Since we went over which property types work best for house hacking in the last module, it only makes sense that we now explore what areas of the Denver Metro area we find those types of house hack properties.
This module covers:
- Balancing act: personal versus investing
- Investing criteria
- Why trends are your friend
- Government programs that are relevant to house hacking
- House hack locations in Denver in relation to rental locations
Balancing Act: Personal versus Investing
A common theme that you hear us talk about is how house hacking is the balancing act of your personal needs versus investing goals. The reason this topic is so important is because, unlike other investment purchases, you will have to live in this house hack property. You have to determine if the house hacking method is even feasible for you and your family. Then you need to determine if the property that you found will work for your personal situation. Do you feel comfortable in that neighborhood, is the commute to work tolerable, is the house set-up for the desired amount of privacy from other occupants? Many times, the best investment property does not work for your personal needs. You have to find the “balance” of your personal needs vs. your investing needs. It’s not going to be worth it to be miserable. You have to know where you are willing to compromise or make sacrifices and where you aren’t.
When analyzing house hack properties, there are two ways you need to look at it: Short-term, which is simply while you are living in the property, and long-term, which will be after you have moved out of the property. Most house hackers live in a property for one to two years. So, when thinking in the short-term, the question is: Does this property meet my personal needs for the next couple years? Then, thinking more long-term, you want to make sure that the property also makes sense once you move out and that you are getting the desired returns from the property.
The areas that seem really great in the short-term, like areas around downtown that have lots of restaurants, breweries and shops that are all within a walkable distance and, in turn, seem to increase your “quality of life” are NOT always the best rental properties. The margins are too low, and the numbers just don’t make sense when you move out and turn it into a rental property.
- Do the numbers make sense while you’re living there?
- Do they make sense after you move out?
Buying a $400k house that gets rents of $2,200 per month does NOT mean that an $800k house will get $4,400 in rents per month.
For most house hackers, we are seeing that the price point of a house that makes sense vs. one where the numbers just don’t work, are hovering around the mid $400s price point or less. A good example is the Washington Park neighborhood. While most of us hear “Wash Park” and think, oh, that’s a great neighborhood; it must be a good rental area too! that’s usually not the case. The average price point for a single-family house in Wash Park is about a million dollars. Average rents are about $3,700 per month. When you look at that ratio, it’s not nearly as favorable as a single-family house in north Aurora with a price point in the low $300s and rents of $1,900 per month.
Jeff makes another great point that, in his searching for house hack properties, he has found that there is a large premium for the “popular” neighborhoods, and while we all know that is true for all real estate (location, location, location), it’s not the aspect you want to be paying a premium for when looking for a house hack property.
The great thing about Denver, Jeff points out, is that just outside those “popular” neighborhoods, are some really great opportunities where you won’t have to pay the premium prices. In Jeff’s experience, especially for the room by room level, people will pay about the same in rent to live downtown by a brewery as they would in Jeff’s house hack in southwest Denver that is 15 minutes outside of downtown and 10 minutes to a light rail station.
The Trend is Your Friend
- Think long-term
- What’s going on in the neighborhood(s) around you?
Unlike the stock market, which can change minute to minute, real estate changes are relatively slow. This works in our favor because it makes it easier for us to predict these real estate trends:
- When you walk outside, what do you see?
- Is there one lot, four houses down that has been completely scraped and is preparing for something new to be built?
- Are there dumpsters in the block next to yours where they are doing rehab projects?
- Was a four-unit row house just completed at the end of the block?
These are all signs that a neighborhood is in transition and an opportunity to capitalize on the upward trend.
Looking for these neighborhoods with these upward trends and transformations can be excellent areas for good house hacks. A lot of times it’s areas that are right outside the really expensive neighborhoods. A good example of this is the River North (RiNo) area. Years ago, Downtown Denver was just too expensive, so what happened? People started to invest and develop more north into Five Points and what is now known as the extremely popular and “trendy” RiNo neighborhood.
Jeff’s most recent house hack is in another great area of southwest Denver. It’s more suburban but is one of the last pockets of affordable properties that is close to downtown, light rails and other popular neighborhoods like Bel Mar.
The concept is that transitioning neighborhoods usually mean good appreciation, higher purchase points and higher rents for the long-term.
The government will often spend money or reduce investors’ taxes to invest money to develop certain areas. These are areas and programs that we don’t limit our searches to, but if there is an opportunity in one of these areas, it can add some great long-term benefits.
Opportunity zones are areas that are underdeveloped and have been identified as an area where they would like to see money funneled into to help with development. Not that you would necessarily take advantage of the tax advantages from directly investing in the opportunity zones, but you can capitalize on what that means for the area.
There are usually great tax advantages to people and organizations that invest in opportunity zones. If people invest in an area, it will usually change for the better and you as a house hacker can ride the coattails of those positive changes from the “big money.”
Another aspect to watch for is what each municipality is doing. Lakewood is a good example. In 2019, they passed Proposition 200, which now limits development in Lakewood. If the city limits supply of housing but there is still high demand to live in Lakewood, that should increase rents and house prices in that area.
Lakewood is located between Denver and Golden, which are two highly desirable places to live and the average price points for houses are greater than Lakewood. Lakewood is still a great location with easy access to downtown and to the mountains. If Proposition 200 limits the available homes in this area, there’s a good chance that Lakewood home prices will increase significantly, and it may see above average appreciation.
One other government program is the Colfax Avenue Business Improvement District that is helping to develop businesses and areas along Colfax Ave. Ultimately, more money invested into these areas will hopefully create an upward trend and transition these areas for the better.
Again, while these factors should not be a make or break when determining if the property is a good fit for your situation, having properties in your portfolio that take advantage of these types of programs or are in these areas will only be another added benefit in the long run.
Closed House Hack Map
Below is a screenshot of Google Maps where I inputted the majority of house hacks closed over the last two years.
Here's the same map zoomed in.
You can see that the vast majority of these properties are located on the north side of town. Most have been closer to the mountains and west of I-25 in Lakewood, Arvada, Wheat Ridge, Westminster, Thornton and Northglenn. We’ve also done a large number in North Aurora near the Anschutz Medical Complex close to Colfax and I-225. The North Aurora area is a great example of what we just discussed previously. It’s in a transitioning area, located near a major economic driver (the Anschutz Medical Complex) and many parts of it are in Opportunity Zones.
It’s interesting to compare the locations of house hacks in relation to the locations for traditional rentals.
Map of House Hack Locations
Map of Rental Property Locations
Interestingly, it’s almost a mirror image or opposite of what we see for house hacks. Most of the good rentals we see are on the East side of Denver Metro. This proves our point from the beginning of this module that, from a purely rental number standpoint, traditional rentals will be better rentals than a good house hack. So, why don’t house hackers buy these rental properties and use them as house hacks? Well, it’s because most of these rental properties will not fit for the personal needs of a house hacker.
What’s the Best Location?
If you can’t guess this answer, you haven’t been paying attention to the previous modules. It has to be our classic answer: It depends!
You need to determine your tolerances, your preferences, your work commute, the aspects that affect your quality of life, and how the location of the house hack fits into the balance of your personal and investment goals and strategies. There’s no right or wrong answer. The other interesting thing, which Jeff points out, is that your goals and tolerances may change. What you are willing to sacrifice or deal with on your first house hack, might be different by house hack number two or three. You have to continuously evaluate your goals and adjust accordingly.