Before you focus on finding and sourcing Denver real estate investment properties, you need to have a clear and concise definition of what is a good deal for you? If you can't clearly articulate what you want, how can you tell anyone what you're looking for? You can't. Put yourself in the other person's shoes. If they don't know what you want, how likely are they to run deals by you? Most people won't!
Here's my current definition of a good deal:
- Must be in the Denver metro area
- 6% cap rate w/ property management expense included
- $5,000 or less in repairs needed
Now, are these written in stone? Absolutely not! There are many properties I see that are a high 5 cap rate that I would buy in a heartbeat. Having my criteria clearly laid out makes it easy for people to understand and remember which helps deal flow come my way for me and my clients.
I focus on rental properties. what if you're a flipper? You still need to tell people what you want. Here is an example for flippers:
- Must be in Denver metro area
- Only detached homes (no condos or townhomes)
- No major structural issues or meth labs
- A $130,000 spread between the purchase price and the ARV
- Close in 7 days with cash and the typical "as-is" stuff
Compare that to "I want a good deal to flip." People are not mind readers for what type of properties that you want!
Can you clearly and concisely share the criteria you want for Denver investment properties?
Four Ways to Source Deals
There are hundreds of different strategies for finding and taking down real estate deals in Denver. They fall under four main categories as outlined in the Deal Quadrant:
Here's the first question we always get: What's the best quadrant? There isn't one! It depends on a number of factors. There isn't a better or worse quadrant. It's all a list of pros and cons.
Deal Source Stats
In preparation for this post and to satisfy my own curiosity, I pulled stats of deals my team has completed over the last 12 months.
Where do deals come from for me and my clients who buy Denver rental properties? It's obvious that it's the MLS and our networking efforts. For House Hackers, 100% of deals came from the MLS which is no surprise to me. Many House Hacking clients ask about finding "off-market" deals. Those are really hard to find, because many of the off-market deals are geared towards flippers.
- MLS: 55%
- Networking: 20%
- Wholesalers: 10%
- Lead gen: 15%
Are you surprised that the MLS is the main source? Many investors and flippers are! Our stats are not out of the ordinary. There are lots of deals on the MLS.
The Multiple Listing Service (MLS)
- Huge inventory. No other quadrant will have nearly as much inventory. ~95% of all residential transactions happen on the MLS.
- Contract. Uses the Colorado state standardized contract which is very buyer friendly.
- Earnest Money. Buyer friendly because it's protected in the state standardized contract.
- Easy access to property and data. You still must verify the data! Listing agents definitely upload bad data.
- Open to everyone / Competition. You'll often have competition from retail buyers who do not care about the numbers the way investors do.
- It can be overwhelming. Too many properties and data can be overwhelming and lead to paralysis by analysis.
- Cost: None (Seller generally pays for all the fees, commissions, etc)
- Agent: No cost to the buyer to use a Denver investor-friendly Realtor. Thinking about calling the listing agents directly? Sounds good on paper but often doesn't work well. It often doesn't reduce the price, and many sellers / listing agents would rather deal with another agent. If you're experienced, this can work well, but it's not recommended if you're a newer investor.
- Lender: All types - hard, conventional, and cash.
- Skill: Low
- Time: Low
- Risk: Low
- Investor inventory. Wholesaling is geared towards investors, typically fix and flippers. This can dramatically reduce your time, since the wholesaler is doing a lot of the work.
- Discounted property - MAYBE! Just because it's a wholesale deal doesn't mean it's a good deal. These properties should be below fair market value and can be a great deal for the investor. The property may be from the MLS or off-market.
- The wholesaler does not have a fiduciary duty to you.
- The earnest money may be "hard" or non-refundable.
- The contract may or may not be the state's standardized contract.
- You have to move quickly! It's not uncommon for investors to buy these places sight unseen. Or you'll often get the notification, have to walk the property and put in an offer in the same day.
- It's not always a discounted property.
- Cost: Wholesale fee may be on top of the purchase price. $5,000 to $10,000 is common. It can be less or more.
- Agent: Typically no. You'll have to pay an agent out of pocket or on top of the deal.
- Lender: Typically cash or hard money. Some conventional lenders can work with wholesalers, but make sure they understand double closings!
- Skill: Medium
- Time: Low
- Risk: Medium
- Free (other than maybe the price of a coffee or lunch)
- Minimal competition
- Relationships matter and deals will flow to people they "know, like and trust."
- Time intensive
- No consistent deal flow or guaranteed inventory
- Cost: None
- Agent: Optional but can also do FSBO (For Sale by Owner)
- Tip: Many title companies will do the extra FSBO paperwork for around $400 in additional costs.
- Lender: All
- Skill: Medium
- Time: High
- Risk: Low
This is where you generate your own leads from sellers by door knocking, online advertising, bandit signs, direct mail, cold calling, etc.
- Creating your own inventory
- Can find amazing deals
- You're in control of your efforts
- Invisible competition. You're not the only one marketing to those people!
- You're starting a business! Need to be (or hire) an expert in 3 areas:
- Marketing (generating leads to make the phone ring)
- Sales (answering the phone and then getting out to property ASAP)
- General contractor. You need to quickly and accurately estimate the repair costs.
- You need a financial runway of money in the bank. Expect 6 to 12 months minimum to start seeing results.
- Cost: $3,500 to $5,000 per deal (based on 3 sources I know)
- Agent: Not needed. If you're an agent, make sure you know DORA's rules about agents who invest in Colorado.
- Lender: Typically cash or hard money
- Skill: High
- Time: High
- Risk: High
Hopefully, this post sheds light on sourcing Denver real estate deals. For the average investor who has a job or business and is looking to build long term wealth, the MLS and networking are the best sources. If you're an investor with more experience and time, start looking at wholesale deals. If you're an experienced investor and well-capitalized, consider generating your own leads.