Colorado Springs Real Estate Investing Podcast

Today, we’re looking at a new build townhouse in Colorado Springs, near Peterson Air Force Base.  My clients took advantage of equity in an older property by utilizing a 1031 exchange and buying a new build townhome with the proceeds.  This is a great example of investors making the most out of the current market’s gift of appreciation.

These investors bought a townhome investment property about 1.5 years ago for $190K with 15% down.  In that time, the townhome appreciated substantially and these investors also bought another property that was a new build.  They really liked not having to worry about maintenance on the new build, so they decided use the equity they’d gained to sell the older townhome and buy another new build.

They ended up selling their older home to some other Envision Advisors clients who were able to raise rent and get great returns.

My clients decided to do a 1031 Exchange to sell their property and replace it with a new build. 

This townhome is in a great location, right by Peterson AFB.  Other Envision Advisors clients have since bought in this development and found these properties make great rentals.

Because my clients bought in the first section of the new development, they’ll get built-in appreciation as the other sections finish. 

They were able to purchase the property for $330,400, and the appraisal came back at $350K.  Since then, other clients have bought properties in this development that appraised at $360K. 

This was a brand-new townhome with no inspection issues.

I used the Rental Property Spreadsheet to run the numbers on this home.

The clients were all in for $92K, and used the proceeds from their 1031 exchange to pay the majority of that.  They only needed to pay $10K out of pocket.  Their interest rate is 4.125%, but it would be higher if purchased today.

The rental rate is $1900 a month.  Since this is such a popular area for rentals, they ended up with two highly qualified applicants.  They asked if one of the applicants was willing to wait to move in, and they were able to fill two of their vacancies at once. 

Because these clients live fairly close by in Parker, they decided to self-manage. 

The new build comes with a 1-year warranty, so they’re budgeting 5% for maintenance and only had to buy a washer and dryer.

The clients are paying the land rate in taxes, so we’re estimating the tax rate based on when that will jump up.

Their annual cash flow is $2664, and their cap rate is 5.1%.  These are great numbers for Colorado Springs, and we don’t typically see such a high cap rate with a new build in this area.

If this property were purchased with today’s interest rate, the returns would look like this:

With an interest rate of 6%, the cash flow would drop to negative $752 for the year. I consider any cash of less than $1000 in either direction to be breakeven.  Even with the higher interest rate, they’d still get a 23.1% overall return. 

As interest rates rise, our clients are getting more creative with their strategies.  Some of them are putting down more money, while others are trying out medium term rentals.  It’s a good idea to play around with different numbers and strategies and see what will work best for your lifestyle and long-term goals.

As inflation picks up, real estate remains a great hedge and solid place to park your money and ride the wave.  If you want help finding a rental property or refining your strategy in this market, reach out to us for a free investment consultation.

I recently sat down with Chris to talk about how my strategy is changing halfway through the year.  With rising interest rates, I’m evaluating my portfolio, new acquisitions, and risk differently than I was before.  That’s why I got my first Adjustable Rate Mortgage and am looking into cost segregation for my multifamily properties. 

In the first half of the year, I bought several properties: a single family home in Pueblo and two multifamily properties in Colorado Springs.  One of the multifamily buildings is in need of some TLC as far as management goes.  Otherwise, it’s in great physical shape and was a turnkey building.  My plan for the rest of the year is to focus on stabilizing the multifamily properties. 

When I closed on the newest fourplex, I decided to try an Adjustable-Rate Mortgage (ARM).  I’ve previously sworn off ARMs as too risky, but I’m reevaluating them in light of the current market.  I’m at a point where I have a lot of properties in my portfolio, which allows me to assess decisions from a portfolio position rather than from the perspective of just one property. 

I have a strong equity position and solid cash flow across my portfolio.  This made me more willing to take a small risk in order to get a lower interest rate.  Since there’s a lot of room to max out management, increase rent, and institute a utility bill back, I feel confident I can boost the performance of the property.  This makes me feel more comfortable taking out an ARM. 

I’m not confident that interest rates will drop, but if they do, I’ll be ready to pounce and refinance my ARM into a 30 year fixed rate loan.  Otherwise, I’m going to work on stabilizing all of my properties and pumping up cash.  As I take on larger assets, I want a larger cushion to go with them.  My ultimate goal for the rest of the year is to make things safer across my portfolio. 

I currently own two fourplexes and plan on doing cost segregation for both.  Cost segregation will allow me to frontload depreciation and get cash flow for my first year of ownership.  I’m anticipating getting $30-$60K back in taxes, which can be used as another down payment or as a massive injection of cash flow. 

Cash flow is hard to come by in this market, and cost segregation is a great way to increase it. 

I like to talk about my investing strategy and things I’m trying out because this is what our clients are also figuring out.  If you have any questions or want help forming your own investing strategy, reach out to me for a free consultation. 

The June 2022 MLS market stats for Denver, Colorado Springs, and Pueblo are now out, and our roundtable is back to talk about what it all means.  Joining me in the studio are Envision Advisors agent Preston Newberry, lenders Joe Massey of Castle & Cooke Mortgage, and Travis Sperr of Renovo Financial.

Make sure to listen to the podcast or check out the YouTube video for the full discussion. 

We went around the table and asked everyone which stat they thought was most important this month.  Scroll down to check out these stats for yourself.

Preston: Inventory and active listings.  They’re up at 66% from last month and 94% from a year ago.  Even still, we only have 6,000 active listings on the market in the Denver metro area. 

Chris: The 15 year chart showing active inventory and closed under contract.  Between Q2 and Q3 in 2020, we had more properties under contract than we had active listings.  The lines inverted from where they’d been traditionally.  In the last month or two, we’ve seen it revert back to normal.  It’s still not a buyer’s market, just a more balanced seller’s market.

Joe: Premiums.  For contracts closed in June 2022, the average premium to list price was 3.1%, meaning that a property listed at $300K sold at $309K.  For the June stats, those properties were under contract in late April and May, before the market shifted.  I expect we’ll see premiums flatten out going forward thanks to the increase in inventory. 

Travis: There were 6050 listings in June, up so much from where we’ve been.  We’re still right in line with the last 15 years of closing volume; that chart is almost the same every year.  The average number of listings in June is 15,000, so we’re still significantly under that, though that stat may be artificially inflated from the great recession.

Travis recently watched a video from Christopher Naghibi, and wondered if he should start to worry about the market.  Everyone he knows is involved in real estate professionally, and he’s concerned that he’s in an echo chamber.  Are real estate professionals too optimistic about the market?

Joe’s answer is pretty straightforward: the universe doesn’t love him enough for the market to be in a bubble.  Back in 2008, he didn’t have the skill or capital to take advantage of the market shift caused by the housing crisis and recession.  Now that he could, he knows he’s not that lucky.

Preston points out that sometimes we have a couple of years where things aren’t as good or strong as they were before.  But the long term trend is that real estate always rebounds. 

I look at it this way: If I have capital to deploy, where would I put it?  I can’t think of a better place to put it than real estate or my own businesses, two things I plan on investing in over the next 12 months.  I know my real estate investments won’t perform like they have the past couple of years, but when I look at the long term, I don’t see a better option.

If you have questions about your strategy in a shifting market or want help investing in rental properties, reach out to us.  We want to help you navigate the market to find the right strategy to achieve your goals. 

Today’s episode isn’t your typical deal analysis.  We’re zooming out to look at the big picture: going over different transactions that make up an investor’s journey.  Our guest is Ken Hobbick, who connected with Chris about three years ago and stayed in touch as he grew his portfolio.  He’s talking to us today about how he progressed from investing out of state and why he’s testing out different rental strategies in Colorado Springs.

Ken’s first exposure to real estate investing came when he moved out of Colorado and rented out his primary residence.  He had a feeling he’d eventually like to move back into his Denver home, so got a tenant and hired a property manager.  That experience got him interested in real estate investing, and he started scoping out areas to invest in.

In 2015, he bought his first rental property in Indianapolis.  That was followed by a property in Jacksonville in 2017.  Both properties had a lot of similarities: he purchased them for $120K and rented them for $1200 a month.  Unfortunately, they similar problems, too.  Both properties had evictions within the first few months, required expensive maintenance, and saw high turnover even though they’d been rehabbed.

Ken found that the hardest part of out of state investing was being entirely dependent on a property manager.  He didn’t have the ability to check out the properties in person and determine for himself the best course of action. 

On paper, they looked like solid investments, but the reality proved different.  After a few years, Ken realized the performance wasn’t going to get any better, so he decided to sell them and do 1031 exchanges.  He sold his Indianapolis property first between the end of 2020 and the beginning of 2021, and the Jacksonville property later in 2021.

1031 exchanges can be stressful, so it’s important to get everything lined up as much as possible ahead of time.  I helped Ken coordinate the purchases, and we stayed in close communication as soon as he listed the properties for sale.  Both properties sold for $170K, and we hit the ground running looking for good replacement properties in Colorado Springs.

The first property we found was a single family residence that had great tenants.  We found it on a part of the MLS that people normally wouldn’t search in for that property type.  It was fairly new construction and had no inspection issues.

The second transaction occurred about 6 months later.  This was a little more stressful because the Jacksonville property being sold was older and had some inspection issues that caused it to fall out of contract a couple of times.  Once it went under contract the final time, we started looking at townhouses in the Springs right away.

We found a townhouse under construction that was a great fit for Ken in the Security-Widefield area.  Significant construction delays caused it to fall out of contract when it was at 60% completion, and we anticipated that the time it would take to complete would work for the 1031 exchange timeline.  He bought the townhouse for $273K and put 25% down. 

As Ken was closing on the property, he came across medium term rentals.  The strategy appealed to him because it would boost his cash flow but wasn’t as labor intensive as a short term rental.  One of the reasons he moved back to Colorado was to self-manage his properties, and the extra work didn’t seem overwhelming. 

He approached the strategy with the idea of, “What’s the worst that could happen?”  The worst thing that could happen is that it would go unrented and he’d have purchased extra furniture for the property.  That risk was low enough for him to test out the strategy on the townhouse in southern Colorado Springs.

He purchased furnishings, found a few different marketing platforms to attract tenants, and got to work managing the property.  He rented the townhouse for $3400 a month and calculated that with vacancy, it averaged out to $2800 a month.  In the end, that amount of income compared to the long term rental pro forma wasn’t worth it. 

Southern Colorado Springs is great for long term rentals, but medium term rentals in that area don’t perform as well as he’d hoped.  That area doesn’t have as much corporate businesses or hospitals, so he wasn’t able to attract the medium term tenants he’d been hoping for.

He decided to convert that property into a long term rental but learned enough through the experience that medium term rentals in the right area are worthwhile.

Once he converted the townhome into a long term rental, he saw returns he was happy with.  The cap rate was 5.9% and it easily cash flows for $6500 a year.  The hassle factor is another big benefit.  Because the tenants are renting on a long term basis, he doesn’t have to worry about the constant turnover and advertising the property.  He enjoys having a mixture of stable, long term rents and some medium term rentals in his portfolio.

Ken decided to focus on finding medium term rentals in northern Colorado Springs. That area has more business travelers and healthcare workers who are seeking medium term stays.  He tried finding properties that better fit what these renters are looking for.  Most medium term renters want units with 1-2 bedrooms, which also have the benefit of a lower purchase price.

However, he ended up finding a 3 bedroom townhouse that was worth the extra space because of its great location.  It’s close to hospitals, universities, businesses, and the Air Force Academy.  Even though he bought it as interest rates are increasing, he’s able to push cash flow with the medium term rental model.  Since it’s a larger property, he also underwrote it as a long term rental to give himself more options.

While Ken doesn’t regret investing out of state, he learned some lessons through the experience.  The great thing about real estate is that it offers a lot of options and tends to be forgiving over the long term.  He learned that relying so completely on a property manager means you have to find one you can really trust. 

A lot of people think investing out of state is more lucrative, but the reality is different.  Trying to wade through property managers trying to sell you something is difficult, and your options and control are severely limited.  It makes a big difference being able to see the property yourself and test out different strategies. 

If you want to get in touch with Ken to learn more about his strategies and outlook, contact him via:

Email: [email protected]

Phone: 720-413-7804

If you’re interested in performing similar transactions or want help analyzing your next move, reach out to us for a free investment consultation.

Our guest today is Gretchen Place, an investor based out of a Denver suburb.  A few years ago, she and her husband started investing in Colorado Springs.  Over time, those investments have proven to be solid, but as the market in the Springs began shifting, they turned their focus to Pueblo.  We talked about how they got started in the Springs, why they made the move to Pueblo, and how their strategy is shifting.

Gretchen and her husband started looking at real estate investing about eight years before jumping in.  They began their search in Denver, but they couldn’t find anything that would be a homerun for them. 

Instead, they turned their attention to Colorado Springs and found a house with a cottage behind it.  They liked the model of having two units because if one was vacant, the other could cover the mortgage.  Luckily, neither has been vacant and it’s proven to be a great investment.

After that, they purchased a triplex not too far away.  The property is a Victorian house with a 3 bedroom/2 bathroom unit in the front, a one bedroom/one bathroom unit attached in the back, and a 350 sq ft cottage in the backyard.  All of the units have been consistently full, even the small cottage! 

Once the market started tightening in 2019, they decided to get creative with their next property.  They purchased a 4 bedroom/2 bathroom house that had a 3-car garage.  To continue their strategy of having multiple units per property, they decided to convert the garage into its own living space. 

Accessory Dwelling Units (ADUs) are a hot topic, and a lot of people are interested in how they can convert a garage they aren’t using into an ADU.  Gretchen says the main thing to be aware of for this type of project is zoning. 

In their case, the lot was already zoned R-2 (Two Family Residential), meaning they could have two units.  The garage was far enough away from the lot lines that they could legally convert it without having to alter the footprint.  The biggest expense was running the sewer line, which was connected through the main house.  Logistically, this wasn’t a big deal since their other properties also share water and sewer. 

The budget for this project, which also included renovations to the main house, was $85K.  It ended up costing $110K.

After a few years in the Springs, they were no longer seeing the same types of returns they started with.  They knew it would be easier to invest in Pueblo and wanted to try out a medium term rental strategy.  Their current properties in the Springs are already leased up and have good tenants, so it would be difficult to convert them. 

Gretchen and her husband started looking in Pueblo during the summer of 2021.  They wanted to implement a medium term rental strategy focusing on traveling nurses and healthcare workers, so the property needed to be close to the hospital.  They closed on a property in September, and while it’s a little unusual, it’s perfect for what they want to do. 

There’s a small, 720 sq ft house that’s 2 bedroom/1 bathroom.  The lot is adjoined with another one that has a larger, 1650 sq ft house that they converted into an up/down duplex.  Like their other properties, all units share a water line.  They paid $281K for the entire property.

It took some time to finish all of the renovations, so they’re just now at full occupancy.  They’ve gone through one full rental of the small house, which went well.  Once the properties were ready to rent, they had no trouble filling them using Furnished Finder, a site geared toward nurses and healthcare professionals. 

They aren’t self-managing this property, so they hired someone to clean and turn the first unit.  Gretchen is still working out the process but is hopeful it will run smoothly.  There are a lot of medium term rental property management companies in the Springs, but that infrastructure doesn’t yet exist in Pueblo. 

While reviewing applicants for the units, Gretchen noticed they were getting a sizable number of inquiries from construction workers.  With the increase in construction happening in the area, she realizes there’s a market for medium term rentals for construction workers.  For now, she’s focused on healthcare workers since that’s what she had in mind while decorating the units, and adjoining walls make it difficult for tenants who are on opposite schedules to coexist. 

While there were some unexpected headaches getting the renovation work completed, Gretchen would absolutely do it again.  It helps that she and her husband are both self-employed and work from home, so they have the flexibility to go down to the property as needed.  Now that the properties are up and running, they’re expecting solid returns and fewer hiccups as they finetune the process.  

To see more of Gretchen’s renovation work, check out her website.  If you have any questions about her properties and investing strategy, reach out to her at [email protected]. 

If you want to learn more about the Pueblo market, reach out to us.  We love teaching clients about this market and finding the right property to match their goals.  

We have a different kind of deal analysis today: a fourplex in Colorado Springs that’s being run as four medium term rentals.  Leah helped our buyers find not just an investment property, but a business, as well.  This is a great example of how to pivot when the market shifts.

The buyers in this case are a family that invests all over the country; this is their first property in Colorado.  They’re experienced investors who bring a lot of knowledge to the table.  It’s always fun to work with clients who know more than we do because it’s a great opportunity to learn from them.

This is a particularly interesting investment because the buyers aren’t just investing in a property, but a business, too.  The property is a fourplex that’s being run as medium term rentals.  Medium term rentals have leases over 30 days and come fully furnished for tenants.  These types of properties are often run as corporate rentals.   

This is a fourplex located on the north side of Colorado Springs. Each unit has 2 bedrooms and 1 bathroom and comes fully furnished and stocked with toiletries.  

It’s a very in-demand area, both as a place to live, and for corporate rentals, too.  Preston and I did a deal together last year for an 8-unit apartment building in the same complex as this property.

The buyers offered $1MM in cash, making it the most expensive fourplex an Envision Advisors client has ever purchased in Colorado Springs so far.  The sellers were attracted to the all-cash offer and accepted.

While the building is generally immaculate, there were some areas with damaged siding.  The buyer and seller split the repair cost for the siding, at $1750 each.  It’s on the schedule to be fixed shortly.

I used the Rental Property Spreadsheet to run the numbers on this property.

While the buyers offered cash, they’re using delayed financing to take advantage of leverage.  They are financing $600K, essentially making their down payment 40%.  If you have the capital available, delayed financing is a great way to make a competitive cash offer and then reap the benefits of leverage.

These buyers are also using an Adjustable Rate Mortgage (ARM) with a 5.25% interest rate that’s fixed for 5 years of the 30-year amortization.  I don’t typically recommend an ARM for newer investors, but it’s a great option for these seasoned investors. 

ARMs generally have a fixed rate for 5 or 7 years, after which the interest rate increases.  There’s a lot of nuance to these types of loans, and it’s critical to read the fine print.  Often, there is a yearly cap on how much the rates can increase or decrease after the initial fixed rate period.  After that, there’s a variable rate which usually has a maximum increase limit.  If you’re using an ARM, you want to make sure you fully understand the worst-case scenario and what exit strategies you have.

As interest rates climb, though, this can be a powerful tool for those who can handle it.

Rents on this property are currently $3100 a month for 3 of the units, and $2500 for one that’s a legacy renter.  He plans on vacating soon, so the buyers will have the opportunity to rent out the fourth unit at market value.  We’re running the numbers as they stand currently.

Medium term rentals are run quite differently than long term rentals, so we’ve updated the spreadsheet to reflect that. 

Since medium term rentals have more turnover by their nature, we run vacancy at 20%. 

The utility costs come directly from the seller’s profit and loss statement, so we know these are the true numbers from 2021.  The reason utilities only cost the owner $3252 for the year is because tenants are separately billed $125 a month for utilities.  The seller pays the difference.

Each unit comes fully furnished and with toiletries.  The restock fee covers the replacement of any worn out or broken items, as well as toiletries. 

The property manager is paid a flat fee of $14,400 per year.  The PM worked with the previous owner and does a great job of taking care of the property.  She handles everything: coordinating maintenance issues, leases, collecting rents, and is the point of contact for tenants. 

This property is run so smoothly and efficiently, the new owners plan on keeping everything in place.  In that sense, they are investing in this business as well as the fourplex itself. 

Looking at the returns, it makes sense why the buyers were happy to purchase this despite the high list price.  Even with the lower rent in one of the units, they are set to cash flow $27K per year, have a 6.6% cash-on-cash return, and have a 6.7% cap rate. 

These are some of the strongest numbers we’ve seen lately, and shows how different strategies can help boost returns.

We know that rising interest rates and condensing cash flow have investors in the dumps these days, but this deal analysis shows how adjusting strategies can still pay off.  While the medium term rental model is essentially its own business, the returns tend to be considerably higher than long term rental models.  If you feel confident using an ARM, that’s also a great way to get cash flow in a tight market.

If you have any questions about these strategies, or want help formulating your own strategy, reach out to us.  We love talking to clients and figuring out how to get them closer to their goals.

Welcome back to our three-part State of the Market series.  Today in part two, we’re discussing where and how to invest in rental properties.  Jenny Bayless joins me to discuss strategies in Denver, Colorado Springs, and Pueblo.  We’re looking at six examples of where to invest: $50K, $100K, $115K, $150K, and $250K. 

A lot of clients are reaching out to us asking if we’re in a bubble and if prices will drop.  Jenny agrees with my assessment from last week—it comes down to supply and demand, and supply isn’t likely to outstrip demand any time soon.  We simply haven’t built enough houses along the Front Range in the past 10 years to keep up with jobs and population growth, neither of which are slowing down. 

Charts graphing the housing supply paired with properties under contract for both Denver and Colorado Springs show that we have more properties under contract than active inventory.  The same is true for Pueblo, though we don’t have a graph for it. 

There have been six previous recessions for which we have real estate pricing data.  During five of them, housing prices weren’t affected.  In fact, during that time properties continued to see price appreciation. 

Colorado Springs in particular has shown a lot of resiliency during these downturns, likely thanks to the diversity of the economy and the strong military and government presence.  During the 2007 housing-induced recession, the Springs’ pricing only went down 3.8%. 

The main takeaway here is that recessions don’t always cause housing prices to decrease.

As investors, we complain about the low supply of properties, but renters are facing the same issue, too.  There are more tenants than available properties. 

Denver and Colorado Springs have the lowest vacancy rates in history, which is driving strong rental increases.  Last year, both areas saw double digit growth, and Pueblo is not far behind.  So far this year, we’re seeing similar trends, though we don’t expect the rate of growth to be quite as high.

To sum up the market: prices are going up and will continue to go up.  Interest rates are going up and will continue to go up.  Rental rates are going up and will continue to go up. 

So, what should you do?  Don’t bury your head in the sand; look for new opportunities to invest in rental properties.  Remember: the trend is your friend.

Because the market is changing, strategies to invest in rental properties that worked before won’t necessarily work now.  Here are some strategies we’re exploring:

Over the last couple of years, we’ve only talked about 30-year fixed rate loans because the rates were so low.  Now that rates are up to around 6% as of this publishing, we’re starting to look into Adjustable-Rate Mortgages (ARMs). 

ARMs are typically .75%-1% lower during the 5, 7, or 10 year fixed period.  This option gives investors a lower down payment and interest rate during the initial fixed period. 

Jenny just closed on a fourplex in the Springs with an ARM.  She looked at her portfolio objectively and saw that it fit her risk profile.  The ARM allowed her to put down 20% with a 5.375% 7-year fixed interest rate with 1 year recast. 

For experienced investors looking for cash flow, ARMs can be a good option. 

One thing to keep in mind: during recessions, the government often drops the interest rate to stimulate the economy.  Some investors are looking into a potential strategy of buying now and refinancing into a lower rate later.  We can’t guarantee this will happen, but if the numbers work for you to invest in rental properties now, you may have the option to refinance later.  While you can refinance your mortgage, you can’t refinance your purchase price.

While long term rentals are the most common rental strategy, it’s getting harder to find properties that cash flow.  Investors are getting creative with room by room and self-management strategies, as well as trying out short and medium term rentals.

To learn more about short and medium term rentals, check out our Step by Step Short Term Rentals course.  This course shows you everything you need to know to maximize profits and minimize headaches for your short or medium term rental.  There is a cost for it, but Envision Advisors clients get it for free! 

Also be on the lookout for our Self-Management Strategies course coming soon.

Where should you invest $50K, $100K, $115K, $150K, or $250K in Colorado?  We’re looking at six real deals that we’ve recently closed on with clients and updated for today’s conditions, or are currently under contract. 

Jenny recently bought an attached single family home in Pueblo.  We did a Deal Analysis with the real numbers, but we’re updating it for today’s market conditions.  Now, it would cost $220K with a 6% interest rate, making her all in cost $65K.  It rents for $1500 a month and has had no vacancy. 

This property has break-even cash flow, a 5.3% cap rate, and 23.3% return on investment.  Need more cash flow?  With an ARM, the cash flow jumps to $1K a year.  Is that worth it?  That’s your call, but with a spread so small, it probably makes sense to stay with a 30-year fixed rate. 

This is a deal so current it hasn’t closed yet.  The property is a turnkey duplex in Pueblo for which the investor is putting down 30% on a $265K purchase price and interest rate of 5.75%. 

Both units are rented for a total of $2200 a month, but there’s an opportunity for utility bill back.  Underwriting it with property management and no bill back puts the cash flow at nearly $4K a year, with a 6.2% cap rate and 23.4% return on investment.  With bill back, it jumps to almost $5K cash flow a year, and a 6.6% cap rate. 

Remember: you can always put down more money in order to cash flow when you invest in rental properties.  This is a great option for those doing a 1031 exchange. 

This is a 5 bedroom single family home in Colorado Springs being rented using a room by room model.  It has a purchase price of $425K, and the investor put 25% down, with a 6% interest rate.  Each room is being rented at $700 a month except for the primary bedroom, which goes for $850.  Using our standard underwriting, it’s cash flowing $7K a year with a 6.9% cap rate. 

This property is in a good location and has a lot of bedrooms but is otherwise nothing special.  This is a great strategy to get strong cash flow.  In fact, the returns are so solid we don’t see a need to run the numbers using an ARM.

Jeff White shared one of his properties with us: a 5 bedroom/3 bathroom single family home in Lakewood.  It has a $570K purchase price, 6% interest rate, and generates $4125 a month in income with a room by room model.  With standard expenses and self-management, it cash flows $6K a year with a 6.5% cap rate and close to 30% return on investment. 

Even if we run this as a long term rental of $3750 a month and 25% down, it cashflows $900 a year and has a 5.5% cap rate.  There are opportunities for big homes to cash flow as long term rentals, which is a great option for those who want a more hands-off approach for their rentals.

Leah and Jenny are releasing an episode on this fourplex being run as a medium term rental soon.  The investor bought it for $1MM and it was already completely set up as a medium term rental business.  That buyer paid in cash if we analyze this property with 25% down and a 6% interest rate, it still cash flows $17K a year, with a 7.1% cap rate and 34% return on investment.

While it’s not easy to find a fourplex already set up as medium term rentals, this is a great option for investors to convert their fourplexes into this type of model. 

This is another active deal, a three plex listed at $1MM that will likely close for a little less.  At an all-in cost of $265K and a 6% interest rate, and a gross rental income of $7K per month, it cash flows $2K a year, with a 5.5% cap rate and 16.4% return on investment. 

This is run as a long term rental that’s fully hands off.  It’s a very different business model than the medium term rental fourplex, and is an option for investors who don’t want to invest as much time.  Investors have the option to bump cash flow with an ARM, or look into running it as a medium term rental.  There’s a lot of optionality in this market.

As always, this question gets our standard answer of: it depends!  Everyone has their own unique situation and strategy to invest in rental properties.  What we’re highlighting here is that the market has shifted, and investors should focus on new opportunities. 

What worked six months ago won’t work today, but there are still opportunities out there.  To get a better idea of how to adapt your strategy, listen to the 4-Step Framework episode. 

At Envision Advisors, our goal is to provide clients with value that other brokers and agents can’t match.  That’s why we don’t just sell clients properties, we set them up for long term success.  We offer clients free, lawyer approved leases; our online courses; and an annual portfolio analysis using our exclusive portfolio analyzing software Property Llama. 

We want to optimize your time and money with a strategy tailored specifically to you. Reach out to us for a free investment consultation today.  

The May market stats are out for Colorado Springs, and I discussed them with our roundtable panel.  Active inventory in the Springs went up 30%, from 700 to 1000 last month.  Although this is less than a one-month supply, we’re feeling a change in the atmosphere.  Listing agents are more likely to follow up after a showing, and we’ve been able to take the time to write strong contracts and negotiate. 

To hear the full discussion with Chris Lopez, Envision Advisors agent Preston Newberry, and lenders Joe Massey of Castle and Cooke Mortgage and Travis Sperr of Renovo Financial, and me, listen to the podcast or watch the YouTube video.

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

Reach out to us for an investment consultation.

This deal analysis looks at a townhome in Colorado Springs.  Leah and I were involved in both sides of the transaction, which gave us a full picture of what everyone wanted.  This is a great case study because it shows that it’s still possible to find a deal that benefits everyone.

This was an interesting transaction because I was the listing agent, and Leah was the buyer’s agent.  Her clients are just getting into real estate investing.  They both work full time jobs and want to add a couple of properties to their portfolio to supplement their retirement down the road.

My clients purchased the property in 2020.  They recently looked at the equity they gained and realized they could sell the property using a 1031 exchange and get a new build townhome. 

The townhouse has a great layout for a rental property.  It has two main bedrooms with ensuite bathrooms on the top floor, and a half bath on the main floor.  It’s a little older, but it’s well built and in great condition.

When my clients came to me to sell their townhouse, I realized it fit the bill of what Leah’s clients were looking for.  I reached out to her to let her know, and once both parties agreed on price and terms, we started the transaction.

My clients wanted to sell the property for $250K, which was exactly what Leah’s clients were hoping to not exceed.  It’s hard to find a townhome in the Springs for $250K, so Leah’s clients were fortunate to be in the right place at the right time.

The property is in great shape, and there were no issues found during inspection.

I ran the numbers on the home using the Rental Property Spreadsheet.

The new owners closed on the property in March 2022 and had an interest rate of 3.875%.  Their all-in cost for this property was $69K.

The previous owners were renting the property out for $1300 a month.  Once the tenants were informed there would be a change in ownership, they decided to move out.  This worked out great for the new owners because they were able to rent out the home for $1600.

There is an HOA for this property that runs $236 a month, which covers trash, roof, and covenants.  Otherwise, the tenants are paying for the rest of the monthly utility costs.

The clients are also paying for property management, which costs 10%.  Luckily, taxes and insurance come in pretty low for this property. 

The property is expected to cashflow $1200 a year, or $100 a month, with a 4.7% cap rate.  Overall, the property’s return on investment is 28%.  This is a solidly performing property that’s a great start for these clients’ portfolio. 

We all know that interest rates are steadily going up, and things have changed dramatically just since March.  If they were to purchase this townhome today, these investors would likely have an interest rate in the high-5s to low-6s, from what we are seeing.  We ran the numbers again with a 5.75% interest rate to see how the property would perform today. 

With this adjustment, the cashflow drops from +$1200 a year to -$1200 a year, though the cap rate stays the same and the overall return on investment is about 23%.  Even though the property would be negative cash flowing, I would still recommend it to clients because of the overall returns. 

In the long term, $100 a month out of pocket is a good investment for a well-below median price property in a strong market.  Looking at the long-term analysis tab, we can see that they will start to break even in just four or five years. 

This is a great property for new investors and will pay off for them in the long run.  Even though rising interest rates are affecting returns, our adjustments show that it’s still possible to get a property that performs well over the long term.  We encourage clients to play around with the numbers and see how slight adjustments here and there can affect returns. 

If you’re interested in finding your own investment property, reach out to me.  I’d be happy to help you put together a strategy and help you start your investing journey.

We’ve previously mentioned that we see a lot of opportunity in Pueblo and want to expand our business down there.  Now that we’re regularly helping clients complete transactions there, we’re looking for a talented agent to add to our team in Pueblo.

Envision Advisors is unique because the vast majority of our transactions—our niche—are investor-focused.  From an agent perspective, our organization, team structure, and environment center around this concept.

We’re organized like a sports team: everyone has a unique role.  We have a lot of support staff and behind the scenes personnel so agents can focus on what they do best: deals.  Our agents aren’t a one-man or one-woman show and can simply focus on giving clients the best experience possible. 

Jenny Bayless runs our southern Colorado business and previously came from a big brokerage.  The biggest difference for her when it comes to working with our team is the focus we have on education.  When she started with us, she realized she wasn’t writing contracts very well and learned how to improve them by being able to ask questions and pick our brains about complicated situations. 

Thanks to that learning experience, she has been able to drive business in Colorado Springs and now Pueblo. 

Last year, Jenny and Leah Keeling did just over 50 deals in the Springs and Pueblo.  They are targeting Pueblo as a key factor in Envision Advisors’ expansion, as well as a great opportunity for investors. 

Interest rates are rising and squeezing cash flow, but it’s still possible to find a cash flowing property in Pueblo.  For investors looking to buy property in the front range, this is a great place to look. 

Part of Jenny’s job is to constantly turn over stones and find opportunities for investors.  In researching Pueblo, she found that the city’s economics and public policy initiatives make Pueblo a great place for long term investing. 

Right now, there isn’t a need for a full-time agent.  We’re looking for either a newer agent who wants to learn from the team, or an experienced one who is great at deals and doesn’t want to do all the backend work.  We want to show the agent how to be both an investor and an investor-friendly agent. 

The right person will be a true member of the team.  The goal is that this role will grow into a full-time team member position.  I love this model because it helps get everyone on board and makes sure we all fit together so we can grow together. 

We care about providing a high-quality product to our clients, and we take pride in the fact that we go above and beyond for them.  To do this, we hustle and are willing to try new things. 

If this sounds like you, reach out to apply.  Make sure you pay attention to the instructions—our first step in evaluating candidates is seeing who can follow directions.

Please send all documents and questions to Katie Heinsohn at: [email protected].