Colorado Springs Real Estate Investing Podcast

The Colorado Springs MLS trends data for July 2021 is out. Comparing year over year (July 2020 to July 2021) is better than comparing the previous month, because we have defined seasonality trends.

While July continued the trend of few listings and rising price points, the median price increased only slightly and we saw showings per listing decrease to the same level it was for July 2020 (11) which is an encouraging sign. However, the days on market (DOM) is still continuing to increase. Average DOM for July 2021 was 7 compared to 20 for July 2020 and 9 for June 2021.

Competitiveness is still extreme, and buyers still feel pressured to make a strong offer immediately. We’ve seen that homes priced higher than assumed market value stay on the market a little longer. I’m guessing this is because people don’t feel comfortable making an offer less than the listed sales price.

Once again, a Colorado Springs zip code is ranked as one of the hottest in the nation for home sales. This time 80916 took the #1 spot to beat out 29,000 other zip codes. The 80916 area is near the airport and definitely poised for growth. Realtor.com’s rankings are based on how fast homes sell in a particular ZIP code, along with how frequently home listings were viewed online by prospective buyers. Last year, zip code 80911 was ranked #1, so Colorado Springs had a top spot two years in a row.

The market is still good for sellers, but a little less red-hot. 

Source: The above executive summary is from Lon Welsh of Your Castle Real Estate.

For information on how to get started investing in Colorado Springs, check out our free 2021 Colorado Springs Real Estate Investing Guide.

We’re back on track this week with our live Drinks and Deep Dives after our two week break and ready to jump back in with an updated intro, transitions, and graphics.  This week, Colorado Springs agent Jenny Bayless joined me to talk about vacancy and rental rates as well as do a deep dive on a townhome she bought earlier this year.  We compared the estimates originally calculated when she bought the home to how it’s performing after seven months.

Our factoid of the week looked at vacancy rates and rent prices.  Every quarter, the Apartment Association of Metro Denver publishes a report on Vacancy and Rent rates.  Jenny and I looked at the quarter two numbers for Denver and Colorado Springs and found that both markets are trending in similar directions.  Bottom line: the dropping vacancy rates and rising rent prices gives us more data to support why now is a good time to buy. 

Check out the Denver Vacancy Rates and Rental Trends blog post to get the full analysis and view the chart. 

This week’s deep dive was a look at how Jenny’s recently purchased townhouse is performing.  By comparing her pro forma estimations made at the time of purchase with the actual costs and returns seven months in, we can see how reality differs from projections.  In her case, the townhouse is performing surprisingly well, but she cautions our listeners to remember that every property will have ups and downs over the long run.

To read more about it, check out the Comparing Spreadsheet Projections vs Actual Numbers for Your Rental Property blog post.   

Be sure to tune in each Wednesday at noon to watch the show live, and remember to reach out with any questions, comments, or ideas for new topics!

This episode is the first in our new video series we’re calling “Property Walkthroughs” in which I walk Colorado Springs rental properties with the investor owners. We talk pros, cons and give a quick analysis for each rental property. You’ll gain unique and valuable insight from the owners themselves who share their successes, regrets and give tips on what to avoid and how to maximize return for rental properties.

In this episode, our client gave me a tour of his newest property, a fourplex located in central Colorado Springs.  We looked at one of the newly renovated vacant units, went over the numbers, and learned what his plans are for the future.  

The rental property featured in this episode is a fourplex located in central Colorado Springs.  What attracted him to the property first and foremost was its location—it’s close to major hospitals, universities, associated medical centers, and city attractions, such as restaurants and breweries.  It’s also a convenient hop over to I-25.  On top of that, the units all feature great views of the city and mountains, with one of the best views of Pike’s Peak in the area.  

There are 2 2-bedroom/1 bathroom units and 2 3-bedroom/1 bathroom units.  Some of the units have been recently renovated, boosting market rents right away.  Our client was pleased with the newly painted neutral colors, durable LVP flooring, new carpeting, and ceiling fans in the bedrooms.  The kitchens have been redone with stainless steel appliances, quartz countertops, and white cabinets.  Right off the kitchens are decks that boast incredible city and mountain views, which is very popular with tenants.  All of the apartments also have in-unit laundry.  

The investor purchased this fourplex for $825K in the summer of 2021. The acquisition costs were $13.5K; he negotiated a seller credit of $7.5K; and he was all in $245K.  

For the 2 bedroom units, he is targeting $1400 a month, though it’s underwritten at $1300 to be conservative.  The 3 bedroom units are currently occupied into next year, but he’s aiming for a little more for those units if there is tenant turnover.  The current tenants have been in the building for years and are very happy, so he isn’t looking to change anything yet.  When he eventually has turnover, one of his options down the road is to adapt a room-by-room rental strategy aimed at college students.  

All of the gas and electricity is billed separately to the tenants. As the owner, the investor takes care of water, sewer, trash, and common area utilities.  He has a bill back in place that charges $100 to the tenants every month on top of rent to recoup some of his expenses.  

He uses property management that charges 10%, and he has 7% set aside for repairs and maintenance.  I think this is an appropriate number, since some of the units are brand new, the roof is relatively new, and he’s already in the process of replacing the heating unit.  

His yearly taxes are $1625 and insurance is $2700.  He’s also paying $600 a year for landscaping and snow removal.  

He is looking at solid returns on this property that will only get better over time.  

The side of the building features what used to be a shared laundry room.  Since the units have all been upgraded with in-unit laundry, the investor is planning on converting the unused room into storage.  He will add in some storage cages with individual locks and offer them for rent to tenants.  

Each unit has its own boiler, and during inspection, it was discovered that one of the boilers is failing.  He is planning on replacing the four separate boilers with one new one that has four zone valves.  He’ll add the cost to the utilities payback.  

All in all, this property is a great win for our investor, and I look forward to working with him again in the future.  Make sure to check out the property walk video to see the newly renovated unit!

Do you want to see more multifamily deal analyses? Check out all our Colorado Springs investment property deal analyses page and click on “multifamily.”

If you’re interested in finding your own property in the Springs, reach out to me.

For information on how to get started investing in Colorado Springs, check out our free 2021 Colorado Springs Real Estate Investing Guide.

A few weeks ago, Chris and I met up and started catching each other up on our families, investing, and goals.  As we were talking, I realized that I’ve been putting into practice a lot of the things I’ve learned over the course of my real estate investing journey.  So, I’ve compiled a list of the 9 lessons I’ve learned, as well as one thing I always plan for.  Real estate investing isn’t easy, but it is simple, and these basic lessons will help make it even simpler.    

My first lesson learned is a very actionable piece of advice for anyone who’s about to purchase a property.  During the home inspection phase, sewer scopes are optional and some people skip out on the $100-200 cost.  But spending hundreds upfront can save you tens of thousands in the future.  Every month, we have a client who does a sewer scope and finds a big problem that either blows up the deal or is handled through the inspection resolution process.  As someone who’s experienced the downside of not getting a sewer scope, trust me on this.  

A lot of people are attracted to real estate thinking they’ve found a way to exit their day job.  There’s a lot of misunderstanding surrounding real estate: it’s not a get-rich-quick technique; it’s a grow-a-nice-amount-of-wealth-over-a long-period-of-time strategy.  Delayed gratification is key to making this happen.  If you grow to be a successful investor, you learn to see the forest for the trees.  For example, if you own a rental property and are told the oven is broken, your immediate reaction could be to feel irritated that you are spending $500.  However, an investor who takes the long view knows that in the grand scheme of things, that $500 isn’t going to make a lasting impact.  

The key is to be patient and let the market do its thing; let the investment compound, and know that you’re slowly creating a large amount of wealth.  If you go searching for immediate gratification in real estate, you’re not going to get it.  

When my husband and I first started investing locally, we tried to do everything ourselves.  We painted, made repairs, and did landscaping.  Then we realized that we aren’t that good at painting, repairs, or landscaping, and that the people who do those things for a living are really good at them.  Instead of doing something that doesn’t look good and will need to be fixed later, we realized it made more sense to let go and allow the experts to handle it instead.  While I can be a bit of a control freak when it comes to my rental properties, I realized I had to step back and give the professionals the freedom to do what they need.  

Instead, it’s better to focus my time and energy on the things I am good at.  My strengths lie in long term strategy and financing techniques, so that’s where I concentrate.  The result is that everyone is doing the job they’re best at and my properties are better because of that.  

Most investors would agree that lending is one of the more boring aspects of buying real estate.  A lot of people think they need to get a good deal first, and then find a lender who can make it happen.  But I’ve learned the hard way that securing lending ahead of time is key to ensuring a successful deal. 

Four years ago, with one day to go before closing, I found out I wasn’t able to do the cash out refinance I’d planned on because the lender and I weren’t on the same page.  I wasn’t aware of the concept of seasoning (the requirement of making payments for six months before pulling out cash) and paid for it.  I had to do a rate-and-term refinance and then a cash out refinance a couple months later.  In the end, I had cash stuck in a BRRRR property for longer than I wanted and had to eat two sets of refinancing costs.  The real penalty was on me for not going about it the right way.  

A lot of people see ads about low interest rates and only want to look at the cheapest closing costs and lowest rates.  But the fact is, cheaper rates don’t matter if the lender can’t get the job done.  Go for the most qualified professional, not the cheapest.  And make sure you clearly communicate plans, ideas, and dates.  Making assumptions that don’t work out will cost you.  

While real estate investing is inherently analytical, it’s important to always trust your gut.  Talk to other people who have more experience, but remember that at the end of the day, you have a personal goal for your life and finances and you’re the only one who knows what it is inside and out.  

As time has gone on, I’ve learned to allow my gut to speak louder than my brain.  For instance, it would make sense mathematically for me to trade up into larger and more complex properties, but I enjoy the properties that I own and they’re getting me to my goals.  I know that keeping things as they are is the right plan for me, even if my spreadsheet says I have better options.  

There are times where it’s just easier to replace something than try to repair it.  It’s counter to what we’re taught about being mindful of expenses, but sometimes it’s just not worth the time and money to try to fix something.  Instead of having a repair person come out three times to look at a problem, coordinating with them and the tenant, paying for parts and labor, you could just spend some money to be done with it.  I’ve had to go through this a few times before embracing it, but now it’s always on my mind when something breaks.  

This is a painful thing for a lot of people to hear because a perfect deal is exactly what they’re searching for.  The truth is, there is always something that makes the deal or your property less than perfect because real estate is a series of tradeoffs vs price.  Maybe your home is next door to a house that is in disrepair; maybe your property not in great condition and you’re taking on more risk.  Something is always going to prevent your deal from being ideal.  

I’ve never bought a property and thought it was a homerun on day one, but I’m extremely happy with every property that I own.  People spend a lot of time trying to find the perfect property, perfect business plan, perfect partner and don’t end up with anything because perfect doesn’t exist.  Remember that going for pretty good is better than nothing.  This can be an especially hard leap to make, especially on the first couple of properties, but think of it as a mental hurdle to get over.  

I’ve made a lot of mistakes in my investing career, including some really embarrassing ones.  But it’s all worked out because each mistake taught me something, and I know I’ll never make that same mistake again.  I choose to see my mistakes as the cost of getting a hands-on education.  In 10 or 20 years from now, minor mistakes aren’t going to make a difference.  

Real estate is forgiving, especially long term real estate investing.  You need to give yourself room to make mistakes, and know that you can hear something in in a podcast or read it in a book, but nothing really sinks in until you actually do it.  So, make a mistake, accept it, and move on.  

I stole this last lesson from our portfolio analysis expert Chelsea, who said it during one of our team meetings.  It’s easy to get caught up in the details of a malfunctioning appliance or a leaky faucet today because that is what’s occupying space in your brain at the moment.  But in 5 years, you’ll have equity growth, debt paydown, and better cashflow to offset those thoughts.  Things that annoyed me a few years ago have no impact on my life today.  When you’re having a bad day, take some time to think about what your life will be like in the future and what will matter to you then.  

My last piece of advice isn’t a lesson learned because it’s been my goal since I started investing in real estate.  Always make sure you have adequate reserves.  Luckily, I haven’t been burned by the absence of reserves before, but I know at any point a real estate disaster can strike.  Anything can happen: high vacancy, big ticket repairs, even another pandemic.  It’s a matter of when things happen, not if.  What allows me to sleep at night is knowing that everything I worked through from lessons 1-9 is protected because I have the ability to cover any problems that arise.  

Everyone has their own version of this list, so what is yours?  We’d love to hear about the experiences and wisdom our clients and audience have gleaned through their own real estate investing.  Reach out to us with your stories. 

We’ve been so focused on talking about asset valuations increasing that we’ve been glossing over a very important component of rental property investing—rental rates.  As we’ve mentioned previously, actual rents are coming in higher than the pro forma estimations for most of this year.  So, I’ve compiled some data to see how Colorado Springs rent is changing.  

While real estate is local, it’s important to look at the US as a whole to see any systemic patterns.  According to a July 19th article from Zillow Research, median rents nation-wide increased over 7% year over year.  From May to June of this year alone, there was a 3.1% jump, and the median rental price for the country is currently $1800 a month.  Even with its rising cost of living, Colorado Springs hasn’t yet hit $1800, which makes this median number all the more surprising.  

Interestingly, while rents grew 7% year over year, housing prices grew 15%.  Even though those are both high, housing costs are outpacing rents at a much faster rate. As I noted in The 2021 Guide to Colorado Real Estate Investing Strategies, rent rates have not been growing at the same rates as property values, which is something for investors to keep an eye on.  What works now as a rental property if you bought today, may not work as a rental if you buy in the future at a higher price. 

Since we don’t have any expectation of buying conditions getting better, I still suggest buying now if you see something that works.  Buyers are able to take advantage of cheap debt because interest rates are still low, which will pay off in the long run.  As the gap grows between rent growth and purchase price, it will be harder to cash flow.  

The Gazette, a local newspaper for the Springs, recently ran an article about apartment rents in the area that matches the trend we’re seeing for the country.  Record highs have been set in six of the last nine quarters, making soaring rents the norm.  

A report on rents and vacancy rates for the first quarter shows that average rents for the Springs rose to $1,333.69 per month, up nearly $115 (9.4%) on a year over year basis.   This is a little more than $57 higher than the previous record high of $1,276.64, which hit in the third quarter of 2020.  This is a very steep increase in one year; our underwriting is typically at 3-4% growth per year. 

For more context, here are the average rents broken down by unit type: 

At some point, affordability is going to come into play.  It’s important to consider that wages in the area are not increasing at these rates, making rents more burdensome on the tenant population.  If living costs continue to increase at these rates, tenants won’t be able to afford them, which means this level of growth in rent rates is not sustainable.   

Vacancy rates are known as the silent killer of rental profits.  In the Springs, however, the vacancy rate across all apartments is 5%.  Moreover, a study found that single family homes and smaller apartment buildings typically have an effective vacancy rate of 0%.  In the Security-Widefield area, Realtor.com’s hottest zip code, the vacancy rate is 1%, which we can only assume is accounting for a week’s turnover between tenants.  

This big spike in rent coupled with low vacancy points to a supply and demand issue.  The Springs is growing in terms of population, but only 250 units were added to rental inventory in quarter one.  Though we don’t have exact numbers, we know a lot more than 250 families moved into the area during that time.  

There are a lot of articles about fancy high-rise apartments being built, but it will take a year or two for them to be done with construction.  It will be interesting to see how the new buildings popping up along the skyline affect these numbers.  

It’s important to be cognizant of market trends while also being mindful of your tenants.  If you have tenant turnover and your unit allows for you to realize a higher rent rate, then that’s a good opportunity to take advantage of the rising rates.  However, if you have a good tenant, don’t squeeze them in an attempt catch up to market rates.  Look at and take into account how your costs are increasing, but do not put a significant surcharge on a lease renewal.  At some point, this will level out or wages will have to rise to match these costs.

The articles referenced in this post can be found here:

Inventory Jumps Again, as the Market Continues to Sizzle (June 2021 Market Report)

Apartment rents in Colorado Springs soar to another record high

To read our book, The 2021 Guide to Colorado Real Estate Investing Strategies, email us and we’d be happy to send you a copy. 

If you’re interested in investing in the Springs, reach out to me and I can help you form a strategy and find the right property for you. 

In this week’s Drinks and Deep Dives, Jenny Bayless joined me to talk about market trends for Colorado Springs and Denver, do a deep dive on a recent investment property purchased in the Springs, and answer questions from listeners and clients.  For those of you who don’t know Jenny, she runs our Southern Colorado office. They are currently operating in the Springs with plans to expand down to Pueblo.  

While Colorado Springs is not technically “out of state,” it does check off certain boxes that Denver investors are looking for when they decide to look outside of Denver.

From a high level overview, the Springs market is the same old, same old, though there’s a physical feeling that the market is a little bit less intense.  It’s still hot and a difficult time to be a buyer, but there’s some breathing room now that wasn’t there earlier.  Buyers don’t have to jump on something the second it comes onto the market and can take some time to evaluate it before deciding whether to put in an offer.  

Looking at inventory for both the Springs and Denver gives us an idea of the state of these markets.  Interestingly, inventory in the Springs had been steadily going up, but there was a drop between last month and this month.  We’re still at significantly fewer homes for sale than at this point last year, which seems wild given that we were in the middle of a pandemic and sellers didn’t want people coming through their homes.  In Denver, inventory has been increasing but is also still under the amount that was available last year.  The difference between Denver and the Springs is that inventory in Denver grew 50% between last month and this month, from 2000 to 3000.  This is the first time we’ve really seen a divergence between these two markets.  

As far as showing traffic goes, Denver and the Springs are in line with each other.  Between February and April, there were between 20-22 showings per property in Denver, almost double what we’ve seen the past couple of years.  While we usually see a decline in the summer, there was a dramatic drop off that is uncharacteristic.  The Springs similarly dropped from 18 showings earlier in the year to 12, though that’s still higher than the past few years, as well.  

Rents are starting to go back up after seeing flat numbers from covid.  Most landlords like to keep rents steady for good tenants and take the opportunity to raise rates when the tenants decide to move out.  Now that people are starting to feel more comfortable moving, rent rates are going back up.  

Jenny is seeing some of her own tenants leaving this summer and is renovating a couple of properties in the hopes of pushing rents.  We’re going to walk through the properties and see how the renovations evolve, so look for that around late August.  

Check out the complete Denver Real Estate Trends – June 2021 and Colorado Springs Real Estate Trends – June 2021 blog posts to view all the charts and graphs.

Our deep dive this week was a deal analysis for clients who live in Denver but purchased an investment property in the Springs.  Their goal is long term wealth building, so they focused on making sure they would break even while building equity.  Thanks to Leah taking care of everything during the purchasing phase and hiring a great property manager, these clients have never had to step foot in the house!  To read more about it, check out the Three Bedroom One Bathroom Rental Property for $283K blog post.  

Finally, we tackled some questions from viewers and clients: 

We recently did a show with Diana, who runs a corporate rental company, about what it takes to turn a property into a corporate rental and the difference in returns on this type of rental structure.  Our team has also gotten in contact with a full-service corporate rental management company in the Springs to learn more about this space. She’s currently doing a deal analysis for a client who just closed on a townhome and plans to take this route.  The client is in the furnishing stage of turning the property into a corporate rental.  

We’re excited about the projected returns on this low maintenance home in a growing area, with a 7% expected cash on cash return.  Once we get real numbers, we’ll have a better idea of how this will play out.  Jenny is focusing on collecting more data on initial startup costs, about $10K total, to better understand the process.  We’re seeing a lot of interest in this strategy from clients as a way to get more cashflow from their properties.  

Jenny is really happy with all of the properties she has right now.  There are two houses currently undergoing renovations that she plans on documenting for everyone to see.  The hope is to make more of a rent bump once the renovations are complete, and then focus on stabilizing the rest of her properties.  

I just closed on a rental property in Denver with an ADU a few days ago.  I put 15% down to maximize leverage, and while it isn’t getting cashflow yet, it fits my 5-7 year plan.  I’m also investing in my first syndication deal with some money from my retirement account, which has been a big learning process.  Although there’s a lot more paperwork than expected, I’m excited with how it’s going.  My plan is to do a couple of good investments every year, and then reinvest money into my businesses and properties.  

Reach out to us for investment consultations and property analyses, and be sure to join us every Wednesday at noon for more Drinks and Deep Dives.

Chris and Christine had been toying with the idea of real estate investing for some time.  They knew their Denver home had quite a bit of equity and wanted to figure out how to make it work for them.  Thanks to a Covid-induced delay, they had a lot of time to think about where they wanted to purchase a home, at first focusing on Denver and then looking at out of state prospects.  They settled on Colorado Springs after Christine kept coming across it on lists of the best places to live and work.  

When looking at potential areas to invest in, they focused on places that had a university, hospitals, and major employers.  A bonus for Colorado Springs is the military presence.  Even during a downturn, military housing stipends stay the same, so vacancy rates aren’t as affected.  

Chris and Christine are focused on the long term benefits of investing in real estate.  Their plan is to start building their portfolio and have it supplement their retirement down the line.  They are mostly focused on returns that will come in 10-15 years.  

They just purchased their first investment property and are making plans to move ahead with their second.  They want to steadily add to their portfolio in the coming years, ideally owning 10 or so properties eventually.  

This is a 3 bedroom 3.5 bathroom townhouse in the Security community of Colorado Springs, on the southern end of town.  

Appealing Features of the Property 

The house was in their price point and in great condition, which appealed to them since they didn’t want to put a lot of money in on the front end.  The number of bedrooms and bathrooms, as well as the large square footage, made this townhouse attractive to Chris and Christine and to potential renters.  

Contract

The house was listed at $289K and they put in an offer at $300K.  There were 10 other offers, but the seller went with theirs because it was cleanly written and was assessed to be the best path for getting to closing.  As we note a lot on our podcast, price isn’t everything.  A lot of times good terms will increase a seller’s comfort level and they’ll pick that over a higher offer.  

Inspection Issues 

A lot of little things came up during the inspection, but their offer said they wouldn’t object to anything under $500.  Some of the issues included a furnace that needed to be cleaned and a dishwasher that required a repair, but nothing crossed the $500 threshold.  Leah was with them during the inspection explaining what these findings would cost and had people lined up who could help them resolve the issues.  Surprisingly, the seller agreed to fix a lot of the things that came up, even though Christine and Chris didn’t ask for it.  

The pro forma for rents in that area is $1700 a month.  Chris and Christine were able to find a tenant at $1750 and start their lease about 2 weeks after closing.  

Using our spreadsheet, Chris and Christine were able to see what the different outcomes would look like if they changed some of the numbers.  This helped them decide to make a down payment of 25% vs 20%.  That down payment amount enabled them to get a better interest rate, too.  

They plan on using a property manager for their townhouse.  Both Christine and Chris work full time and this isn’t their area of expertise, so it made sense for them to rely on someone who is an expert in this field.  Once they decided they would hire a property manager, it allowed them to branch out from their immediate area and led them to investing in the Springs.  

The HOA for their community covers the exterior of the building, landscaping, and trash.  A lot of townhouse HOAs in the Springs don’t cover water and sewer.  This townhouse community is part of the Security water district, so the tenant is able to obtain water through there.  

The annual cashflow for this townhouse before taxes is $2337 a year, or about $200 a month.  This was great news for Chris and Christine, who were just hoping to break even.  Since they are more focused on long term results, they weren’t expecting a return until the 10-15 year mark.  

They are going to continue renting out this property and allow it to appreciate.  

Chris and Christine are still working out the process of meeting their long term goals and are talking to their lender about what next steps they should take.  They’re excited to embark on this journey and see how it changes the landscape of their retirement timeline and lifestyle.  They have two kids who could potentially take over ownership of some of the properties, after learning what it takes to manage them.  

Both Christine and Chris would love to connect with other investors and hear about different processes, as well as share theirs in more detail.  To reach out to them, you can

For information on how to get started investing in Colorado Springs, check out our free 2021 Colorado Springs Real Estate Investing Guide.

You can also check out our real estate investing toolkit which has free spreadsheets you can download to analyze rental properties.

We get a lot of questions from clients about investing in Pueblo, so we set out to learn more about the market there. Located about 30 minutes south of Colorado Springs, this steadily growing area has a lower cost of entry than the Springs and Denver. 

I put together some metrics to compare Pueblo and Colorado Springs so that investors can see how this area stacks up and what sort of returns they are looking at if they want to invest here.  Using a real Pueblo property, I ran an analysis on how much it would cost to purchase and what the returns would look like.  

When I’m exploring a new market, there are two main things I look at: property values and tenant base.  I want to know if the home I buy will retain its value, be more fluid, or is on an upward trajectory.  I also want to know more about the people who I would be renting to: what they’re doing for work and how strong the job market is.  To measure these things, I’ve put together several charts that will give us a holistic look at the value of properties and the revenue performance of a Pueblo rental. 

To get a better idea of property values in Pueblo, I looked at the Housing Price Index (HPI).  The HPI measures the price change of the same property over the years.  Data for this metric comes from repeat mortgage transactions on single family properties whose mortgages have been purchased/securitized by Fannie Mae or Freddie Mac.  To put it in context, I looked at the last 10 years of data and compared it against the HPI of the national average and of Colorado Springs. 

All 3 markets trended upwards over the past 10 years, but Pueblo has consistently had the lowest HPI.  This means that there is a lower cost of entry for buying a home in Pueblo, which may be particularly attractive to investors given how much costs have gone up in the Springs.  Over the past 5 years, both Colorado Springs and Pueblo outperform the national average, which speaks positively of the southern Colorado real estate market as a whole.  

I found this infographic that illustrated which industries employ the most people in Pueblo and Colorado Springs; the larger text indicates more people working in a particular field.  There isn’t a huge difference in types of industries between these two markets, which is not surprising given their proximity to each other.  

This data excludes military presence, which would impact the Springs more, though there are military personnel who have moved to Pueblo for the lower cost of living.  While I can’t be certain, I suspect that “Professional, Scientific, and Technical Services” may include military and government contractors.  If any of our readers know more specifically about this data, please reach out to us so we can better understand it and provide more in-depth information to our clients.  

Just as important as employment is unemployment.  This graph shows the unemployment rates of Pueblo, Colorado Springs, and the national average over the past 30 years.  As you can see, Pueblo tends to have a higher unemployment rate.  While the Springs has trended closer to the national level, Pueblo has had periods where the unemployment rate hit between 8-10%.    Interestingly, though, while all markets were decreasing pre-COVID, Pueblo’s rate was decreasing at a faster rate than the other two.  

This metric makes me more nervous about potentially investing in Pueblo, since it is a riskier market than the Springs.  As a landlord, I want all of my tenants to be gainfully employed, and if there’s a higher risk they won’t be, that risk is passed on to me.  Getting more data on how the unemployment rate is faring post-COVID will be critical to having a better understanding of the future of this market.  

This chart shows the population growth of Pueblo and the Springs over the past 20 years.  Population growth is an important yet simple metric.  It answers the question, “Do people want to live here?”  As investors, we want to invest in a market that people want to live in and that will continue to grow.  

Both areas have had steady population growth, though the Springs has grown more intensely over that period than Pueblo.  One concern about the growth in the Springs is that it’s potentially exceeding the available homes for sale or rent.  At the office, we analogize it to musical chairs: there’s 1 chair and 10 people who want to sit in it.  

The immense growth in the Springs raises the question of whether the inability to meet housing demand there will trickle out to nearby areas.  If people can’t find a home in the Springs, should we expect them to start looking in nearby cities?  If so, Pueblo is a contender for these potential buyers and renters.  

I talk a lot about median rents in comparison to monthly income.  This is an important metric from an affordability standpoint; if income is keeping pace with the rise in rents, then housing is more affordable.  Most landlords use the 3x rent rule, meaning that tenants’ income needs to be 3 times that of the rent.  

Looking at median rents for the past 5 years for Pueblo and the Springs gives us an idea of how affordable these markets are.  In 2015, the median monthly rent for a 2 bedroom home in the Springs was $924, compared to $653 for Pueblo.  By 2020, the Springs grew to $1243 while Pueblo went up to $861.  Over time, both areas are becoming less affordable, though not excessively.  

When we take into account per capita monthly income, we can determine the burden of rent on the renter’s income.  Overall, the difference in affordability between these two areas is not huge, though Pueblo is slightly more affordable at 24% vs the Springs’ 27%.  I am interested in seeing these numbers for 2021, because the Springs seems poised to break the 3x rule.

We often ask the question, “What can I get for $50K initial cash outlay?”  In Denver, you would likely only be able to buy a one bedroom or studio condo.  In the Springs, it’s possible to find a small townhouse.  While these two markets are more robust than Pueblo, they are also more expensive.  

For an investor who only has $50K to invest, is it better to wait and amass more capital, or is investing in Pueblo a good long term strategy?  To answer that question, I ran an analysis on a property I found on the MLS using our rental property spreadsheet.  This is a 3 bedroom 1 bathroom single family home near the Riverwalk, a popular area with a lot of development projects.  It’s listed at $180K, and we are assuming a down payment of 20%.  

Between the down payment and closing costs, the all in cost of purchasing this property is $42.5K.  Using Rentometer to get an idea of what a property like this would go for, we can estimate a monthly rent of $1200.  I used the usual assumptions for everything else, though I might increase the vacancy factor a bit since there’s more risk in this market.  

Looking at the summary, we get a Net Operating Income of $10,276, which results in an annual cash flow before taxes of $2150.  The cash on cash return is 5.1% and the cap rate is 5.7%.  

These are good numbers that show a solid investment.  Pueblo may not be as strong a market as the Springs or Denver, but there is a lot of potential in this area.  While $50K is not an insignificant amount of cash, it’s getting harder and harder to enter the market in other areas with this amount of money.  As long as you buy right, you have a very good chance of getting a good return in Pueblo, especially on a single family home.  

Both Pueblo and Colorado Springs are strong markets, especially compared to national markets.  They are growing at faster rates in terms of HPI and stack up well in other metrics, too.  Pueblo has many positive attributes: there’s a lower cost to enter the market, the population is steadily increasing, and housing is still affordable.  Ultimately, these factors make Pueblo a viable consideration for long term home buying investors.  

We are lucky to have Leah on our team, who is a great realtor and grew up in Pueblo.  She knows the area well and can steer investors toward hot locations that are experiencing growth.  If you’re interested in this market, reach out to us and we can help you find the right property for you.

For information on how to get started investing in southern Colorado, check out our free 2021 Colorado Springs Real Estate Investing Guide.

You can also check out our real estate investing toolkit which has free spreadsheets you can download to analyze rental properties.

A lot of people hear room by room and immediately think of house hacking, but this is an investment property that my client isn’t living in.  This approach is generating big returns for him and shows that there are still ways to make money in today’s market.

This investor has room by room rentals down to a science.  He is already implementing this strategy in other properties that he owns, so he knew exactly what he was looking for and what it would take to get the property ready to rent out.  

This is a 5 bedroom 2 bathroom single family home located in east Colorado Springs.  It’s a ranch house with a basement: the main floor has a kitchen, living area, 2 bedrooms, and 1 bathroom; the basement has 3 more bedrooms, a bathroom, and another living area.  

Appealing Features of the Property 

The number of bedrooms is great for his room by room strategy, since he’ll be generating rental income from each bedroom.  

Sourcing 

I received an email from my client early one morning informing me that he saw that this property come on the market, and he wanted to make an offer on it.  

Contract

We put in an offer at the list price of $350K with great terms.  My client agreed to cover all appraisal gaps and limited inspection objections.  I asked the sales agent what was most important to the seller and was told they needed a post-closing occupancy agreement.  My client was willing to accommodate that, and we were under contract that evening.  

Sellers aren’t always most motivated by getting top price; sometimes they have other things that they value more.  A strong offer is based on making sure the seller’s needs are being met.  

Inspection Issues 

The house is fairly new and in decent shape, so nothing big came up during the inspection.  My client is going to repaint the house and replace the flooring.  

Stabilization: Plan v Reality

The primary bedroom has an ensuite bathroom and will rent for $750 a month.  The other bedrooms will all go for $600 a month.  

If he were to rent this home out to one tenant, he would likely get $1800-$1900 at the top end instead of the $3150 he’s getting now.  

Interesting Points 

My client is going to spend $6500 in total to get the house in shape to rent out.  Some of this will cover the paint and floors, but he is also going to provide furniture for the common areas and basic cooking supplies for the kitchen.  Since he’s done this before, he knows exactly what to buy and understands nuances of group living, such as exactly where to put the washer and dryer. 

He plans on self-managing the property, but since he lives out of state, he hires helpers to assist with any boots on the ground needs.  He spends about $100 a month on these services.  

He covers the utilities and internet himself and estimates his expenses based on what he spends on his other properties.  This house came with solar panels, though, so his electricity bill will likely be lower.  

Using the room by room rental strategy, my client is looking at a cash on cash return of 11.6% and a cap rate of 6.9%.  When we run the numbers on this property as a single tenant lease, the returns drop down to just over breakeven.  These results show us that the same property can generate a variety of returns just based on the strategy used to rent it out.    

He got possession of the property about a week ago and already has the rooms leased and tenants moving in.  

He plans on holding on to this property for the long term and letting it generate returns.  

This deal analysis highlights how a slight change in strategy can yield very different outcomes.  Keep in mind, though, that everything is a tradeoff. Having 5 different leases for 1 house is a lot more work than having 1 long term tenant. If you have the personality and energy for it, then this could be a good strategy for you.  

In this tight market, using creative strategies is more important than ever.  If you have any questions, reach out and I’ll be happy to help you formulate the right plan for your goals.

For information on how to get started investing in Colorado Springs, check out our free 2021 Colorado Springs Real Estate Investing Guide.

You can also check out our real estate investing toolkit which has free spreadsheets you can download to analyze rental properties.

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.  

Deal Overview 

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.  

Sourcing 

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.  

Inspection Issues 

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.  

Stabilization

This property will rent for $1600 monthly.  Although I tend to be more conservative with underwriting, I think this rent is spot on.  

Interesting Points 

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.   

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.

For information on how to get started investing in Colorado Springs, check out our free 2021 Colorado Springs Real Estate Investing Guide.