Buy a house/apartment and rent it out as an investment ... (Denver: sale, real estate)

[forestpool]

is it a worthy consideration in Denver?

Assume I can put in a down payment of US$70,000 -- and make extra by collecting rentals.

If the answer is YES, what's the right locations?

near the colleges i.e Boulder, Golden?

downtown?

Thanks all

[SkyDog77]

Do you live in Denver? Will you be managing it yourself or hiring an agency? Have you owned rentals before?

[Willy702]

Not a great market for it right now. If you had bought a few years ago and were renting now it would have worked out well, but I think the ability of the market to absorb rent increases is shot for awhile and sale prices are reflecting the new rent levels. Forget about places near the colleges, they are some of the highest priced areas around relative to the quality of the housing stock.

Colorado Springs still has acceptable yields on rentals, although they aren't what they were a year or two ago. Maybe you can find some fixers or smaller homes in rougher parts of town which would work, but then you have to be good at handling management issues which are always going to happen in lower class areas.

[mgoetz87]

I whole-heartedly disagree with Willy. Rental rates increased 12% over the course of 2013 in Denver. That's on top of increases over the last four years. Yes, property prices have increased, but with interest rates as low as they are and demand for rentals through the roof it is still a great option. You still have to consider that someone else is paying down your principal, so even if you were to only break even on a monthly basis, you're getting all of the benefits of owning the property without paying anything (write-off, appreciation, etc.).

As far as locations are concerned, you can still get away with purchasing almost anywhere. I recommend that you concentrate on areas that have seen sale prices outpace the rest of the city (Highlands, Berkeley, Five Points, the CPV, etc.).

[Colorado^]

There are RE investments that give you money in your pocket each month, but then these properties don't tend to appreciate as much. Or you can have a situation where you're just breaking even (especially in the beginning), but at the end of 15-30 years you own a nice house that's appreciated significantly.

Mortgage rates are pretty low still, but house prices are pretty steep. Try to find the next area to be gentrified. I really like the 15 year mortgages.

Also don't forget to budget for repairs, maintenance and vacancy periods on the house. To make money at this you have to be in for the long term and not have your hand forced.

And don't forget about what a huge time suck it can be at times. Living close to your rental can save a lot of time/money, especially if you're handy.

[Willy702]

Originally Posted by mgoetz87

I whole-heartedly disagree with Willy. Rental rates increased 12% over the course of 2013 in Denver. That's on top of increases over the last four years. Yes, property prices have increased, but with interest rates as low as they are and demand for rentals through the roof it is still a great option. You still have to consider that someone else is paying down your principal, so even if you were to only break even on a monthly basis, you're getting all of the benefits of owning the property without paying anything (write-off, appreciation, etc.).

As far as locations are concerned, you can still get away with purchasing almost anywhere. I recommend that you concentrate on areas that have seen sale prices outpace the rest of the city (Highlands, Berkeley, Five Points, the CPV, etc.).

Fine disagree, but I am involved with a lot of investors and they are all doing deals elsewhere. Its an utter exodus out of the Denver area for people who have been through a few cycles and can spot a poor returning market. Rents have gone up about the same as prices, problem is the leverage you get as a landlord tends to come from being already in position when those rents go up. In other words to be a good investor in this particular field you get in front of the trend, you don't follow it because that is when the amateurs come in and blow up the market making it hard for deals to work. Not saying it can't work in the long run, landlording almost always works out if you do it long enough and have the resources to handle the tough periods, but now is not the best time to start out.

The real problem are the fixers and lets call it "C" quality homes are priced way up right now because of a lack of inventory of all kinds and the much talked about affordability issues. Buyers in general are going crazy trying to spot the next area to gentrify which is a risky game, but people can see what money was made in Highland and its neighbors and will buy up anything and everything in hopes its the next area to blow up. The coming of more light rail is fueling this as well as previously untouchable for most areas like near Colfax in Lakewood are suddenly seeing demand. Light rail is a nice amenity, but I highly doubt with so much new supply of stations coming that the expectations are going to be met in terms of property and rent gains.

"C" homes are where good investors make their best deals. People who buy "A" and "B" homes generally need equity gains to really have deals pencil out when real estate in general is strong. The only good idea in real estate investment at the moment IMO is to buy something you'll rent out in the future. Live in it now for the next few years and if rents continue to increase you'll eventually have a very nice cash flow to work with. In the meantime you get a home with a residential loan (lower down, lower %) and the benefits of owning, plus you can DIY some modest projects which can add rental value. This is pretty much a strategy I always personally pursue, but it does mean keeping a close eye out for buying the type of property which can rent well (no McMansions or highly upgraded digs, stick to the basics of 3BR or smaller) and avoid buying in places with tough commutes and/or poor transportation options.

[bler144]

Originally Posted by Willy702

Fine disagree, but I am involved with a lot of investors and they are all doing deals elsewhere. Its an utter exodus out of the Denver area for people who have been through a few cycles and can spot a poor returning market. Rents have gone up about the same as prices, problem is the leverage you get as a landlord tends to come from being already in position when those rents go up. In other words to be a good investor in this particular field you get in front of the trend, you don't follow it because that is when the amateurs come in and blow up the market making it hard for deals to work. Not saying it can't work in the long run, landlording almost always works out if you do it long enough and have the resources to handle the tough periods, but now is not the best time to start out.

It's just a variation on the 'buy low/sell high' principle. Getting in the game now you're not buying low, so you're very reliant on prices continuing to grow, both in rents (to make the short term financing work) and in sale prices, so that you don't lose all that equity.

I'm sure someone who really knew the numbers and the market in and out could still eke out a profit even in this tight market, but the big money seems to be moving elsewhere. If you're asking for advice about profitability on C-D, you're chasing the trend and hoping it still pans out.

As Willy said, much of the big money seems to be moving on because the easy gains and best bets are already snapped up. Could you make a profit? Sure, if you did your research for a great deal and business plan, or if the market continues to swell and you just stumble into profit. But you could also very well take a soaking.

Investment is a balance of risk and reward, and personally I think the risk with jumping in the game right now, especially as a novice with no insider edge, is pretty high.

[Moonpuppet]

Everyone has good points to share. Yes, purchase price for the investment homes are high, so are the rents. Interest rates are low, and smart buyer are out looking for deals. Every market (time and condition) has to offer the opportunity to make money, if not the system won't work.

Testing new markets have greater opportunity to make more money, but the risk is greater too. Already tested markets have proven record, so you can calculate your risk from the history.

I have been in the rental market for over 18 years in central Denver (wash park, platte park, city park) with multiple properties and am still in the market to make more investment in these areas. Yes, I would have made more money if I would have invested from 2009-2012 but I was not sure what the market was doing.

Having Architectural,and Real Estate background, certainly helps me to see the numbers differently but its hell allot of better than .01% in money market.

To recap, I am still in the market, looking for place in Wash park. Yes there is a premium to purchase a property, so are the rents. Vacancy rates are very low. I have to ask my tenant that I need a week to fix up the place before they can move in. Certainly, with the higher rents you see and get better tenants too.

[dude_reino]

I have been doing it for 5 years with success. Bear in mind that you should be declaring the income on your taxes. With a large down payment and very low interest rate, you will not have much mortgage interest to write off.

In the past I've usually been able to write off a loss after all expenses are accounted for, which lowered my taxes. Since I refinanced to a lower rate and principal, I am now owing about $1,000 a year in income tax, which is just right about at my profit made on the rental.

Bottom line: if annual profits are your priority, it is not worth it. It is only worth it if your goal is to hold onto an appreciable asset for many years without paying for it.

[2bindenver]

I like duplexes live in one rent out the other.