This deal analysis focuses on a single family home in Colorado Springs. My client is planning on self-managing the property, which is a great way to decrease expenses and increase cashflow. By doing this work himself, his investment will pay off in the long run.
- Listen to the podcast “#36: Increasing Cashflow through Self-Management of 3 bedroom 1 bath Colorado Springs Rental” on the Colorado Springs Real Estate Investing Podcast
- Watch the YouTube video (at the bottom.)
- Read the blog post. Note, the blog is an executive summary. Get the in-depth breakdown from the podcast or video.
This client previously purchased a rental property in Colorado Springs earlier this year. He leveraged his primary home to purchase two rental properties in the Springs, and this house is his second investment property.
Investment Property Details
This house was purchased for $291,300. We originally went under contract at $295K, but the property didn’t appraise that high. My client had an appraisal gap, so he made up the difference and we negotiated with the seller.
The strange sales price resulted from the discovery of some major structural issues during the inspection. My client didn’t want to assume any risk until work was done to fix it, but the contractor company was booked for several weeks. I talked to the listing agent, and they said their client didn’t want to pay another mortgage payment. We compromised by pushing back the closing date and having my client pay an extra $1300. Most of the time, two agents can come together and each say what’s the important thing for their client in order to find a middle ground that works for everyone.
Appealing Features of the Property
This is a three bedroom one bathroom 900sqft single family home. The property was really attractive, and the previous owner had done some nice upgrades to the kitchen and bathroom. The house also has a big backyard, which would be good for renters with pets. Although the house itself is quite small, most renters are focused on the number of bedrooms, so this is a good purchase for my client.
It took several months to find an investment property. We started looking in the March-April timeframe when inventory was exceptionally low, but with some patience and luck we found this house.
Property Contract Details
The inspection found some major structural issues that required immediate attention. The seller agreed to fix the problem, and my client didn’t have to make any other initial repairs to the house.
Property Financing Details
This property will rent for $1600 monthly. Although I tend to be more conservative with underwriting, I think this rent is spot on.
My client lives just south of Denver and plans to self-manage the property. Self-managing is a great way to increase cashflow, and single family homes don’t generally require a lot of hands on work. He will probably have to make the hour long drive each way a handful of times a year, which will bring in about $2K in cashflow every year. I know from living in Parker for four of the years I’ve owned property in the Springs that self-managing can be a pain at times but is definitely doable and worth it in the long run.
Property Operating Expenses
First Year Returns
If my client chose to use a property manager, he would go from having $2K in cashflow a year to just breaking even. This shows what a difference self-managing can make.
People often ask if multi family properties or single family homes will appreciate more. In the Springs, I anticipate we’ll see a lot of appreciation for both types of properties, but multi families may edge them out in the near future. The inventory of multi families is even lower than single family homes, and many investors are taking advantage of low interest rates by utilizing leverage and parking some cash for their down payments. Once interest rates start to rise, I expect that those types of investors will drop out of the market and the inventory will increase.
Either way, now is a good time to invest in housing. If you are interested in finding your own property or developing a strategy for investing in the Springs or Denver, reach out to us and we can help you form a plan.
How to Get Started Building Your Own Rental Portfolio
For information on how to get started investing in Colorado Springs, check out our free 2021 Colorado Springs Real Estate Investing Guide.