Reasons for real estate investing don’t really matter in the long run. Two common reasons are the thrill of the chase and planning for retirement. But what really makes going out there is creating a success story. What keeps you going is reaching all your goals.
Real estate has advantages over stock, mutual funds and bonds. Real estate offers cash flow that’s predictable. It keeps with inflation and appreciates in value. It has a higher ROI due to its positive leverage. Real estate promises equity growth through debt reduction. Real estate is self-sustaining. Another great advantage to investing is the real estate market is understandable. From investigation to financing, once you know the process you can dive in every time. Wall Street, on the other hand, can be a fluctuating enigma.
If you’re looking to invest in real estate, a standout place to start is Denver. It ranks as a top region for quality of life and its demand for housing is growing all the time.
What follows below are criteria for buying Denver investment properties and why you should. It will cover what makes the city such an alluring prospect for investors. You’ll discover a number of ways to invest, as well as strategies for building a strong Denver real estate portfolio. If you have any questions along the way don’t hesitate to reach out to us: (720) 352-7704, or email us at [email protected].
There’s a broad range of reasons why investing in Denver real estate will be a smart move. From its large population to tourism and its diverse economy, look for a good return on rentals or AirBNB. Denver is a rapidly growing metropolitan region, one of the 20 largest populations in the country. This growth is likely to drive rental property demand.
According to Neighborhood Scout, an analyst of real estate reporting, nearly half the population rents. According to the Denver Post, the city remains a buyer’s market. There’s a surplus of eager buyers happily snatching up listings. Pent up demand paired with record low interest rates has generated a buying burst. Overall, single family homes rule in the city’s housing market. But condos, multi-family homes and town houses are still up for grabs, ready to stream income to the sharp investor.
The Denver Business Journal ranked Colorado’s job opportunities as #1. Latest statistics show an unemployment rate below national averages. Job growth and increasing rents fuel real estate investing. The enterprising investors will have access to a pool of rent-ready tenants and a solid job market.
Industries range from tech and telecommunications to energy and mining. There’s a diverse economy, a critical component to real estate success. It’s forecasted the city will see a property value drop of less than -2%. This shouldn’t discourage investment. If you plan a buy and hold strategy, renting for positive cash flow, expect a solid long term ROI.
The city enjoys 300 days of sun a year. It’s racing to develop the transit, housing and infrastructure to meet the pace of demand. Neighborhoods vary, ready to align with diverse tastes and budgets. The city’s known for being both relaxed and vibrant.
There’s also the city’s entertainment opportunities. It attracts tens of millions of tourists annually. Major attractions include Mount Evans and the Rocky Mountain National Park. There’s the Denver Zoo, Red Rocks Park and Amphitheatre, and the uber-metro Downtown Denver.
Considering the expansion of AirBNB, Denver ranks as a great market for short-term rentals. With top weekend vacation destinations located within hours of the city, Denver is an outstanding option for having a cash flow property.
Denver investment properties have historically appreciated in value. And a steady demand stream from buyers promise to keep home prices in healthy range. Construction planned for the region will keep the marketplace vital.
There are many ways to invest in the promise of Denver. Here are a few.
BRRRR is an acronym for Buy, Rehab, Rent, Refinance, Repeat. It contradicts the traditional strategy. For traditional buys, you need 20 to 25 percent for the down payment. With financing, there’s no need to save up full purchase pricing. No need to find private or hard money lenders.
Conduct an intensive deal analysis. Cost of renovations, estimated monthly rental and rental expectations should align with margins. Make sure the purchase price has enough buffer to allow renovation costs. For BRRRR, investors lean on the 70 percent rule. This is an estimate of repairs after repair value.
You want to know that your rental property is functional and livable. This makes updates and renovations worthwhile. Investors shouldn’t plan to execute excessive upgrades. Rehab requires a cost benefit, in-depth examination. Improvements should offer a high ROI.
Tack screening and selecting tenants, turnover management, and maintenance and repairs onto profits. Consider vacancies, bad tenants, rental expenses exceeding produced income and more. Never forget to run the numbers to validate the investment.
Banks may offer cash-out refinancing. Others will offer to pay out outstanding debt. The former is the better option for BRRRR. Factor how long you’d need to own a property before any lender considers refinancing against appraised value. Outside of single family rentals, investors usually tap into networks for a lender that fits refinancing needs.
Use cash out financing from a rental to fund the next acquisition and rehabilitation. This offers favorable interest rates, tax benefits and control of the financial timeline. You’ve seen the steep learning curve in your first BRRRR. Experience and wisdom gets you through any subsequent process.
excess funds each month. Funds that go straight to paying off the HELOC.
Velocity banking encompasses using a home equity line of credit (“HELOC”) as a primary checking account.
Once the account’s available, make a lump sum payment to your mortgage company based on the HELOC limit. For the next few months, use income to pay expenses with the HELOC, paying off outstanding balances. As soon as the balance gets paid off, repeat the process. Making lump payments frequently until there’s no longer a mortgage.
Many variables go into the strategy, like HELOC’s interest rate, early repayment terms on the mortgage and current cash flow (i.e., income minus expenses). The goal is having
Velocity banking is a resource for paying off a mortgage quickly. This is beneficial if saving money is arduous. Even if you have funds, utilize the strategy to put your money to work.
Cash on cash return is an easy and popular metric for real estate investing. In the simplest terms, the formula reads as such:
Net operating income ÷ total cash investment = cash on cash return
Notes:
You can conduct this process with or without a loan.
Put together an itemized list of monthly rental income and expenses. Use it to calculate your month-by-month and annual cash flow. You need these numbers for the final equation. If you plan to use the final number as part of the deal analysis, project the numbers to the best of your ability.
With this information, it’s time to sit down and consider if the investment’s worth the effort.
Hacking a house describes using a property to build wealth. The concept’s grounded in the idea not every consumer can or wants to buy a house. But they are willing to rent. If your credit’s decent, you have a stable job and savings, being a homeowner is feasible. For hacking, you purchase a home, find tenants and receive rent to cover expenses.
If you’re starting out, to maximize return, live there as well — rent free! In time and with smart budgeting, you could move out. Now rent the unit you lived in and increase that stream of income.
Your plan should be a multifamily unit of no more than four spaces. Anything above that is commercial real estate. That puts you in a whole new bracket. One you may not be ready for. If planning to live there, look for inexpensive property in a preferred neighborhood. Find foreclosures and “fixer-uppers.” The daring entrepreneur believes the worst, the better. They calculate the cost and repair of the property against the ROI. In most cases, this works in the buyer’s favor, especially if you DIY the fixing.
If you want an idea if a particular property can provide reasonable cash flow, use the 50 percent rule of thumb. Take the property’s total income potential and divide it by half. This is your expenses. Look at the possible loan payment(s) and subtract it from that half. Remaining funds is your estimated cash flow. The rule of thumb is only a quick guesstimate. When you’re considering a property, perform your deal analysis.
A portfolio is your track record and resume. While you may start be thinking “Which are best neighborhoods to invest in Denver?”, it is better to start with a solid game plan. With the right plan the answer to that question will come as part of the process. After all, each investor is different.
Understand due diligence, property acquisition, drivers and trends. There’s cap rate, cash on cash, ROI and more. You want to comprehend anything that impacts the investment now and over time.
A business plan establishes how to reach goals. The smart investor works on his first acquisition while planning the fifth. The plan is a blueprint for success.
It’s about deciding where you want to go with investments.
These are part of your SMART (specific, measurable, achievable, realistic, timely) goals.
From down payments to considering hard money and private money lenders, plan costs, monthly operating expenses and what you expect in return.
There are multiple ways to make money in Denver property investing such as BRRRR. Know which ones are best for your deals.
This is critical to the portfolio. Wise choices now make buying a second, then a third, property not just easier, but quicker. Here are a few tips for the first.
Streamline calculations for cash flow, rental income, cash on cash and more with tech. Still be familiar with financial functions and how to use them. Let technology clear the process.
After your first experience, you’ll have a grasp of concepts like BRRRR. You’ll be better fueled for investing. You’ll have more accessibility to cash and, in turn, greater ability to take advantage of new opportunities.
Partnering ensures your portfolio’s taken care of. This means you stop micromanaging. Use a property management company or CPA.
Be as fluid as the market. A diversified portfolio means high-performing investment and less risk. Invest in different locations and asset classes and REITs.
In a balanced market, supply is available for typically the upcoming six months. Denver is an investor’s dream as its housing supply has consistently increased beyond six months of inventory. Its job growth rate promises a recurring base of people looking for a place to live. The population is growing. The city has a low unemployment rate and a third of the population rents. The city’s tourism is a ready stream of income.
Long term, therefore, Denver is a strong, viable opportunity for real estate investment. Real estate is one of Denver’s most resilient areas. The entrepreneur has an opportunity to dip their toe in the water on house hacking. The seasoned investor should see a chance to expand their portfolio. Reading this article, everyone now has the tools for exploring the real estate pool. You know about Denver and its stellar economy, population and properties. You’re familiar with cash on cash, HELOC and the traits that make Denver the place to invest. We’ve covered the rule of thumb and mortgage repayment strategy.
We’ve supplied all the facts and principles for planning, executing and building a real estate portfolio. All that’s left is for you to make the decision. Do further research and jump start your financial future!
If all of that sounds like a lot of work, that is because it is! We are here to help you throughout the entire process to find you the perfect investment property for you. Contact us today to start building your portfolio: (720) 352-7704 or email us at [email protected] or use the form below.
Scott Jensen, a Denver Native, started his Real Estate career off investing. He owns multiple properties from Mobile Homes to an Apartment building. He has built, developed, and helped many clients buy and sell.
Lisa grew up in Fort Collins, Colorado and moved to Denver in 1999. She loves this city and can’t imagine living anywhere else. Real estate investing is what brought Lisa to be a real estate broker.
