I was honored to be chosen to be part of 5280s “Fortune Teller’s Guide to Denver Real Estate”. Taylor and I sat down to go thru the issue and give you our predictions for Denver’s market. We will be posting a series of videos in the upcoming days so make sure you come back to see them all.
I love sharing with my clients the different ways to make their real estate purchases smart investments. I want to share with you my six favorite ways to invest in the market.
The Classic Move Up
Start small and every few years sell your current home and upgrade into something bigger. Great for every phase of your life – condo, townhouse, single family to a mansion. As your life grows, your home grows with you!
Live with roommates who pay the mortgage. This is great for people who like communal living. Room size, privacy, and two living rooms are important. This is a great way to get started as a young person before you have permanent roommates aka a husband/wife and children!
Find a place that has a separate area which can be rented short-term. Great for people who travel a lot and live in highly desirable areas. It is smart to avoid HOAs and in Denver, it must be the primary residence to legally rent short term.
Find a place that needs improvement. This is great for people who are handy and have excess time and cash. Best if you can find these deals off the market! If you do it yourself, you must have cash for the materials. A renovation loan can also be an option if you plan to hire a general contractor. If you are doing a quick flip, remember that if you live in the home less than two years, plan to pay taxes equal about 30%.
Denver & Mountain Balance
Purchase a second home in the mountains and AirBnB your Denver place on the weekends or vice versa. Great for people who love to ski and hike but also have obligations in the city. Live the ideal Colorado life and make a great income while doing it!
Real Estate Retirement
Purchase a new primary residence every two years, converting your old primary into a rental, and never sell. Great for people who want to retire and not work anymore. If you focus on cash on cash return when you make the initial purchase, you should be able to cash flow each investment for monthly residual rental income. Within 10 years you could be making about $5,000 per month. After thirty years it is pure profit and ideally, the values of the homes have tripled.
For every closing, I donate a $150 to The Park People to plant one tree in Denver. On Saturday, April 27th they are distributing trees those trees and can always use volunteers. It is a wonderful organization that is helping to make Denver more beautiful. To find out more information see the link below.
To learn more about The Park People and sign up to volunteer.
Also, on SEPT 5th they are celebrating their 50th anniversary. I’ve been helping plan the celebration at Denver’s City Park Pavilion and it is sure to be a fantastic evening. SAVE THE DATE and attend!
In 2018 we saw the same pattern of the past with a very hot spring market that cooled down when inventory came on in June. September was an unusually slow month due to the midterm elections. The blue columns behind show the percentage of ask price. At the first circle where demand and supply are very tight, you can see that sellers were getting over their asking price. As inventory increased, many listings were going under asking in the Fall.
We definitely saw prices go up in the first half of the year as the Spring bidding wars escalated prices. The highest prices were in April, which would have been clients shopping for homes in March when you see the under contracts peak in the first graph. Although prices dropped after June, they didn’t dip under $415K where we started the year in 2018.
In 2018, listing went under contract faster than average in the beginning of the year, but at the end of 2018 homes actually stayed on the market longer than average between 2013-2017. You can see that in March, April, and May homes were only on the market for about five days. That means they get listed on Thursday, have an open house on Saturday, and are under contract by Monday. This is a very typical pattern for Denver during the Spring market.
4761 E 98th Pl, Thornton, CO 80229
This immaculate townhome was built in 2016 with numerous upgrades. Upon entering the main level, you are welcomed with natural light and a very spacious entertainment area. The kitchen features granite countertops with maple wood cabinetry. It has an open concept layout that creates a fluid transition from the kitchen into the living and dining spaces. The townhome has a comfortable front patio with unobstructed views and a private back-patio space that leads into a joined grassy open area. There are two bedrooms, a master and second bedroom. Both rooms are located on the top level and have vaulted ceilings and their own private bathroom. The washer and dryer are conveniently located on the top floor. The home also has a tandem two car garage with a storage closet. The neighborhood is conveniently located near the RTD light rail station. The Cornerstone Clubhouse is large and can be reserved for special occasions plus it has an outdoor pool, fitness center, and community playground.
Back Story: Ashley and Ezra were out with their dog when they saw my listing sign for a property in Arvada and called me on a Saturday. I met with them that evening to show them my listing and a few others nearby. They got really serious right around Christmas time and we found their house on January 1st. We were able to get it $25K under asking price and $7K of concessions! Their dog Ella was a major motivating factor and we were all devastated by her unexpected death while they were under contract. 💔 They stayed strong and we close last Friday. This week they moved into their house during a crazy snow storm. They plan to do a kitchen overhaul, can’t wait to see final result!
Want to relive their home buying experience? Go to @kassidybenson on Instagram and check the stories under “Ash&Ezra Buy”
One thing that sets Living Room Denver apart of other real estate firms is our knowledge about Accessory Dwelling Units (ADU) — also known as granny flats, carriage houses or casitas. LivingRoomDenver.com is the only website that identifies ADU zoned properties. Most real estate agents don’t even know what an ADU is, let alone the specific zoning codes and lot size. It was an honor to get recognized by Denverite for this contribution. This is an exciting time for ADU enthusiasts as the city of Denver pushes forward on a plan to make ADUs allowed throughout the city with the new Blueprint Denver planning tool which will be reviewed by city council on April 22nd. Being on top of policy, understanding the zoning code, and being a leader in developing better ways for our clients to find properties are a few ways we stand out!
If you purchased your home with less than 20% down, you may be paying PMI. PMI is usually required by lenders because with less than 20% down you are considered a risky buyer more likely to default. In Denver, prices have gone up significantly the last two years. In May 2016 the average sales price was $451,429 and in May of this 2018 that jumped $89,195 to $540,624. A 20% down payment would have been $90,285 in 2016 and $108,124 in 2018. That is a lot of money!!
Many millennials were smart, they jumped into the market with 5-10% down conventional loans.
Once your loan to home value reaches 80%, you can contact your mortgage company to cancel your PMI. They will not identify this, so you will have it initiate the change. Each mortgage company is different, but there should be a place on their website to request to cancel your PMI. Once you initiate the process, they will require an appraisal ($700) or a broker price opinion ($100) to verify your home’s value before they drop the PMI.
Unsure of your homes value? Please contact me for a free broker’s price opinion before you pay for an appraisal to make sure you are eligible to drop your PMI.
Condo: $520K with HOA $502/M = Mortgage Payment w/ 20% down = $3151
Parking: 1 reserve spot
Outdoor space: Private deck and shared rooftop deck
HOA covers: Common Area Grounds Maintenance, Covered Parking, Exterior Maintenance w/ Roof, Insurance, Sewer, Snow Removal, Trash Removal, Water
Townhouse: $619K with NO HOA = Mortgage Payment w/ 20% down = $3266
Parking: 2 car detached garage
Outdoors space: Front porch, two decks, small fenced backyard
Party wall agreement with neighboring unit, insurance will be a little more expensive, and you will be responsible for mowing and shoveling snow.
The real estate industry is very complex and there are many ways to buy a house. Recently I have been doing research on “wholesaling”. Wholesaling is a term used in the real estate industry to describe the process of finding great real estate deals and getting paid to bring them to real estate investors.
In the Denver market, wholesalers have large teams working to try to find off market deals through their networks, mailings, etc. They also use the MLS, where they buy about 50% of their inventory. When they find a deal with a little bit of margin they quickly see the house, write an offer and get the property under contract. Once the property is under contract they immediately open it up to a pool of investors, acting as a middle man. They benefit by taking the 2.8% commission offered on the MLS and usually increase the list price $3,000 to $10,000. Within a few hours or days they have found an investor who will pay cash and do a double escrow closing the same day they are scheduled to close with the original seller.
Real life example:
Property near DU went on the MLS at 9am. By 9:15 wholesale team has a showing and has spoken with the seller. They submit a full price, $384,050 cash as soon as they finish the showing by 10am. They agree to buy the property “as is” and their only contingency is Title with a two week closing. They give the seller one hour to accept. They also sweeten the terms by paying for title and use a company that allows double escrow closings (most title companies do not allow this). The listing agent is representing her family in the sale of her late mother’s home and has no idea that the buyer is really a middle man who is actually just reselling the property to a higher bidder. That evening, a large wholesale team has put together a packet which includes comps, update costs, and an After Repair Value (ARV) estimates which they conclude is $530K by converting the attached one car into a master suite and updating the kitchen and bathroom. Each wholesale team member emails the packet to his/her database of investors. The next day they parade investors through the home (without permission from the seller) until they find an investor to purchase it for $389,500. They will make $5,500 above the asking price they paid and take the commission of $10,752 equalling a profit of $16,252. The deal closes in two weeks and usually the buyer uses Hard Money to finance the purchase which is also available through the wholesale company. In this particular example, the cost of the hard money is 2.5% upfront ($11K) and 12% per month ($5K). If the rehab takes 6 months, the loan will cost the investor $41K. The wholesale company estimates the cost of the rehab is $55K. This property will be back on the market in a few months and probably sell for around $530K to a home buyer.
Investors prefer to focus on the construction projects and wholesale companies provide a benefit by identifying these properties, getting them under contract, doing the research on comps and ARV, and providing hard money. For a regular homebuyer and real estate agent, it is very difficult to compete against wholesale companies for the same properties. Luckily, they are usually buying the type of properties most buyers would not consider purchasing as a primary residence.
In the Denver market, buyers are faced with three major challenges: 1) the market moves very quickly, 2) they end up competing against multiple offers, and 3) buyers face off against cash offers. After gaining understanding about how this process works, it is difficult not to point the finger at these wholesale companies and blame them for the escalating prices and difficult conditions buyers face. Wholesalers have figured out the game and homeowners with the right agent and knowledge can benefit from understanding their techniques. When you purchase a home that has been flipped, you are potentially taking on the cost of the wholesaler and investor, they are passed onto you and easier to stomach when you have access to a 30 year loan.
I’ve got an idea!
Let’s play out a different scenario. A homeowner sees the same house on the MLS. They can’t get there immediately, and end up competing against multiple offers and it gets bid up to $400,000. They hire a contractor and pick the exact finishes they like for the home and invest $55K into the property. Rehab loans are a good option for this type of project. After a six month project, they end up with a home they love for $455,000 and have almost $100K in equity.
Disclosure: Managing a large project like this is risky and very time consuming. It’s not a good fit for everyone. Investors have years of knowledge, lots of capital, and strong relationships that make these project less expensive and easier. Now you know! Please let me know if you have any additional questions.