Colorado Springs Real Estate Investing Podcast

Sometimes, the best property to purchase is one with potential.  With a tight market and low inventory, it can take some forward thinking to find something that has the ability to match your long-term goals, even if it’s not performing optimally in the moment. 

In this deal analysis, we’re looking at a fourplex in the Cimarron Hills neighborhood of Colorado Springs that is underperforming now, but has a lot of potential for the future.

These clients are a couple who are experienced investors.  They have investment properties all over the country, and have already purchased a couple of duplexes in the Springs.  They were in the market for a fourplex and knew they wanted to be in the Cimarron Hills neighborhood because of its proximity to Peterson Air Force Base and the development in the area.

If investors are able, it’s a good strategy to offer an affordable rental product in this neighborhood.  A lot of the new builds in this area are starting at higher price points, so giving tenants a less expensive alternative is an attractive option.

We found this property on the MLS.  It had been on the market for a couple weeks, which is a pretty long time in today’s climate.  The reason for that is that it was priced aggressively and is underperforming.  Many potential buyers didn’t want to pay that much for something that wasn’t optimal.

The property was listed at $800K, but my clients drew the line at $765K.  While I typically haven’t had a lot of success in this market with getting clients under contract for less than list, this was an exception.  Since the property had been on the market a while and potential buyers knew it was underperforming, the seller was amenable to their terms.

The seller accepted the offer of $765K, but he made it clear that he wouldn’t do a single thing when it came to the inspection.  This was a fair tradeoff, and I wrote the contract so that my clients were able to back out if anything major came up, but they wouldn’t make any objections. 

Luckily, the inspection went well.  All of the units are in good shape, and the inspector only found minor items to take care of, such as improving the stairs and some electrical items.  We estimated around $5K for them, which was within my clients’ budget.

I used the rental property spreadsheet to run the numbers in two ways: as the property is currently, and what it will look like in a year or two. 

Right now, tenants are charged their base rent, plus a flat $80 per unit for utility bill back.  Each unit pays for shared utilities equally.  There is also coin-operated laundry that evens out to $25 per month per unit.  Altogether, my clients are getting $4105 in total monthly rental income, which is well below market rates.   

Since my clients are out of state, they are paying for property management.

The landscaping for the property is minimal, but there is a large parking lot that will require snow removal.

Looking at the initial numbers, it’s easy to see why other investors didn’t have any interest in this property.  A negative cashflow plus a low cap rate of 3.7% isn’t very appealing.  However, these buyers have a patient approach to investing, and took a longer view on this property.  It’s located in a growing area and the building is in good shape, two things that are much harder to change than the management structure. 

Given the unit size and condition plus the location of the building, it’s reasonable to rent the units out at $1100 each.  A more accurate rate for utility bill back is $90 per month, which is still acceptable to tenants, who expect to be charged for utilities.  Laundry should stay the same at $25 per unit. 

There’s also the option to charge $35 a month for secured storage closets that are located off to the side of the building. 

In total, the owners will be getting $1250 per unit each month. 

Once the owners make these changes, they’ll see a drastic impact on their returns.  Just from some slight increases, the cap rate jumps from 3.7% to almost 5%.  All they need to do to reach this point is tell their PM what their strategy is and have some patience as leases turn. 

This is a great example of a deal that doesn’t look too exciting on paper but becomes a great long-term investment after making some adjustments.  Even with these conservative estimates, the buyers are getting great returns on this investment after a year or two.  Since they plan on holding onto it for along time, it’s a solid strategy. 

If you want help strategizing your investing plan, reach out to us.  We’d be happy to run the numbers and help you find the right property for your long-term goals.

MLS trends data for January are now out. One exciting develop we saw last month is inventory went up a bit.  It’s a 20% increase, although that doesn’t mean too much when the starting number is 425.  It will be interesting to see if people start to sell more as we come into the spring season in March and April.  We should see a little more, but it’s very slim out there. 

Source: The above Executive Summary is from Lon Walsh of Your Castle Real Estate.

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

I recently sat down with Josh Surver, a first-time investor who just purchased a new build townhome in the Springs.  Even though he’s known he wanted to invest for a couple of years, he thought it would be impossible since he’s currently stationed in Asia with the military. As he did more research, he realized investing is more feasible than he thought.

He’s currently using a medium-term rental model that brings in significantly higher rent than the long-term model.  This is a great option for investors who don’t want to go with a long-term model but are faced with restrictions on short-term rentals in their locality.

To learn all of the details, be sure to check out the podcast or the YouTube video. 

Like many investors, Josh read Rich Dad, Poor Dad and realized there was another model for making money.  He wanted to start investing in real estate two years ago, but thought the barriers—not having enough for a 20% down payment and being stationed in Asia—were insurmountable.  Once he started listening to the podcast and talking to a lender, however, he realized he had a lot of misconceptions about the process.

Josh knew he wanted to invest in the Springs, so he talked to a lender to learn more about his options.  He was able to get a second home loan with a down payment of 10%, but he would need to live in the home for less than half the year. 

Since his type of loan didn’t allow for long-term renters, he looked into listing the home as a short-term rental. However, the short-term rental rules in the Springs are complex and restrictive, and this wasn’t a practical option for him.

Finally, he settled on medium-term rentals, which are rentals that are over 30 days, typically 1-6 months in length.  He talked to a few different management companies that specialize in medium-term rentals and settled on Hostē. 

He worked with investor-friendly realtor Leah to buy this property.

This is a 3 bedroom/2.5 bathroom townhome with a 2-car garage.  It’s located in a great area of the Springs, one I own several properties in, too. 

Townhomes are a great option for medium-term rentals because they usually have extra bedrooms for the renters to set up a home office or have guests, but they don’t require any exterior maintenance.  No one wants to be on a work assignment for a few months and have to mow the yard. 

I used the Rental Property spreadsheet to run the numbers on this deal.

Originally, Josh was quoted a 2.875% interest rate, but once he broke down the opportunity cost of this rate, he realized he would only save $30-50 a month.  By going with the 3.375% rate, he was able to hold onto several thousand dollars he can use as reserves or to invest in another property. 

One of the biggest lessons he learned throughout the process was how to source furniture.  Medium-term rentals need to be fully furnished, and he wanted the quality of the furnishings to match the style of this brand new home.  He talked with Diana Tapia, founder of Dublin Place Corporate Housing, and she told him it would cost $15K for her to furnish the home. 

Josh thought he could furnish it for cheaper, but he ended up spending $25K.  Although that’s significantly higher than he anticipated, he now knows the best places to buy furniture and found a great interior decorator. 

He’s paying 15% for property management with Hostē, significantly cheaper than the national companies that charge 20-25%.  This is a great deal, considering the extra management that goes into medium-term rentals compared to long-term. 

He’s calculating his monthly reserves differently than we typically do for long-term models, setting them aside as a yearly cost rather than a percentage of the rent. 

This first year, he will be negative $1335.  While that might not seem like a great deal, it’s important to remember that he only put down 10%.  If he put down the traditional 20%, he would be in the black.  Instead, he was able to hold onto an extra $35K with the lower down payment that he can put to better use. 

Now, he has an appreciating asset and someone else is paying down the mortgage.  Once he refinances in a few years, he’ll be able to do it all again and build his portfolio. 

Josh created his own spreadsheet to calculate when will be the best time to refinance on this property.  Using that in conjunction with our rental investment spreadsheet gave him a full overview of his returns.

Even though Josh seemed to face insurmountable barriers to start his investing journey, he tackled one issue at a time and now has a beautiful, appreciating home.  Thanks to trial and error, he’s better prepared for his next property in a few years. 

If you want to learn more about Josh’s process, you can reach out to him via email at [email protected] or through LinkedIn. 

Josh would like to give a shout out to the following people and companies who helped him start his investing journey:

To figure out the rental strategy that best fits your goals, reach out to us.  We’re always happy to sit down with investors and make a plan that works for them. 

How hard is it for self-employed people to get a real estate loan?  While this is a topic we’ve touched on before, we haven’t yet done a deep dive on the subject. 

To get the full scope of what it takes to get a loan and dispel some common myths, I sat down with Bill the Lender, Bill Rodriguez of Cornerstone Lending.  Listen to the podcast or watch the video to get the full discussion.

Lenders view a W-2 employee as a single person; the main concern is their creditworthiness.  Conversely, since a 1099 contractor is a business owner, lenders take the entire health of the business into account.  The business owner assumes all of the risk of the business, whereas a W-2 employee is just evaluated on the steadiness of their income. 

When it comes to business owners, they itemize everything that comes through the business.  All of the benefits and costs get subtracted from the revenue.  So, what’s left at the end of the day after all of that is what lenders have to work with. 

Essentially, the difference comes down to only looking at creditworthiness of the W-2 employee and evaluating the health and cashflow of the 1099 contractor’s business. 

Bill says that just because you’re self-employed, that doesn’t necessarily mean it will be hard for you to get a loan.  There are some additional underwriting requirements and more documentations to navigate. However, as long as you’re proactive, you can avoid the pitfalls.  It’s important to have a real estate agent who understands their client’s unique financial situation. It’s also vital to talk to a lender early in the process.

Often, lenders and financial planners are diametrically opposed when it comes to how much they view income.  Tax professionals will advise self-employed business owners to write off any allowable expenses to minimize income taxes.  From an underwriting perspective, though, Bill wants to show as much income as possible for them to qualify. 

Any borrower who wants to buy a home or jump into the real estate game should have these conversations early. This allows Bill to work with the borrower’s financial team to make a plan.  He’s not a tax expert, nor can he give tax advice, but he can help navigate the process from a lending perspective.  Together, Bill and the financial team can figure out the right balance of paying taxes and writing off expenses to meet their client’s goals. 

This balance is always in flux, especially as there are changes to what clients can and can’t write off.  They key is to look at the overall expenses for the business and reduce the amount of them. 

Even after a client files a return, it’s possible to work with a CPA to make changes retroactively.  Sometimes this entails filing an amendment to the prior year’s return.  Any changes made after filing comes with penalties and interest, so it’s usually better to figure it out in advance. 

Typically, a self-employed person has a long-term plan. That plan allows them to decide what’s going to be more important for the year before they file taxes.  This can mean graduating their income over time so they aren’t paying taxes all at once. 

Bill says that it’s a common myth that 24 months of income is the required timeframe for self-employed borrowers.  There’s no hard and fast rule for the business’s age, but he likes to see 10-12 months on a tax return. The tax return can be supplemented with current year-to date-balance sheets and Profit and Loss (P&L) statements.  This paperwork shows that the business is growing and is cash positive. 

Cornerstone has an entire team dedicated to helping people with more complex finances qualify for a loan.  This team collects all of the necessary documentation to provide a deeper analysis of the borrower’s true financial situation.  Borrowers who have great credit, reserves, and other compensating factors are good candidates for loans. 

Losses are the biggest issue that comes up.  If a business is under five years old, income will be estimated at the most conservative level.  The current rule is that if income is declining more than 4%, it’s a red flag for underwriters.  If the income is declining year over year, the year with the least amount of income will be considered.  On the other hand, if the business’s income is increasing, the last two years’ income will be averaged.  For example, if the borrower makes $60K the first year and $100K the next year, their income will be $80K for lending purposes.

This is why it’s so important to have conversations with the lender early in the process.  Often, borrowers assume they will be evaluated differently than they actually are and are disappointed with the result.  Bill’s goal is to help borrowers get what they want with ease and avoid unnecessary disappointment. 

The only industry that Bill can’t work with because of federal mandates is the pot industry.  They can only lend to W-2 employees within these businesses but can’t work with the owners.

Otherwise, the businesses are evaluated purely on their bottom line.  Even if a business has with a lot of inventory or expenses, it’s still possible for the borrower to qualify for a loan. The borrower will need to show receipts and explain the expenses.

For example, if there were a capital investment in equipment, or the business was in acquisition mode, then the underwriters can take those expenses into account.  A one-time expense has to be properly labeled so that underwriters can determine that it won’t be a recurring cost. 

From a job stability standpoint, Bill says it looks good show that the borrower already has experience in a certain field.  However, they still need a minimum of 12 months doing business as a 1099. 

Since the borrower’s previous employer is no longer paying for the cost of the business, the borrower needs to show they are capable of running their own business.  The tax return is generally regarded as a P&L statement that shows the health of the business. 

When a person starts a business in an entirely new field, they need to substantiate their expertise in the new industry plus show that they can run a healthy business.  There are arguments to be made that the borrower developed necessary skills in their old position, but they still need to prove that they can manage a business.

Many of our clients start investing while they have a W-2 job with the intent of retiring and focusing solely on real estate.  They’re often worried that once they quit their W-2 job, it will be harder, if not impossible, to qualify for a loan. 

Bill says that managing a portfolio can prove expertise as long as they’ve self-managed a property.  Even if they only self-manage one out of their ten properties, it shows that they have the necessary business acumen.  Underwriters won’t look at the ratio of their properties, just a demonstration of expertise. 

While self-employed business owners have to think more strategically and produce extra documentation, getting a real estate loan isn’t as scary or impossible as is commonly thought.  Getting the lender involved well before deciding to buy a property is the best move they can make.  Once you know you want to buy a property, having a few conversations ahead of time can save you a lot of heartache and pain. 

If you want to learn more about this process and form a lending strategy, reach out to Bill:

This conversation is a good reminder of why we always tell our clients to get financing in place before finding a deal.  If you want help navigating this process so you can achieve your investing goals, reach out to us.  We’re always happy to help connect you with lenders and other vendors who will help you close on the right property for your strategy.

Today, Leah and I are looking at a townhouse-style fourplex in Pueblo.  A lot of investors ask us what multi family properties in Pueblo look like, so Leah and I are walking through a great option.  This is a property we found on the MLS, not one purchased by a client, but it’s a great example of the opportunity in this area.

This is a fourplex that features 2 bed/1 bath side-by-side units.  It is a new build property and each unit has its own A/C, a big plus in this area.

The property is located in the northwest area of town, which has a lot going on development-wise. Tenants will enjoy being close to city parks and hiking trails. 

The property is listed at $600K.  We’ve recently seen a few new build townhome-style products in the Springs that are well over $1M, so this is a steal in comparison.

We plan on checking in with this builder to see if they have plans to build any more of this type of property.

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

Looking at nearby comps, monthly rents of $1350 is the most conservative estimate for this property.  One fourplex built in the same style has $1200 rents, but that property is much older and a lot more dated.  While we ran the rents at $1450 in this analysis, it’s possible they could go as high as $1500.

As we’ve done with other properties in Pueblo, we estimate vacancy a little higher in this area.  In this case, we ran it at 6%. 

The building is already separately metered for gas and electric.  We recommend that clients who are the first owners of a property institute a utility bill back on top of rent. This is much easier to implement from the start and gives the owner an additional income stream. 

Even though we ran the numbers as conservatively as possible, the results are still phenomenal.  At rents of $1350 and no utility bill back, the annual cashflow is $12K a year and the cap rate is 6.4%.  Generally, we would expect to see stronger numbers in older buildings, but this brand new one is reflecting some great return projections.

If we play around with the numbers a bit and include a utility bill back and bump rent to $1450, the cashflow increases to $15,600 a year and the cap rate jumps to 7%.  We usually tell clients it’s impossible to see these kinds of returns, but the Pueblo market is strong. 

Since this is a new build, we have confidence in these numbers.  People love being the first to live in a property. 

This and other properties we’ve featured show that the opportunities in Pueblo are exciting.  Keep in mind, though, that Pueblo won’t be like this forever.  Now is a great time to get involved and take advantage of this growing market.

If you want to learn more about available properties in Pueblo, reach out to Leah.  She is very knowledgeable about the area and has a great track record there. Her email address is [email protected].

In this Deal Analysis, Leah joined me to talk about a townhouse in Pueblo she just helped a client purchase.  As Denver and Colorado Springs continue to increase in price, we’ve been focusing more on Pueblo as a great alternative market. 

We often have clients who have $50K to invest, which is harder to deploy as markets become more expensive.  Pueblo offers investors the opportunity to find a property within that price range and we’re seeing clients get solid returns.

This investor was torn between investing in Pueblo and a Midwest market.  He had never been to Pueblo before, so Leah took him on a tour so he could see it for himself.  After looking around, he ended up loving the city and was ready to invest there.

This isn’t the first time our clients fell in love with Pueblo.  This is why we recommend that anyone interested in the area should spend some time there.  Look at the neighborhoods, have lunch by the Riverwalk, and familiarize yourself with the area.

This is a 2 bedroom/2 bathroom townhouse located in the Belmont neighborhood of Pueblo.  There’s a lot of opportunity to add value—the basement is piped for an additional bathroom and already has a closet and egress window.  It would be easy to convert it into a 3 bedroom/3 bathroom home down the line. 

The townhouse was listed at $190K, and they submitted an offer for $195K.  This isn’t bad, considering how many over ask offers we submit in the Springs.  There were multiple offers on this property, so Leah talked to the client and they included a limited inspection and appraisal gap.

The house was built in the 1980s and is in good shape—no major issues were found during the inspection.

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

We initially underwrote the property at $1300 monthly rent, but the next-door neighbor is getting $1500 in rent.  Therefore, we ran this analysis at the $1500 per month rate. 

The client is setting aside 8% for reserves, which is higher than the usual 5% we recommend for newer properties and townhouses.  However, this complex doesn’t have an HOA to take care of external maintenance, so 8% is a safe number. 

The $1500 rate for property insurance is high, but we keep finding that insurance rates tend to be higher than Pueblo.  This is something we are digging into, since on its face we don’t see an obvious reason for it. 

When we originally underwrote the property, the expected returns were an annual cashflow of $1765 and a cap rate of 5.2%.  These are solid numbers that fit many clients’ buy boxes, although they aren’t particularly amazing.

Running the analysis at the most aggressive number, however, gives the client over $3600 in annual cashflow and a cap rate of 6.2%.  These are phenomenal returns that get people excited.  In Colorado Springs, we rarely see anything over a 6% cap rate, so these returns present an exciting option for investors.  What’s even better is that this a beautiful home that the client doesn’t need to do anything to in order to see these numbers. 

This deal is a great example of what’s possible in Pueblo.  This transaction couldn’t get any easier—the home is turnkey and he hired a PM to manage the day to day of the property. 

If you have any questions about Pueblo, reach out to Leah.  She is very knowledgeable about the area and has a great track record down there. Her email address is [email protected].

This deal analysis looks at a fourplex that my clients recently purchased in a 1031 exchange.  These clients were extremely prepared, which made the process fun and a lot less stressful than a typical 1031 exchange.  Thanks to their hard work, they were able to sell a townhome on the east coast and bought a great fourplex in a desirable area of the Springs.  And the best part: they were able to defer capital gains taxes. 

My clients are a couple who currently live in Colorado Springs.  They wanted to sell their paid off Virginia townhome and use the proceeds to purchase a fourplex in the Springs.  They were renting out the home but decided after a tenant turnover that it was a good time to sell the out-of-state property and buy something closer to home. 

The townhouse sold in the mid-500’s and they walked away with $530K they wanted to use to invest.  They wanted to buy the biggest asset they could with a residential loan, which would give them fixed 30-year financing.

Because they were looking at such a large gain, they wanted to do a 1031 exchange. These exchanges allow sellers to defer taxes by rolling them into a replacement property.  The goal with 1031 exchanges is to essentially continue this practice of rolling and deferring until you die, at which point your heirs inherit the property at the stepped up basis.  While it may sound morbid, it’s a good wealth preservation strategy. 

These exchanges require a lot of pre-planning because replacement properties must follow a strict set of identification rules.  I was in touch with my clients months before they relinquished their property in order to make sure we could hit the ground running once it was under contract.  I found out what kind of replacement property they were looking for and ran analyses so they had a good idea of what they were purchasing. 

This is a townhome-style fourplex in the Rockrimmon area of Colorado Springs.  All of the units are 2 beds/1.5 baths.  With this type of layout, each tenant gets a yard and doesn’t have anyone above or below them.  As a bonus, this part of town has stunning views that are very attractive to tenants. 

I was able to lock this property up because it was only listed on REColorado as “Coming Soon” and not on the PPMLS service.  Most multi unit properties do not allow showings, so I advised my clients to act on this as soon as possible. 

Our usual team policy for 1031 exchanges is to get through the inspection period on the relinquished property before going under contract on the replacement property.  However, when I saw this fourplex, I knew it was exactly what my clients wanted and we would need to jump to ensure they got it. 

I wrote the contract so that it was contingent upon the sale of their townhouse to protect them in case the sale didn’t go through. 

The property was built in the 1980s and only needed some cosmetic updates.  Everything was in good, working order, though the appliances could stand to be upgraded.  I’ve never seen an inspection report for a fourplex come back as clean as this one. 

The only real repair my clients have to make is replacing the water heater in one of the units, which costs about $2500. 

My clients were originally under contract for $979K.  I didn’t expect it to appraise for that much, and as anticipated, the appraisal came in low at $900K.  Luckily, the seller was also doing a 1031 exchange and was willing to work with my clients. 

They met in the middle at $947K, which I think is still a great price for this property.  They already intended on making a large down payment because of the amount they were getting from the sale of their townhouse.  In that regard, there was not much impact to the amount they were spending, just shifting the numbers around on paper. 

I used the Rental Property Spreadsheet to run the numbers.

My clients made a significant down payment of 56% because they put all of the proceeds from their townhouse into this fourplex.  They bought down the interest rate, as well, to a great rate of 3.5%. 

They initially planned on objecting to the non-working water heater, but it got lost in the shuffle of negotiations after the property appraised low.  There was no need to blow the deal over a water heater, and my clients had a good, long-term perspective on that. 

Each unit has a different monthly rent, but they average out to $1325 a month per unit.  I think it’s reasonable to boost rents to $1400 or even $1450 as leases turn and tenants leave.

Electricity and gas are separately metered, and the prior landlord set up water and trash as a billback system.  Since the leases convey with the property, that structure remains in place. 

With the current rents, my clients are making $20K in cashflow and have a cap rate of 4.5%, which is expected for this area.  This is a great set it and forget it investment and it allows them to defer taxes. 

If they raise the rates to $1400, their cashflow increases by $3K a year and their cap rate goes up to 4.8%. 

1031 exchanges can be stressful, and it’s not often that the stars align like they did here.  However, thanks to investors who did the necessary prep work, it allowed them to minimize the risk as much as possible. 

We love sitting down and talking our clients through different scenarios.  If you have questions or need help figuring out the right equity position for you, reach out to us. 

As we kick off 2022, now is a good time to talk about my goals for the year.  While I don’t always like the pressure of thousands of people knowing my goals, it’s helpful to share them with other investors.  To understand how I formulated this year’s goals, I will also review my investing rules and the goals I made for 2021. 

I like to go over my investing rules first because these rules drive my decisions.  When my husband and I are trying to decide on something, we check if it fits our rules.  If it doesn’t, then we know it’s probably not a good idea to proceed. 

Rule 1: I Don’t Want to Own an Empire: I have no interest in huge goals like 100 doors; I just want enough plus a little more to support my family on rental income when the time comes.

Rule 2: Don’t Overextend Myself Personally: When I first started investing, my husband and I did all of the grunt work ourselves.  We would spend all day at our W2 jobs, then drive to our properties after work and on the weekends to clean or rip up carpets.  We weren’t able to disengage, which left us exhausted. 

Rule 3: Don’t Overextend Myself Financially: I don’t overleverage by taking on too much debt and putting myself in a risky position.  I don’t want to lose what I’ve earned. 

Rule 4: Ensure Adequate Cash Reserves for Everything: I always have six months of reserves for personal emergencies and six months of reserves for all of my rental properties.  If everything were to go down the toilet at once, I know I would have six months’ worth of leeway.  I sleep better at night knowing my family would be ok. 

My main real estate goal last year was to pay off one property’s mortgage.  This seems like a small goal looking at it now, and it’s one that I not only achieved but exceeded.  I paid off two mortgages and am still riding the emotional high that comes from owning two rental properties free and clear.  In addition, I took advantage of low interest rates to refinance two other properties as well as add two more to my portfolio. 

My agent and team goals last year were to publish 52 podcast episodes and quadruple the number of closed transactions in Colorado Springs.  I hit the podcast goal by sticking to a consistent schedule and having a few extra recordings here and there. 

When I made my transaction goal, it was before Leah joined the team.  Together, we 10xed that goal and had more than 10x the sales volume.  This was an amazing achievement and one I know will be difficult to replicate in the future. 

My real estate goals this year feel lofty compared to last year’s goal: I want to purchase four additional units.  I feel comfortable right now with my current cash and equity positions, and I think we’ll keep seeing rising inflation.  I want my money to work harder than just sitting around, so I plan on taking advantage of the benefits that real estate offers to investors.

Keeping in mind rule number one, increasing my portfolio by 40% is getting close to my definition of an empire.  Part of the reason I keep adding properties is that I simply find real estate to be a lot of fun.  I have an itch to buy properties and try out strategies I see clients doing.  This is a rule I’ll keep assessing as the year goes on. 

One thing that may surprise people is that I’ve never had a well-defined real estate goal.  Because real estate is so dynamic, it’s difficult to lock into something knowing that the world will change.  Being able to pivot based on external factors is important. 

My agent and team goals for 2022 are to publish another 52 episodes and increase southern Colorado closed transactions by 30%.  It’s hard to continuously 10x a goal, but 30% is both ambitious and achievable. 

While Colorado Springs is a huge focus, Leah and I started working in Pueblo in 2021.  We see Pueblo as a big part of EA’s growth over 2022.  We want to do this market justice by incorporating more Pueblo-focused content into the podcast.  As more people learn about this area, I’m confident they’ll be interested in investing there.  I plan to do one episode every two months and have a goal of closing 15 transactions there.  My stretch goal is to hire a dedicated agent for the Pueblo market

I’m very excited for another busy but productive year.  Be on the lookout for more Pueblo content, but in the meantime, please feel free to reach out to me with any questions.  I’d be happy to give you an overview and help you find the right property to match your goals. 

The Colorado Springs MLS trends data for December and the year-end are now out.  Everything is holding strong and there are no big changes from the previous months.  We’re ending the year with 19% year over year median sales price growth, which is an incredible gain but not one I see changing in the near future. 

Home prices, rent prices, and interest rates are all increasing.  While investors are not thrilled about housing prices, the increased rents help even it out from a cashflow standpoint.  Even though interest rates are increasing, investors should keep in mind that buying now and locking in a still historically low interest rate will be a good hedge against rising inflation. 

For 2022, I predict prices and rents will continue to go up. 

Source: The above Executive Summary is from Lon Walsh of Your Castle Real Estate.

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

In this deal analysis, Chris and I talked with new investor Emily about the investment property she and her husband recently purchased in Pueblo. They were sitting on a considerable amount of equity from their Denver home and are making that money work for them by investing in their first rental property.

Shortly after recording this Deal Analysis, Leah and I walked the property with Emily and Kyle. Watch the video to see what the house looks like and hear more about how they plan on getting the house rent ready.

Emily and her husband Kyle bought their Denver home about two years ago.  Since then, their house appreciated significantly thanks to extensive renovations and the Denver market.  They decided to do a cash out refinance and use that money to invest in Pueblo. 

Many people complain that it’s impossible to cash flow in the Denver market, but it also gives the gift of appreciation that can be used to invest in other areas. 

This is a 3 bedroom/1 bathroom single family home in the Bessemer neighborhood of Pueblo.  It went under contract twice before they purchased it. 

The location of the house is 5 minutes from the Riverwalk and I-25, in addition to being near parks, grocery stores, and schools. 

The house was previously listed at $185K but after falling out of contract twice, the seller dropped the price to $165K.  Leah spoke with the listing agent and found out that the seller wanted to offload the property as quickly as possible.  After checking with lender Bill Rodriguez that he could facilitate a quick close, she recommend they offer list price and a two week close. 

Sometimes, the strongest offer is not the highest one. By finding out what was most important to the seller, Leah was able to effectively help her clients craft a winning offer.

The inspector found that the house was in good condition for being over 100 years old.  Easily fixable repairs include: gutters and drain spouts; radon mitigation; and purchasing a washer, dryer, and swamp cooler.

The major issue discovered was that the entire sewer line needed to be replaced.  This is likely why the house fell out of contract the second time and caused the $20K price drop.  Quotes for the sewer line came in between $8,500-11,000. 

Fortunately, the appraisal came in at the same time.  Appraisals are typically ordered after inspections, but the quick close necessitated they be done in tandem.  This was good news for Emily and Kyle because the house appraised at $185K, giving them $20K in instant equity. 

In Colorado Springs and Denver, we usually tell clients to bring appraisal gaps, but in Pueblo, it’s possible to buy a home that has equity.  This cushion gave us room for some creative financing to fund the sewer line replacement. 

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

Emily and Kyle originally offered list price of $165K for the home, which the seller accepted.  To fund the sewer replacement, I suggested they finance the repair by increasing the purchase price. 

They increased their offer to $173.5K, and that extra $8.5K was paid as a vendor credit at closing directly to the company performing the sewer work.  The cost of the repair came out to exactly $8.5K, so they didn’t have to pay anything out of pocket.  Their mortgage increased by about $30 a month. 

The yard is xeriscaped, so they will save money on landscaping.  Tenants will be responsible for snow removal, in addition to electricity and gas. 

Their annual cashflow is a little over $1500 and the cap rate is 4.7%.  These numbers are very similar performance-wise to Colorado Springs, but the key difference is they were all in for about $60K.  Many people come to me wanting to invest in the Springs for $50K, and I tell them that’s not feasible anymore. 

Pueblo offers investors the chance to get similar returns as the Springs with a lower barrier to entry. 

Emily and Kyle plan to hold onto this property for a long time.  Eventually, they will likely do a cash out refi on home and use that money to invest in another property.

One of the main concerns I hear from investors who are interested in Pueblo is the risk factor.  Higher unemployment rates than Denver and the Springs make them hesitant about investing there.  To me, employment rates equate to vacancy factor one way or another. 

Typically, we underwrite vacancy at 3% in Denver and the Springs.  By bumping up the vacancy rate in Pueblo to 8% we solve that problem of calculating the higher risk.  While I don’t expect their vacancy rate to be this high in actuality, it allows them to see one possible scenario. 

If you want to learn more about the Pueblo market or figure out your own investment strategy, reach out to me.  I’d be happy to help you find the right market that fits your goals as well as a property to get you started.