Institutional Expertise Entrepreneurial Platform
|Capital Real Estate, LLC is a Denver, CO-based real estate investment firm specializing in the acquisition, management and disposition of multifamily real estate investments. CRE leverages unique expertise in market intelligence, deal sourcing and asset management to optimize investment yields and investor returns. With over 120 years of combined real estate experience, primarily focused on the multifamily sector, CRE combines the energy of a young entrepreneurial firm with the fundamental institutional experience of CRE’s principals and management team. CRE’s business model uses prudent judgment and detailed analysis to acquire communities, calculate market timing to anticipate and execute the ideal disposition strategy, and oversee qualified, professional third party vendors in optimizing the returns available on investment properties.|
|Capital Real Estate, LLC1700 Broadway, Suite 620, Denver, CO 80290Phone: 273-0101|
Condos Attached Single Family Residence
Condos still offer the lowest entry price point and typically have the highest cap rates. Most condos need $5,000 or less in initial repair costs. The majority of investments are 3-bedroom, 2 bathroom condos in Aurora. The 3/2 layout is the typically the sweet spot.
Financing options for 30-year conventional loans:
Make sure your lender understands HOAs and their underwriting rules. Condos have the most complex lending requirements.
- Landlord Investor: Assume 25%
- House Hacker:
- VA: 0% down
- FHA: 3.5% down. Some condo complexes are not FHA approved. You can ask for an FHA spot approval.
- Conventional: 5% down
The table below compares buying a typical 3/2 condo as a house hack versus a landlord investor. Please note that this complex would require an FHA spot approval for a house hacker.
Property Overview: This is a 3-bedroom, 2-bathroom condo in Aurora. This is the same condo used as an example in the Cap Rate Vs Interest Rate earlier in the chapter.
Purchase Price = $212,000 Taxes = $1,280 Insurance = $430 Repairs = 5% of rents Vacancy = 5% Annual price and rent appreciation = 3% HOA = $350/mo Initial repair costs = $4,000
The same notes for the detached SFR examples apply to this example, again for the sake of space, please review the earlier sections.
House Hacking In Colorado Springs
Chris literally wrote the book on House Hacking, so make sure to check out The Ultimate House Hacking Guide for Denver: A Technical Guide to Building a Denver Rental Portfolio Through House Hacking. Just some quick highlights of investing in NOMADs or House Hacking in Colorado Springs can be found below.
Whats the Best Location in Colorado Springs?
Colorado Springs offers the same House Hacking options and strategies as Denver. Depending on what your investment goals and preferences are, will determine where in the city you should focus your search. This section highlights House Hacking in Colorado Springs, but there are plenty of other opportunities in the surrounding metro such as Woodland Park, Peyton, Falcon, Monument, and Fountain, which are not covered in this book. Additionally, it is important to work with your lender as discussed previously, since the conforming loan limit is different for El Paso county than for Denver and surrounding counties.
Central and Southeast Colorado Springs
Westside and Downtown
Northern Colorado Springs
If you drive down the Powers Corridor, you will see new construction homes at every turn. This part of town is not only very close to Peterson Air Force Base and many tech employers, but it is quickly becoming an alternative location to live for those who commute to Denver but want a more affordable cost of living and purchase price of homes. Colorado Springs is even experiencing a higher appreciation rate than Denver this past year.
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Understand Your Expenses Right Away
When youre a beginner to real estate investing, its critical to understand your expenses in advance. It isnt simply the purchase price and real estate agent commissions. Youll have to make repairs, and far too many first-time real estate investors dont know how to correctly estimate the expenses of repairing that crumbling foundation, repairing electrical issues, and dealing with insect infestations.
Dont assume that working on Saturdays to add fresh paint would fix the problem. Most DIY work reduces the value of a property and attempting to fix someone elses plumbing and electrical issues yourself may make it impossible to sell unless youre proficient in doing works to a professional standard. Others fail to account for closing fees, insurance, or utility bills, resulting in a loss on a sale.
Maximize Real Estate Value
Find ways to increase the value of your investment properties, allowing you to make more money from a rental property. It might entail renting a space to a bank to put an ATM. You could rent out an area in the lobby for a small cafeteria, collecting rental money from something that would otherwise not contribute to the cash flow.
Consider also adding value-added services in an apartment building. For instance, for a small monthly charge, provide garbage collection for tenants.
Real estate investing can be a challenging endeavor nevertheless, when done correctly, it is possible to establish a lucrative nest egg. Take time and do your homework before determining if real estate investing is appropriate for you.
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Brrrr Investing In Colorado Springs
Colorado Springs has given me the opportunity for BRRRR investing, and I have successfully completed 8 BRRRRs locally. I have noticed that over the past few years, BRRRR opportunities have become more of a rarity, as margins have been decreasing due to increased demand in properties here. This section aims to describe the current state of BRRRR in Colorado Springs.
What is BRRRR?
There are many different strategies to real estate investing, to include buy-and-holds , wholesaling/assignments, fix-and-flips, vacation homes including short term rentals, syndication, and more. BRRRR is a repeatable buy and hold sub-strategy to acquire rental properties for little to no money down.
BRRRR is an acronym that means:
- BuyPurchase property in need of repair below the current market value.
- RenovateFix up the property to excellent rental condition.
- RentRent out the property for positive cash flow.
- RefinanceCash-out refinance at a higher appraised value to receive back most, or all, of your initial down payment and renovation costs.
Below is an example that I purchased in the Spring of 2017 and utilized the BRRRR method:
BuyPurchased for $113,500 .
- Loan: $90,800 hard-money loan.
RenovateFull House Rehab of $25,000 .
- All In: $138,500 .
RentInitially Rented at $1200/mo. Currently Rented at $1300/month.
- Initial Positive Cashflow: $300/month .
RefinanceAppraised at $175,000.
For reference, as of 2020, this property is now worth $230,000 and growing.
Five Benefits Of Investing In Residential Real Estate In Denver
1. Cash Flow
Cash flow is the measurement of money coming in and going out of your business. Rental income is the cash flow coming into your business in a residential investing scenario. Mortgage payments, and property maintenance and management fees would be cash flow going out of your business. The goal of your cash flow is to break even or be positive.
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Relationship Between Population And Residential Sales
Sales unit volume relative to population fluctuates depending on Denvers economy. Sales in 2019 were only 8% higher than 2004 but metro Denver now has 25% more people than it did in 2004!
Sales figures include Single Family Homes and Condos.
What historical insights can give us insight about our future market?
This chart compares the number of home sales transactions to the population of metro Denver.
- The blue line is the population basically the number of expected homes sales in a year given the population that year.
- 75 79 Coming out of a recession there are a lot more home sales, as you might expect.
- 80 92 Big recession in Denver. People do not buy homes when there is a lot of unemployment and consumer confidence is low.
- 93 02 Our local economy improves workers get more confident and there are a lot more homes sales.
- 03 05 Huge boom in home sales due to the culmination of irrational lending practices . We go way beyond the average number of sales for the existing population.
- 06 09 The inevitable reaction to a boom. The market busts, sales plummet.
- 10 13 The inevitable reaction to a bust. The market turns and home sales skyrocket.
- 14 Surprise! The number of sales in 14 was actually lower than in 13. The inventory is so low there just arent enough homes to buy. Everyone thought that 14 sales would skyrocket and lead us to another bust, but they were wrong. .
- 15 sales were about even with14.
Denver Is Relatively Landlord
Colorado is relatively landlord-friendly compare it to the West coast, and it is a landlordâs dream. You donât have to give tenants notice that youâre entering a property. You can quickly begin evictions if they havenât paid the rent. That protects your investment in the Denver housing market. Thereâs no limit on late fees. There are no state laws that prevent you from rekeying the locks after evicting them. If they violate the lease, give them formal notice. The tenants then have 72 hours to correct the issue or move out. If they donât comply with notices, then you can go to court. If the court agrees with you, the sheriff gives the tenants 48 hours to move out before forcing them out.
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A Closer Look At The Colorado Real Estate Market 2020
Colorado State Flag
You could dive right into your investment property search in one of the cities listed above. But itâs a good idea to learn a little bit more about the Colorado housing market first. How is the housing market in Colorado doing right now? Has the coronavirus slowed things down? Letâs take a look at some of the current market trends and the Colorado housing market predictions for 2020.
The Colorado Housing Market Is Bouncing Back from the COVID-19 Slowdown
Most of the US housing market suffered a slowdown during the coronavirus in March and April of 2020 and the Colorado housing market was not spared. Some areas held up better during this time like the Denver and the Boulder housing market.
However, May brought with it signs of recovery as COVID-19 restrictions began to ease and buyers returned to the market. Home listings remain very low. However, with low inventory and demand returning for Colorado homes for sale, a housing market crash is unlikely. Those who believe there is a Colorado housing market bubble, and that the coronavirus would burst it, can rest assured that the market is in recovery.
So if you were worried that now may not be the best time to invest in Colorado real estate due to COVID-19, this knowledge should ease your fears. The Colorado real estate market is holding up and recovering.
Coloradoâs Economy Is Also in Recovery
People Continue to Move to the Centennial State
A Colorado Rental Property Generates a Good ROI on Average
City Highlights Of Denver Co
The Mile High City is a blend of urban refinement and outdoor adventure. Denver is recognized for its world-class cultural attractions, burgeoning craft breweries, chef-driven restaurants, and a vibrant music scene thats only minutes from the Rocky Mountains.
Denver offers thousands of parks, trails, and playgrounds for all walks of life and all levels of outdoorsmanship and difficulty. Denver also has Elitch Gardens Theme and Water Park, multiple zoos, an aquarium, The Butterfly Pavillion, Water World, The Wild Animal Sanctuary, multiple Botanical Gardensthe list goes on!
While the appeal of adventure is obvious, theres also a thriving art scene, live music, and microbrewery. The Denver Art Museum houses the worlds largest collection of Native American artwork as well as frequent traveling exhibits. The Red Rocks Park & Amphitheatre is one of the worlds most famous concert venues, so its on many peoples bucket list.
There are three professional football, baseball, basketball, and hockey stadiums in the city, so Denver is a great location for sports fans of all types. All of these factors taken together provide insight into why the majority of Denvers residents are from out of state.
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Its A Good Time To Invest In Colorado Real Estate So Get Started Now
Buying property in Colorado is a smart move in 2020. To make sure you are successful in this investment venture, be sure to:
- Invest in one of the best cities in Colorado for real estate investing
- Conduct a neighborhood analysis to find a good area to buy rental property
- Analyze any investment properties for sale before making an offer
- Use Mashvisors real estate investment tools along the way
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.
Denver Rental Property Example
- $400,000 is the price
Let’s look at the five benefits of owning this Denver investment property:
Cash Flow: $4,632.96/year | $4,632.96/$100,000 = 4.6% Return on Investment
Leverage: $400,000 real estate property is owned for an $100,000 cash investment.
Debt Reduction: $3,498.58 in mortgage principal reduction that is paid by your tenant. Your renter is paying off your home! $3,498.58/$100,000 = 3.5% ROI
Tax Savings: About $10,000/year in depreciation which means your income from the investment property will not be taxed.
Appreciation: We have seen a significant amount of appreciation over the past couple years, over 10% in some neighborhoods. If we plan for a conservative increase of 5% appreciation, $20,000/$100,000 = 20% If the condo doesn’t appreciate at all, there is no return for that year.
Here’s a breakdown on your investment property:
- 4.6% from Cash Flow
- 3.5% from Debt Reduction
- 20% from Appreciation
That is an estimated 28.1% ROI on your first year of owning your investment property in Denver. When this property becomes free and clear, you will be generating over $27,000 a year in passive income. By the time this property is paid off, rents are most likely going to be higher and you will have had a significant amount of appreciation.
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How Do I Find Money For A Down Payment On A Property In Denver
One of the easiest ways to find money for a down payment on an investment property is to refinance your current primary residence. If you purchased a home 7-10 years ago and haven’t refinanced your home, this is the perfect place to find the cash. Instead of refinancing your home to lower your monthly payment, use the extra money for a investment property down payment and keep the monthly mortgage payment on your primary residence the same.
Townhomes Attached Single Family Residence
In 2020 we saw a trend of buying more new-build townhomes. The combination of the low interest rate environment, great locations since they are infill developments, lower competition , and lower maintenance costs for the initial years can make them attractive investment. As an organization, our clients purchased more new-build townhomes than resales townhomes. The majority of our new build townhome buyers are house hackers. The purchase price range is $500,000 to $650,000.
There are a few new build layouts that have permitted mother-in-law suites on the first floor. They are a great opportunity to increase rents using Airbnb or a medium-term rental, or simply getting higher rent for a private living space on a long-term lease.
Financing options for 30-year conventional loans:
- Landlord Investor: 15-25% down
- At 15% down, you will pay PMI since it is below 20% down.
- FHA: 3.5% down
- Conventional: 5% down
- There are many other loan programs as well, but the three above are what our clients use 99% of the time.
The table below compares buying a new build townhome as a house hack versus a landlord investor.
Purchase Price = $560,000 Taxes = $2,000 estimated Insurance = $1,462 Repairs = 5% of rents Vacancy = 5% Annual price and rent appreciation = 3% Seller credit = $5,000 HOA = $115/mo Initial repair costs = $7,000
The same notes for the detached SFR examples apply to this example, for the sake of space, please review the earlier sections.
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The Denver Colorado Real Estate Investment Market Is One Of The Hottest In The Country
The Denver metro area has been hugely popular among top real estate investors for several years, which is a major reason it annually paces among the hottest housing growth. A growing economy, strong job market, diverse and exciting lifestyle, and beautiful surroundings are just a few reasons why Denver continues to see increasing population growth rates.
The residential real estate market in Denver continues to churn unimpeded even in the times of COVID-19. The rest of the country has been experiencing a tight housing inventory for the past year, but Denver is unique in that its housing crunch and tight inventory began before the pandemic. When COVID rocked the countrys real estate markets, Denver was already experiencing an average home supply of six weeks and an average of 38 days on the market.
Post-COVID, Denvers average home supply has dropped even lower. Currently, Denver has a two-week inventory, and homes are on the market for an average of 24 days. This makes Denver one of the tightest and most competitive markets in the nationcausing investors to be extremely aggressive when they find a property to invest in.
Its easy to see that Denver is trying to catch up with the housing demand that started before the pandemic. A birds eye view of Denver shows:
How To Find The Best Investment Properties In The Denver Housing Market 2021
Weve crossed the first hurdle when it comes to buying rental properties in the Denver housing market discovering the best neighborhoods for investment. The next part, which is finding the most profitable Denver homes for sale, is usually more difficult for investors. However, you can get the hang of it and save time with real estate analytics tools like Mashvisor. Our investment property calculator will help you get immediate access to all the numbers you need to choose the most suitable Denver, Colorado property for sale for your investment needs and expectations. Find out what rental expenses, rental income, occupancy rate, cash flow, cash on cash return, and cap rate to expect from hundreds of real estate listings in the Denver housing market.
To start looking for and analyzing the best investment properties in the Denver housing market, click here.
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