In today’s deal analysis, we’re looking at equity I’m taking from a Colorado Springs rental property and investing in a single family home in Pueblo.
To see a video tour of the Pueblo house, go here.
- Listen to the podcast “#82: What Does $80k Buy You in Pueblo?” 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.
It’s no secret that I’ve seen a ton of appreciation in properties from the Springs over the past couple of years. Over the past year when rates were extremely low, I refinanced several properties that I previously BRRRRed because there is so much equity in them.
Recently, I looked through my portfolio to see which properties have higher interest rates paired with a lot of equity. Those are the homes I targeted for a cash out refinance. The property I chose to refinance for this deal is a single family home with a 4.5% interest rate. I was able to refinance at 3.5% and pull out a little over $80K in cash.
Even if I hadn’t purchased this property as a BRRRR, I still would have been able to pull cash out. When I first refinanced the property, that loan was based off of its market value at the time of the refinance. Since that refinance, the home appreciated an additional $150K.
In our recent market update, we talked about cash-on-cash returns getting lower, but one of the benefits of this is that you end up with appreciation that turns into equity. Part of real estate investing, especially now, is being smart about how you reinvest equity.
Investment Property Details
I wanted to put my $80K in cash in Pueblo, since the costs to entry are lower than the Springs or Denver and the market there is strong. Recently, an Envision Advisors client bought an attached single family home in the Belmont neighborhood. Attached single family homes are kind of like side by side duplexes. When the property next door to his went on the market, I bought it.
Appealing Features of the Property
The home is in a great neighborhood, close to shopping and the college. It has 3 bedrooms and 2.5 bathrooms in 1400 sq ft. This is a sizable house in a great part of town. To see it in detail, check out this walkthrough video.
Property Contract Details
The property was listed at $220K, and I was able to buy it for $222K. In Colorado Springs, it’s practically impossible to get a home for just $2K over list price. In Pueblo, I was able to compete against multiple offers by going up a little in price without having to add an appraisal gap or limit inspection objections. The most competitive aspect of my offer was a 2 week close.
The home inspection went really well. The house was built in 1985, so it’s not too old, though the appliances were original. This meant that the oven smoked up a bit, and I’m not sure if the dishwasher worked at all. There was also a little exterior maintenance needed, such as mitigating wood rot.
I was able to negotiate a seller credit of $2500. I hired a handyman to take care of most of the items and ordered all new appliances. In my opinion, this house is about as turnkey as it gets.
Property Financing Details
I used the Rental Property Spreadsheet to run the numbers on this house.
Interest rates are steadily going up, and the rate I was quoted was 4.875%. I chose not to buy down the rate because the property is still sustainable even with the higher rate. I’ll probably target this one as the next property to pay off because of the lower loan balance coupled with the higher interest rate.
Property Operating Expenses
Leah and I have noticed that Insurance rates in Pueblo tend to be higher compared to the Springs. Overall, it’s negligible in the grand scheme of things but an interesting nuance to investing in Pueblo.
I have also put this property under professional management at a cost of 10% of rents.
First Year Returns
This property is expected to cashflow $1200 annually, or about $100 a month, with a cap rate of 5.2%. While $100 a month isn’t life changing, I’m happy to have a mostly turnkey property that I’m not self-managing. I see the growth potential in this area and expect the home to appreciate over time.
This is a self-sustaining property that I intend to hold onto and allow it to appreciate. Real estate investing requires a long term outlook, and this property is poised to perform well in the long run.
Connect with Us
The market is giving investors a lot of appreciation right now, which presents a great opportunity to take out equity and reinvest it. Reach out to me for a comprehensive investment consultation and I’ll be happy to help you understand the market, run scenarios, and formulate the right move for you.