How do I start investing in Denver real estate?
The best thing to do to begin your adventure in real estate investing is to take some time to learn the basics from books, classes, blogs etc. and then sit down with someone who’s done it for a long time to help you put together a plan. Be sure to work with people who actually invest, not folks who get paid to run seminars or read books about investing but have never actually done it. It makes all the difference to work with someone with investing experience exactly where you want to invest. Reach out to professionals and let them know you’re interested in learning and want to work with great people to build and execute a plan to be a successful real estate investor. You’ll really impress folks and they’ll want to work with you.
Where should I buy in Denver?
Good question, it depends on many things. Where do you live? How far are you willing to travel to invest in real estate? What types of neighborhoods do you want to work with? What sort of cashflow are you looking for (it depends on the quality of the neighborhood)? There are so many variables to take into account, this is why you can’t just look at a chart or read a book and understand exactly where you should buy. It takes thought and consideration to determine what location works best for you. Begin the process by speaking with people who are on the ground, investing where you want to invest.
What kind of Denver property should I buy? A single family? Condo? Townhouse? Multiunit?
What I can tell you for sure is there is no magic formula. It’s not like if you only buy townhomes you’ll do great or if you buy duplexes you’ll have nothing but problems. Oh, if life were only that simple! I’ve invested in all types of properties and each has its own pros and cons. It’s much more complicated than suggesting one type of property is better than another. What may be true is that FOR YOU, one type of property may indeed be better than another.
For example, let’s say you’re very handy and have a lot of time on your hand. And on top of that you have a lot of extra time and are looking to quench your thirst for swinging a hammer. Maybe it makes more sense for you to buy an older single family home or duplex, something you can buy a bit cheaper and add a lot of value to by fixing it up. And if the older property needs additional repairs while it’s leased, you’re happy to take care of it! On the other hand, let’s say you’re an attorney who knows a lot about HOA’s, and you work 80 hours/week at your well-paying day job. Maybe you shouldn’t buy a property that needs a lot of work, but instead buy a condo or townhome and bring value as someone who understands HOAs! The point is that you need to evaluate yourself just as much as the types of property you are interested in and make the best decision for you.
How accurate are Zillow's zestimates?
Well, it varies incredibly. I give Zillow huge props for building an industry out of nowhere and coming to dominate their segment of the market. And zestimates has a lot to do with how they built the best name recognition in the industry. Zestminates use very complex data to attempt to formulate a price for a home, the problem is it doesn’t use the most relevant data available, sold comps. That is why they are so often wildly wrong. Like many things in life, don’t take
Like many things in life, don’t take zestimates at their word and think there is some hard fact science behind the number. Speaking as a 15-year registered appraiser, I know only too well how hard it is to come up with a market value for a home, especially in a fluid, fluxing, ever-changing market like Denver. Maybe in Akron, OH, where home prices don’t change too much, zestimates would have a good shot at accuracy. But in a market that is bobbing and swaying like ours is, no auto-calculate tool can be relied of for complete accuracy. None. Oh, if life were only that simple! But it’s not. That’s why working with an appraiser or qualified real estate agent on pricing can be a very good use of your time. It’s not just as simple as adding up a couple of numbers and dividing them by a couple of other numbers. No, it takes experience, knowledge depth,
That’s why working with an appraiser or qualified real estate agent on pricing can be a very good use of your time. It’s not just as simple as adding up a couple of numbers and dividing them by a couple of other numbers. No, it takes experience, knowledge depth, patience, and practice to accurately price a property. That said, zestimates take a first shot at pricing. And sometimes they are right on. But sometimes they aren’t. So my advice is to look at a zestimate for a property you want to value and use that as a starting point. Then dig deeper into relevant sold comps, and get some assistance if pricing a property is not something you do every day.
Should I attempt my first fix and flip?
This is a question that only you (and your spouse, and your attorney, and your accountant, and your spiritual advisor…) can answer. It’s very personal question that carries with it much risk.
I was a flipper for 7 years and I had some good days and I had some bad days. (I had good years and bad years as well!). My first response is be careful. Very careful. There is no end to the folks that say, “Just DO IT!” and rev you up beyond and sense or sense ability. Think Trump University. Yes, there are lots of people who make a great living doing fix and flips. They’re the ones you hear all about. What you don’t hear about for obvious reasons are the folks who have failed at flipping and damaged themselves financially. And there are a lot of those people as well.
Flipping is an incredibly exciting endeavor, filled with long days and even longer nights. It’s what got me into the business and I still have lots of clients and colleagues who flip (I don’t anymore). Just understand that it isn’t easy, or risk free, or obvious how to do it. Just because you have a spreadsheet and a business account at Home Depot doesn’t mean you can flip successfully.
I’d suggest at a minimum you join some of your local investor clubs and talk to lots of other people. Speak to some real estate agents who have actually flipped properties themselves – that is the absolute minimum requirement. Don’t work with an agent who’s read books about flipping, only work with an active member of that community. And carefully assess the risks to the best of your ability. If you can’t afford to lose the investment you put into a flip, be very careful. If you have extra money and extra time, have a passion for improving properties and want to dive in then do it! Just be very business like and work with professionals. It might be the best business decision you ever make!
What the perfect day to list a property?
A lot of real estate agents will tell you that Wednesday or Thursday are the best days to list, in preparation for weekend showings. I’m a little dubious about this because I’ve searched for two decades for data that supports a certain day being best and I have yet to find it. The idea is that if you list your property Wednesday or Thursday it’ll get out into Zillow and Yahoo and all the rest of the sites by Friday, so folks looking beyond the MLS will see it in time to plan their showings over the weekend. But that suggests there is a predictable science behind how long it takes a listed property to get onto websites other than the MLS. There isn’t. It varies a lot. So, while I’m not against listing on those days, if anyone tells you adamantly that they are the best days to list at least question them. Ask them why. See if they have any data to support their opinions. And If you do get real data send it to me so I can finally get some!
When I sell a property should I use an agent or sell it myself?
You can it both ways, no doubt about it. Let me start by saying that I was an investor and fix and flipper for 7 years before I got my license and I always used my agent to help me sell. So, though I’m a real estate agent now, I’m first and foremost and investor. When folks ask me whether they should sell with an agent I go through the pros and cons of each side. By selling it yourself, you’ll save the 2.8% seller agency fee. You will almost never say the entire typical listing fee of 5.6% because only a tiny fraction of FSBOs are sold to buyer’s who do not have agents.
Here are some interesting numbers. In the past 10 years, the percentage of home sales sold through agents has actually gone UP, even in our era of Zillow, Trulia, instant communication and 24/7 information. About 91% of all homes today are sold through agents. So about 9% are FSBOs. The important point to understand is that of those 9%, only about 10% of them are sold to someone the seller did not know. The vast majority of FSBOs are sold to friends and family of the seller, where it might make perfect sense to not use an agent.
So in summary, only about 1o% of FSBOs nationally are sold to an unrepresented buyer the seller didn’t know. The fact is that selling a property is complicated, difficult, and legally precarious. If you have someone lined up, definitely considering hiring an attorney and proceeding without an agent. But if you don’t, I suggest at least speaking with 2 or 3 agents to better understand what they do and don’t do and making the right decision for you. Don’t just try to save a quick buck, it may come back to bite you. Do your research and make the right decision for you.
I’m an investor, should I get my real estate license?
I started investing in real estate 20 years ago and never thought I’d be an agent. I did get my license 12 years ago, just to be a better investor and found it was great for me. I love being both an investor and an agent, and in addition, have built a huge company with over 500 agents. So it worked out for me. For you, it all depends. I’m asked this question so often, that I created a course titled "Should a Denver Investor Get a Real Estate License?"
The short answer is it totally depends on what you are doing and what you plan on doing. Let’s say you are most interested in knocking on doors and doing Subject To’s, you might think twice about getting licensed because our regulatory agency DORA doesn’t particularly like agents doing that. Nothing illegal or immoral here, you just need to understand as a license you answer to DORA. Or, let’s say you might want to buy and hold a couple of properties in the next year or so and have lots of family and friends who might want help buying or selling homes. In that case, you might be able to make a great argument for getting your license and having access to the MLS and showing properties, and saving so much on commissions. It’s a long discussion that should be thought through carefully because there is a lot of time and expense involved in getting licensed but it could be the best thing you ever did.
What is REColorado.com?
Recolorado.com is the public’s version of the MLS. It is free and available for your use 24/7. The best part is it is the exact same information that we real estate agents have – giving descriptions and pictures of all the properties on the MLS. It just doesn’t have all the bells and whistles that the agent-only MLS has. So if you’re looking at properties the advantage to using recolorado.com is that these are real properties actually on the market. Zillow has lots of advantages like cool web pages and interesting data but it’s Achilles heel is its data is awful, out of date, incomplete and deceptive. I tell folks to use interesting sites like Zillow and Trulia and Redfin because they do provide a lot of value, but back up what you learn by going to REcolorado to find out what’s actually on the market.
What is the best part of town to buy rentals?
I wish I could answer that but it’s just not that simple. You sometimes hear real estate agents say “this is a great rental neighborhood”. What does that mean? I have no idea but if any agent says that to you ask them and let me know. No, there is no perfect neighborhood, area, or city to buy rentals. It completely depends on what you’re looking for, where you live, what type of property you want and most importantly, what sort of cashflow you are looking for.
The one rule of thumb that works every time is the worst property, in the worst condition, in the worst neighborhood will always cashflow best. Surprising but true. The reason is that buyers will pay a lot more for a better property but renters won’t pay too much more rent for the better property. Another way of saying this is that sellers will discount the sales price of a bad property and a lot but renters will still pay a lot of rent, even for a bad property. This is where some basic metrics like Cap Rate and Cash-on-Cash return are critical. There’s nothing wrong with buying a cheap property in a lower end neighborhood per se, and you’ll get a great cashflow. There’s also nothing wrong with buying a great property in a beautiful neighborhood, but your cashflow will be very low to negative monthly. It all depends on what you’re looking for. That’s why it’s critical to reach out to folks who’ve done this before so you can compare the mathematical metrics like Cap Rate with the war stories long term investors can bring you. It’s part art and part science and the learning never ends.
Should I use a wholesaler to find a great deal on a property?
Yes, but… There are some terrific wholesalers in the Denver metro area and if you are seriously looking for a property with equity you should begin to seek them out and build relationships with them. The best wholesalers who actually produce good deals are very few and far between, so having a relationship is extremely important. The wholesalers who’ve done this for a long time and actually have deals tend to deliver their properties to their trusted buyers, investors who have bought from them before, usually with cash, hassle free. The other thing to understand about wholesale properties is that you generally will not have the control and potential ability to back out of a deal as you would with a property purchased on the MLS. Wholesalers often required non-refundable earnest money on the order of $3k - $5k after viewing the property but before doing a full inspection – if you’re even allowed to do a full inspection. The point is that you can potentially get a great deal from a wholesaler, just understand there’s no free lunch and wholesale deals come with risks not found from MLS deals. What’s more, every wholesaler is different. These are folks running a business and of course have the right to structure their business any way they choose. So if you’re looking at working with a wholesaler, reach out and get in touch with several of them, learn how they run their businesses, proceed with caution and look to get a great deal!
When will be the next downturn in the real estate market?
No one knows and anyone who says otherwise is selling you something. Predicting the next cycle is a complete obsession with real estate investors and in my opinion is a waste of time. There is no end to the analyses trying to market time but if you talk to folks who’ve done this for awhile (not just folks who’ve been to a weekend seminar) you’ll find that most of us can talk very intelligently about the market but don’t try to predict the next downturn or upturn. There are just too many variables to consider. Instead, I as an investor focus my time on controlling what I can control – my finances, my subject knowledge, my risks, my processes, my business. Those things I can control so that’s what I spend my time doing. Now, digging a little deeper, let’s talk about the market. If you put a gun to my head I would say we’re still 3-5 years away from a downturn. Best guess. Why? Lots of reasons. We are still at nearly record low inventory for properties on the market and our front range population is increasing by about 50,000/year. Simple supply and demand. We have lots of people moving to the area but the permits and building
Now, digging a little deeper, let’s talk about the market. If you put a gun to my head I would say we’re still 3-5 years away from a downturn. Best guess. Why? Lots of reasons. We are still at nearly record low inventory for properties on the market and our front range population is increasing by about 50,000/year. Simple supply and demand. We have lots of people moving to the area but the permits and building are not keeping up with the demand for housing. This is the number one reason why I am personally still optimistic the Denver market will remain strong for the foreseeable future. Our unemployment rate is below 3% and our economy is incredibly strong. I don’t see anything on the short term horizon that I think is going to negatively affect the market. I think home prices will continue to rise 7-8% for the next several years. So, while I’m not a market timer myself and I caution you not to market time, I still think Denver has a long way to go with the upturn in its real estate market. Only time will tell!
What metrics should I follow to see if the market is beginning to turn?
The single most important metric I look at to assess the health of the real estate market is Months of Inventory for existing homes. MOI measures how long it would take for the inventory on the market to be sold given the average number of sales/month. For example, say a neighborhood has sold 1 property per month the past 6 months. If there are currently 6 homes on the market in that neighborhood, the MOI would be 6/1 = 6. It’s that simple.
For the past several years Denver has experienced MOI’s of about 1, an incredibly strong market. Over and over again experts have predicted the MOI will start rising but it hasn’t, it’s still a strong seller’s market with no clear indication of when that will change. Part of the reason MOI hasn’t risen is because we are building too few homes to satisfy the demand for housing. On the flip side, our population is rising about 50,000 people a year along the front range, and is expected to continue at about this pace for another decade. If this number dropped significantly that could put a crimp on demand for housing and begin to cool the market.
On the supply side, builders are only building enough new homes to support migration growth of about 20k-25k people. If over the next couple of years we see a very high spike in permits pulled and units built that could begin to level off the market. But for now, we see only more demand and constricted supply on the market for the foreseeable future. Watch these metrics to stay on top of the market.
Why do real estate agents hate Zillow so much?
Zillow has done an incredible job upending the real estate industry. Love them or hate them, they have changed the playing field. Real estate organizations and many real estate agents have very little interest in their industry being upended as their careers are at stake. So there is a fascinating love/hate relationship between realtors and Zillow.
On the one hand, tens of thousands of real estate agents pay Zillow for leads. Many agents base their entire market campaigns on Zillow leads and make a good living doing this. On the other hand, the real estate industry accuses Zillow of taking its own data created by working with home sellers and selling it back to the agents. It puts agents and Zillow in an incredibly interesting and awkward position of needing each other and fearing each other.
The relationship has evolved over time. Early on, agents said that Zillow, and particularly it’s infamously inaccurate zEstimates, were a fad that would soon go away. They didn’t. Year after year Zillow has been capitalized by deep pocketed investors and has made deeper inroads into the real estate community. Zillow announced in February of 2017 that they would no longer permit individual agents to list properties on Zillow without a direct feed to Zillow. Without getting into the details, this roiled the industry as agents were fearful they would not be able to put their listings on Zillow, showing exactly how deeply entrenched Zillow has become. Where the relationship will go in the future no one knows. The real estate industry fears the worst, that Zillow will start selling properties directly and doing an end run around real estate agents directly to the consumer. I doubt that will happen. Zillow makes a lot of money selling the shovels (leads to agents) instead of digging for gold (dealing with buyers and sellers). I believe them when they say their model is to sell shovels because that’s where the money is. Stay tuned!