Advice for New Real Estate Investors

By Matt Allen

Real Estate is a great place for one to invest. Whether you are a first time buyer, a baby boomer looking to diversify your retirement funds, or a seasoned house flipper – real estate is a safe place to put your money. And chances are, if you are looking at our website, you are probably looking to invest in the ever-exciting Denver market. Prior to making a decision, below are some FAQ’s and general call outs when looking to invest in the Denver metro area

Why Invest in Real Estate?

Simply put, real estate is safe. In general, it has continued to be one of the safest avenues to allocate savings due to its predictability and steady nature of growth. Where real estate gets risky is when one begins investing in volatile markets and they leverage borrowed capital with that hopes of an overly optimistic, future market – see the housing bubble collapse of the mid-2000’s. Though, if you do your homework and stick to the facts, you can ride the trusted real estate wave that millions of Americans have historically benefited from in terms of consistent wealth and long term appreciation. The chart below highlights the advantages to real estate investing:

RE Invest

How is Denver any better than other markets?

Well, for one, the facts prove it. Its not a secret that Denver has been one of the best real estate markets in the country over the past 5 years and although the market has cooled, there is a still a lot to be desired. First, the diverse economy ensures a baseline of stability during economic downfalls. The largest sectors of Denver’s economy include aerospace, oil & gas, finance, IT and healthcare.  And guess what?  None of them are reasonably related so if one sector has a few down years, the others won’t fall with it.  When a city becomes too dependent on one economic sector then that’s where the snowballing risk comes into play because the moment that industry struggles…. so does the real estate market – see the “Oil Bust” of Houston in the 1980’s. In Denver, the numbers back this as the city has the lowest unemployment rate of any major metro at 2.2 percent in October 2017

Denver Economy

On top of this, Denver is a desirable place to live and is still reasonably priced compared to other major metropolises.  The math is simple…

growing population + stable economy + reasonable home prices  

= strong long term appreciation

In fact, at 8.2 percent, metro Denver home prices in April 2017 appreciated at the fourth-fastest annual pace in the country after Seattle, Portland, Ore., and Dallas. On top of this, from 2012 to 2015, Denver experienced double-digit price appreciation.

“Data shows that Denver is the best city for homeowners. Home values have been consistently growing. From 2010 to 2015, Denver home values grew 12.6%, with a 5.3% increase between 2014 and 2015. Denver also has the second-lowest average effective property tax rate in our top 10 at 0.54%.” – Business Insider

House Market Prices

What should I be looking for?

In general, if you’re looking live in the residence, look for low property taxes, a decent school district, a neighborhood with low crime rates, and plenty of amenities like parks, malls, restaurants & movie theaters.  If you have more tolerance and time (Buy & Hold Strategy) than loosing up the criteria with hopes of high equity upside over a longer period of time is one strategy as well.  And finally, if you are looking to get into the rental property game with a say, 30-40k down… below is a table showing some various scenario’s and estimated returns on rent

Metro Denver Chart

*Annual ROI (aka Cap Rate) measures your cash flow, relative to property value. Cap Rate equals annual net operating income divided by the acquisition price

When is a good time to start looking?

In real estate, the answer to this question is always “yesterday” but now is still a great time to get in. The economy is very strong at the moment which means there is a lot of optimism with lenders who in turn, are giving out favorable interest rates with little money down.  And although the initial down payment is always the largest obstacle to overcome, the Denver market is ripe with a vast inventory of single family homes & 1-2 bedroom condos.  These type of residences are ideal for first time home buyers or investors because they require less cash down.

“The report shows that the most active part of the market remains single-family homes priced under $400,00 and condos priced below $300,000, segments where builders are adding little new inventory despite strong demand.”Denver Post, August 2017

On top of this, Denver is one of the top markets in the nation for millennials as young adults have a higher rate in ownership than most cities in the U.S. and the average home a millennial is purchasing in Denver cost $291,299, below the overall market average of $362,542.  So although the common discussion in the coffee shop is that “the Denver bubble has popped” and “you can’t find any deals anymore”, the statistics clearly show that Denver is a strong and affordable to still invest in.

What if I can’t afford the down payment?

In most cases, the down payment is likely more achievable than you think. At Price & Co., we have worked with many buyers that have as little as 3.5% to 5% of their purchase price for a down payment. For more information on financing and affording your first home and/or investment, check out our blog here or reach out to us directly.  We are always happy to chat!

“Don’t wait to buy real estate. Buy real estate and wait.” – T. Harv Eker