Denver has grown in many ways over the last 10 years. It has grown in popularity and population, and as a consequence, price. Looking back at the last decade, having a time machine would be great to go back and buy everything possible. All areas of real estate have appreciated in value over this timeframe. Until that time machine is invented, however, investors will need to be more precise with their investments. Also having a more long-term outlook can help facilitate stable gains.
Many of the older rules of real estate investing still apply but should be adapted to today’s changing environment. So, for what is going on in Denver today, let’s take a look at a few aspects of the market:
As with any boom cycle, the big money investors have followed. It is no surprise to anyone who lives in Denver that apartments are being built in record rates. It seems everywhere you look a new complex is going up. With Denver’s city center being a hot spot for the millennial generation moving to Denver, a large part of the building boom has been centrally located, but no community surrounding Denver has been immune to the construction.
What does this mean for investors just coming to the market? Anything that looks like an apartment (condos mainly, and some townhomes) are in direct competition with these new complexes on the rental front. Millennials are eating up amenities such as rooftop pools, conference centers, and modern workout facilities. These new buildings are leaving some of the older privately-owned condos in the dust on the rental front.
As investors, it can be best to look at rental properties through a renter’s perspective. We highly recommend using tools like Zillow to look at rental saturation in any market you are looking to invest in. Look around to see what you can get for your money, and how easy it is for any one property to stand out on the rental map.
Rental prices for condos in older buildings (old can mean 10-years-old in this environment of rapid growth) have come down significantly over the last few years, and vacancy has dramatically increased. For a more in-depth look into this topic we recommend reading our other post: Should I Buy, Sell, or Hold My Condo in Denver?
New Suburban Construction
There are rental strategies that can be encouraging when looking at new homes. They are under full warranty for the first year (typically) and have some extended warranty features that can be attractive. There is also the theory that maintenance costs will be lower over the first 10 years of homeownership. These ideas can be correct and can lead to fewer costs over the initial years of the investment. This investment strategy we only recommend when long timeframes are included in the decision-making process. We will get into that below.
Choosing a property of this type comes with a few disadvantages, however. As homes are rapidly being built around new areas, if your investment strategy changes and it becomes time to sell the home, you may be stacked against new inventory on the market with appreciation limited in the short term. There are also typically lower returns associated with the higher purchase price of a new build, compared to rental market prices.
As long as you factor in the cons when purchasing a new build as an investment, it can be a winning strategy. With long-term outlook and modest return goals, you can be very successful longterm. There are many other factors that go into this equation. Factoring in how much cash down you put on a home, and your overall financial goals as an example.
What does Top Properties currently recommend as an investment property?
We currently fall back to quite a few of the old rules when it comes to this topic. We are currently recommending staying away from many condos. There is still some room for returns in townhomes (watch that HOA payment), but single-family homes priced at approximately $350K seem to be a sweet spot for us. Look for homes with a minimum of 3 bedrooms and 2 bathrooms, in areas with decent school districts, and around areas with promising infrastructure growth. We still see these properties renting for $2,000 – $2,100 per month.
For specific questions and updated market trends, feel free to contact us by reaching out to your Top Properties agent or any of the methods below.
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