Charles and I just wrapped up the March roundup webinar (our monthly "let's grab a virtual cup of coffee and talk Denver real estate investing.") You can watch the YouTube recording below or listen to it on our podcast channel ("Episode #31 March Roundup - New Expectations?").
Topic #1: Rising Home Prices vs Rising Rents
Below is the email that Charles wrote to a client about finding mid 7 cap deals:
I wanted to think about how to respond to your question so took a little while over the weekend to ponder this. You’re definitely not the only one asking the question where do we go from here. The Denver market has been very strong for 7 years now but we’ve seen a subtle shift in the past 12 months that has certainly affected longterm investors.
For the previous 4-5 years home prices and rents rose about equally, keeping cap rates fairly consistent even though home and multi-unit prices skyrocketed. What’s happened in the past year is that homes have continued to skyrocket in price (up ANOTHER 12.6% in the past 12 months) while rents have leveled off (up just 2.3% in the past 12 months). I think the math is as simple as that. While a year ago we were getting out of the winter lack of inventory and putting a lot of properties for buy and hold investors on the market that’s not happening right now. At least not yet. As the days and weeks go by and we’re still not seeing decent cashflow properties in the 7.0 – 7.5 cap rate I’m realizing the obvious, it’s that prices have continued to surge and rents have not.
What the next few months will bring I’m not certain. I really do believe more will come on the market in the busy spring season but we’ll have to wait and see. I don’t expect rents to go back to the 8-10% yearly increases like they did between 2013-2017. The result is that cap rates may remain more in the mid 6’s instead of the mid 7’s we’ve seen for years. The new normal for this market? Not sure, hope not. Time will tell.
In the meantime I’ll keep hunting everyday. That’s the only answer I’m sure of. I’m fairly optimistic with a reasonable amount of work and patience we’ll be able to continue to find decent properties for the longterm. I’ve done this for 20 years and we always have. Hang in there and let me know your thoughts. Happy to chat anytime!
Thanks.
Charles
Topic #2: 4/2 Townhouse - 7.0 Cap
The first deal is a 4/2 townhouse at 9248 E Lehigh Ave Denver, CO 80237. The list price was $270,000, and that's the price our client got it for. It's a solid deal that fit her criteria. The HOA is only $140/mo (Yes, 140). Even with such a low HOA fee, the HOA reserves are well funded. The townhouse required minimal work (half day.)
Download the MLS data sheet and picture gallery here.
Download the spreadsheet analysis here.
Topic #3: Timing the Market with Cycles
Last week I read a blog post, "What If You Buy A Home At The Top Of The Market? A Look At The Real Estate Cycle", that had the Denver market in "Phase III - Hyper Supply." Which I didn't understand since Denver has way more demand (buyers) than supply (sellers / inventory.) I showed the graphics below to Charles for his input. His response is below.
Denver is in "Phase 3 - Early Exuberance"
Charles' paraphrased response:
"I don't know a lot of people investing this way who made a lot money. Many lost money when trying to time the market. However, a lot of consulting companies and gurus make a lot of money selling the information instead. Don't predict or time the market. Rather, focus on becoming a better investor and building up cash reserves. Buy and hold for the long term.
Topic #4: Off-Market 2/1 Condo - 6.9 Cap
This property was not on the MLS nor a wholesale deal. It came about from good old networking. It's a 2/1 condo for $165,000 at 5300 Cherry Creek South Drive.
Download the spreadsheet here.
