Denver, Colo., is known for its beautiful scenery, vibrant cultural scene, active lifestyle, easy access to the mountains, and a diversified and growing job market. The metro area is a magnet for Millennials and continuously draws people of all ages from all over the country seeking the “good life.” Needless to say, the housing market shows excellent potential for long-term appreciation. So, it’s no surprise that real estate investors are attracted to the potential for xxx.
As a local agent and an investor myself, I am a big fan of investing in real estate. There are numerous reasons why investing makes sense – portfolio diversification, passive income, tax advantages and long-term security; But I also know real estate investments can be challenging, especially for those new to the practice. That’s why I’ve compiled a few key ways you can confidently step into the investment world.
Whether you're a seasoned investor or just starting, these tips will help you make informed decisions and maximize your returns in the Denver market. From understanding market trends to setting a budget and leveraging all your resources, let me walk you through some key topics that will help you succeed in real estate investing.
Make your decision personal (but objective)
Like most investments, real estate investments involve calculations based on objective market data. When it comes time to finalizing your investment choices, you will want to take emotions out of play and zero in on the right properties in the best location. But before you jump into the investment pool, make sure you have the right reasons for climbing the proverbial ladder.
Ask yourself: What’s my motivation for investing in Denver real estate? Investors may earn passive income, but the work to invest and maintain properties is anything but passive. Having invested myself and coordinated many fruitful real estate investments, I know you must be motivated to succeed. Investing in real estate is always a personal choice that depends on your financial situation, risk tolerance, goals, as well as your investment style and your personal style.
Know Denver’s strong points
If you’re already serious about investing in Denver, you probably know all about its best attributes. Per Case-Shiller, the Denver home price index is up 149%
over the last 10 years. The city is a desirable place to live, providing residents (and their dogs!) every opportunity to live a high-quality lifestyle. Denver boasts one of the nation’s fastest-growing job markets, bolstered by expansion in industries (advanced manufacturing, defense, aerospace, energy, tourism, cannabis, tech, and more). The city also attracts more Millennial buyers than almost any other American city, just 2nd behind San Jose.
Ultimately, it’s an easy sell to potential renters: the city and its reputation easily sell themselves. As a real estate investor, that’s the best thing you can say about any local market.
Set investment goals
In a competitive market like Denver, it's essential to ground your investing approach in clear goals and strategies. With your agent, think through what you hope to achieve through investing. Are you looking to generate passive income, build long-term wealth, or flip properties for a quick profit? Knowing your goals will help you determine your investment strategy and make better investment decisions.
You’ll want to consider your risk tolerance, as no investment guarantees returns. Consider your financial situation and your experience as you determine what kind of investment to attempt first. Then, choose a strategy that aligns with your goals, considering the types of properties, locations, and market conditions that will support your goals the most.
Set a budget
Once you’re sold on Denver, you can begin to make a financial plan with me as your Realtor. And, it’s always best to have your financial planner and CPA to talk through the long-term financial and tax implications.
No big surprise, but the purpose of a budget is to prevent overspending and account for all expenses as you invest in Denver real estate. Your budget should account for down payment, inspection fees, closing costs, property taxes, insurance, ongoing maintenance costs and large one-time expenses. Remember, real estate is not a liquid asset like stock, where you can divest quickly and minimize your losses–so you have to be prepared for the unexpected and prepared for the cost of selling when the time comes. On the positive side, rising rents and appreciation are also parts of the equation for a successful real estate investment and budgeting. Once you clearly understand what you want to spend, you can start looking for properties that fit your budget.
Increase your knowledge
Traditional education can teach you about stocks, bonds, and mutual funds as a means of investing, but real estate isn’t always included in the conversation. It’s essential to take it upon yourself to expand your knowledge so you can go into it as prepared as possible.
As a local expert, I can bring you up to speed on market trends, strategies and refer you to different contacts to learn about the best financing options, legal regulations, and property management, among other topics. You can also attend real estate investment seminars, join local investment clubs, or read real estate investment books (in addition to blogs like these) and classes online. In my experience, the more you know, the more productive conversations you can have throughout the investment process.
Leverage is one of the most powerful tools for real estate investors. Skillfully using other people's money (OPM) allows real estate investors to control a large financial asset with minimal cash investment. The potential downside of using OPM involves higher interest rates and strict loan requirements. You always want to avoid over leveraging by side-stepping high-risk investments and having a solid plan to manage your debt.
One of my number one pieces of advice is choose your lender wisely and allow them to explore ways to finance your investments that make the most sense for your personal situation . I have excellent recommendations of lenders that specialize in investing. With a firm budget, you can control cash flow and avoid the risk of defaulting on a loan. Diversifying your investments can help mitigate risk and make the most of leverage.
Know the local market
Real estate investments differ in crucial respects from more conventional forms of investment, like stocks, bonds, and mutual funds. Real estate is a finite resource, and its value is location-dependent.
So, if you want to invest successfully in the Denver area, the best plan is to thoroughly investigate the conditions of the local market. It’s more than knowing whether the market is trending up or down. Your decision to buy, sell, or hold depends on local property values (list price, sales price, price per square foot) and market factors (demand, inventory levels, current mortgage rates) and logistics (is the property located near the highway or public transportation, is there new apartment building going up across the street).
For instance, the Platt Park area, although this area has experienced high appreciation in recent years, there are still properties there that might make sense as a rental. Look for the smaller homes or row homes, where you could have multiple units that would be excellent candidates. Or, look a little further south of Platt Park in the areas surrounding the University of Denver where there is no shortage of potential renters; students definitely need a place to live and most don’t love living in the dorms.
Ultimately, this information will guide you in making offers and projecting a return on your investment. By taking the time to research and understand the Denver market, you can increase your chances of success in real estate investing.
Questions to ask Kimber Ward
As you think about investing in real estate , here are a few questions to be thinking about for our first consultation.
How much money do I need?
Conventional wisdom says you should save enough to cover at least six months of rent. Your precise figure will depend on home prices, rental rates, down payment amount (ideally around 25%), and closing costs. I can help you choose a lender and budget for all costs, expected and unexpected.
To calculate returns, you can use rental property calculators available online. You can apply several criteria to measure returns. The key is to stay consistent if evaluating multiple properties.
Do I want to be a landlord?
If you plan on being a hands-on landlord, you will need a range of skills (knowing tenant law, fixing leaky faucets, etc.). The job will definitely demand time out of your schedule. You can always (and will need to) hire contractors for specific tasks. As a rule of thumb, filling one vacancy costs up to 40 hours. If you're just starting, I would recommend being your own property manager for your first rental if you can. There’s nothing like the hands-on experience you will gain.
What kind of property should I consider?
Your options include:
Will I rent it as a:
Make sure you know the regulations around the various options in each area.
You might choose properties near hospitals, universities, or corporations. Check with me whether a neighborhood is projected to appreciate over the years and what other developments are planned in the area.
Make your first real estate investment
As you consider buying your investment property, ensure you work with a reputable real estate agent who can help you easily navigate the local market. As an experienced real estate broker (Kimber Ward, Realtor) with ample experience working with investors, I can be your go-to resource for investing in excellent neighborhoods
like Cherry Creek, Central Park, and Platt Park.
*Header photo Provided by Kimber Ward