crisis. In both instances, it took 5 years and 7 years, respectively, for the average home value to recover and then continue to go up.

@Damian Gutierrez

They're managing it themselves. It will definitely be more work than a traditional long-term rental. But the demand for these types of rentals in this area are such that if they are diligent in getting new ads up with a month's notice of when they'll need to fill a vacancy, they shouldn't have too much trouble getting tenants. 

As an example, we've had two condos that we ran for going on three years as furnished medium term rentals in the heart of Denver. (We actually sold one recently, so only have one now.) Our vacancy rate over that time averaged about 3.5%, which I don't think is bad. 

If they did have to hire a property manager, the monthly cash flow would obviously be affected, but it would still cash flow about $500, which is kind of crazy for Denver. 

@Account Closed

Denver's huge, and the rents vary widely. For this area of Aurora, you might get $1,900 to $2,000. (This is a little nicer than some of the comps around it, so maybe $2,100.) It's not unlike others areas of Denver where it's really tough to get a traditional long-term rental that cash flows. You almost have to get creative, either through house-hacking -- if you're going to live there -- or through some sort of short-term rental/Airbnb or medium-term, rent by the room.

@Angie Shires

They are likely doing street parking. In that neighborhood in Aurora, the parking is not that bad. They do have a 1-car garage that they might rent for a little extra, but they don't know yet. It could also be storage. I wish you luck in your investments!

I helped two buyer clients close on this deal last week in Aurora, Colorado, just outside of Denver and thought I'd share it. It's a good example of how even in a hot market like Denver, if you get creative, you can still cash flow. In this case, they are doing a medium-term rental, rent-by-the-room model. It's a straight-up investment property for them, but it would definitely work for anyone wanting to house hack in Denver.

The deal

A 1500sf, 4br/2ba SFH

The seller had remodeled it a bit. 

How did we find the deal?

The MLS. Sure, off-market deals are great ... if you can find them. We had looked at some other houses in the same neighborhood and missed out on one that was about $10,000 cheaper, but it was also in older shape. This one will photograph well, which is important for the tenants the clients want to attract.

Rent-by-the-room model

The clients are furnishing the property for about $4,000 and renting by the room on a medium-term basis. They had 13 showings for potential tenants before they closed. Most were doctors and nurses who are working temporarily at the hospital. 

What was nice about this space is that A) it was ready to go and looked good in photos so it attracted a higher price and more quality tenant and B) it had two living spaces which will allow the roommates to spread out a bit. This second thing may seem trivial or meaningless to your bottom line, but I see it as a way to keep people happier longer, which may also keep them out of your hair and keep them renewing a lease.

The numbers

Purchase price: $325,000

All-in monthly expenses: $2,050
-- That includes principal, interest, taxes and insurance (they put 25% down); 5% savings each for repairs and CapX, 5% for vacancy and about $200 for utilities

Rents: $2,900 
-- That's an average of $725/room, though two of the rooms were for more and two were for slightly less

Cash flow: $850/month

Again, the above numbers show me that anyone wanting to house-hack in Denver could do this and live rent free, or even cash flow a touch. Because if you lived in one room, then, you'd lose about $725.

Considerations

Anyone wanting to house hack needs to be aware of the laws around the number of unrelated people that can live together. For instance, in Denver the cap is two unrelated people. In Aurora, it's four. This can certainly change your model.

Also, for those house hacking and wanting to incorporate a short-term rental or Airbnb in one of the rooms, you should know what your STR laws are in that city.

What's next?

They're going to get this up and running and then rinse and repeat.

Pictures

@Chris Gouveia

First off, congrats on taking a step out into the REI world. That's awesome. Denver, as some have already said, has some high price points. That said, there are some ways to cash flow. A client of mine just closed on a home near a hospital with about $2,050 with all expenses, including repair/vacancy/capX/utilities and will rent by the room for about $2850 in revenues. That's not bad.

Then there is the long-term appreciation potential of markets like Denver and Colorado Springs. 

It really comes down to your goals. You can buy in the midwest for a much lower amount in and get cash flow. Your appreciation will be pretty flat thought. You can get creative in a Colorado market, make some cash flow but also have the possibility of better appreciation long-term.

Good luck!

"Asking for a friend!" That's what you say when asking about a funky rash the shape of New Jersey

A short term rental or STR is any rental less than 30 days. The city of Colorado Springs (or most any city like Denver or elsewhere) doesn't care what platform you use to obtain these less-than-30-day guests (Airbnb, VRBO, newspaper classified, coffee shop flyer); they care that you rent your house or room for less than 30 days.

Anything 30 days or more is the same as a year-long lease in the eyes of the city. It all falls under the same rules, which is to say it's totally legal, whether furnished or not. 

Great addition, @Thadeous Larkin. (And bonus points for using "ostensibly" in a sentence.) I failed to mention that important provision. I would love to see the blowback if the City of Colorado Springs revoked the license of a deployed service member. But damn, if they haven't done some interesting (read: unpopular) things already with the STR laws.

@Ryan Garrison

I agree with something @Jeff White said. I'd look at finding a home with a lock-off basement or a walk-out basement. May not be the most easy search, but depending on your market (we're in Denver and Colorado Springs), you might be able to find a home with 4br up and some kind of rental space downstairs. Maybe it's got a kitchen, but more than likely it's just a space with a separate unit. Then you Airbnb/short-term rent it or try a medium-term rental for traveling nurses. 

@Patrick Hanes

Welcome to BP! And congrats on taking a first step. Have you talked to a lender yet? That's a great first step. And then finding a good investment-minded agent to talk through options. House-hacking in Colorado Springs can really work with any number of strategies. We've had clients live in one room and rent the other three. We've helped others find a home with a lockoff basement that they then Airbnb or medium-term rent that unit. 

Anyway, it's a great community here. Good luck!