Advice on first property investment (house hacking) - Denver, CO

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Advice on first property investment (house hacking) - Denver, CO

George TurnerPro Member
Member since 2024 · 7 posts · 0 votes

Hi all! I'm looking to invest in my first property in Denver and would like to acquire a small multi-family (3-4 units), live in one of the units and rent out the others. The desired area is next to a university and a hospital, and only about 15 minutes to downtown Denver. I'm open to other areas as well, but based on what my realtor friends say about where I live now makes we want to get my foot in the door here. 

While the market in Denver seems to be solid, and everything I find in my research seems to confirm that, I'm unsure of what the rental market is like and for what demographics (family, students, traveling nurses). Since I'll be living in one of the units, my personal preference is to find something on the newer side, which would likely mean higher rent/unit but I'm worried the higher price point would limit the tenant pool. 

I'd like to net at least 6% each year, and the higher end units seem to get me there whereas something like the place I rent and live in now (duplex) are somewhere around 2-3%. I might be overthinking things but how do I analyze a property that has multiple types of renters in the area? Is it all about how I market the units? Should I stop thinking about who would rent the units and focus on the numbers?

Essentially, I find myself in analysis paralysis when looking at properties. Some seem great for me, some are great for students, others great for a family, and some I just don't know. 

I want to be thorough as this is a big step for me, but I also don't want to stop myself from a great investment because I overthought it. Any advice? 


Cheers!

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Forrest Lloyd
Member since 2018 · 5 posts · 7 votes
2y

Agree with the advice you’ve gotten so far as I’ve done 3 house hacks now in Denver area. The part I slightly disagree on is being cognizant of who might rent your units as it’s important and will impact your rents/repairs/vacancies/headaches/etc. For example, my units this far have typically attracted younger couples. My headaches have been minimal thus far.

However, most important for you is to look for a base hit, not a home run. Your odds of a home run without a massive amount of creativity in denver area is minimal. You simply need a base hit. Take action within reason and get your feet wet. You can always pivot.

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  • James CarlsonPro Member
    Real Estate Agent · Colorado | stan.store/JamesCarlson · Member since 2014 · 2k+ posts · 2k+ votes
    2y
    Quote from @George Turner:

    .... Should I stop thinking about who would rent the units and focus on the numbers? .... 

    Yes, this. ^^^

    Biggest driver of wealth in real estate is the long-term appreciation, especially in Denver. Cash flow is great if you can get it, but it's the icing, not the cake.

    Consider that Denver has averaged 6% year-over-year appreciation for more than 40 years. There's no cash flow that equals that. 

    In terms of your tenants, don't focus too much on finding out who they are. If you're youngish and like a location and the "vibe" of a property, you'll find other youngish people who like the same thing and want to rent from you.

    Our house-hacking clients in Denver and Colorado Springs have clients across the spectrum -- students, single parents, professionals, blue-collar and white-collar workers. You don't need to market to a niche. Denver, itself, is your marketing team. The city's awesome and is a big draw to a lot of different people. 

    Good luck!
    [email protected]720-460-1770
    2Reply
  • Forrest Lloyd
    Member since 2018 · 5 posts · 7 votes
    2y

    Agree with the advice you’ve gotten so far as I’ve done 3 house hacks now in Denver area. The part I slightly disagree on is being cognizant of who might rent your units as it’s important and will impact your rents/repairs/vacancies/headaches/etc. For example, my units this far have typically attracted younger couples. My headaches have been minimal thus far.

    However, most important for you is to look for a base hit, not a home run. Your odds of a home run without a massive amount of creativity in denver area is minimal. You simply need a base hit. Take action within reason and get your feet wet. You can always pivot.

    4Reply
  • Bill S.Pro Member
    Moderator
    Rental Property Investor · Denver, CO · Member since 2013 · 4k+ posts · 2k+ votes
    2y

    @George Turner so the best advise I ever got was "decide who you want to rent to, and only buy property they will rent" That is create an avatar for your ideal tenant and then buy property they are renting. 

    My understanding from years of doing this is. It's more about location than condition/age of the property. You can value add to make it more appealing (fix it up) but you can't change the location. For example, if you buy in Westwood most of your applicants will look like the rest of Westwood. If you buy in Cherry Creek, most of your applicants will look like the rest of Cherry Creek. This is irrespective to of the condition of the unit. You can attract more quality from the tenant pool by having a nicer unit with more amenities but a renter for Cherry Creek will simply not even look at a unit in Westwood no matter how nice or what the price. The counter is true as well. 

    So having said all that, properties that attract high quality tenants (location, location, location) cost more and have lower returns. Properties that attract lower quality tenants (more headaches) tend to cost less and have higher returns relative to the more desirable areas. 

    The key to double dipping is to find emerging areas and invest in them and wait. When the area becomes desirable then you get the high quality tenant and appreciation.

    One other thing to keep in mind which I did not understand when I started out. All other things being equal, a high quality tenant pays lower rent than a low quality tenant for the same property. For example, you have a place to rent, two applicants come, one has a 500 credit score and one has a 750 credit score. Who gets the property? The 750 credit score. The only options for the 500 credit score is to apply to over priced properties where there are no higher credit score applicants. I realized this when I bought a place in an up and coming area (Jefferson Park 20 years ago-it was a fairly rough area then). I moved out all the bad apples and fixed the place up nice. I got exactly the same rent as the previous owner did with a bunch of losers no one else would take. I had 10x fewer headaches but no more rent in my pocket.

    Based on what I have seen with deals being offered in the multifamily space (5+) units. Get a 6% cap rate is the market now unless you get in the rougher areas when it might go up a percent or so. If you get in the nicer areas it might go down a percent or so as well. Your target of 6% is in line with the local market for 5 units or more. The problem is that for 4 units or more the value is based on what other units are selling for and generally speaking the price per unit on 4 or fewer units greater than the price per unit on 5 or mor units. That is because of the financing available with the owner occupied loans with the longer (30 year) fixed rate debt. People are willing to pay more when they can live in a property. Your market research is bearing this out. Take the feedback and adjust accordingly.

    1Reply
  • Eric DeNardoPro Member
    Real Estate Agent · Denver · Member since 2020 · 364 posts · 151 votes
    2y

    @George Turner,

    Welcome to BP! You may be over thinking about the types of renters available. If it's a strong rental area, as long as you get good tenants to fill the units, that's the key! Most areas of Denver will attract a variety of tenants and you may think you'll get a family, but you could get a young professional without kids.

    [email protected]
    1Reply
  • Elijah Quinones
    Real Estate Agent · Aurora Colorado · Member since 2022 · 31 posts · 8 votes
    2y

    Hi George! 

    I just wanted to see if your still considering that area, have you been able to find a property that fits your house hacking strategy in that area? I'm 17 years old and new to real-estate and house hacking seems like a great way to take advantage of a property out here in Colorado. I would love to hear how your real estate experiences has been!

    0Reply
  • Wale LawalBusiness Member
    Real Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
    2y

    @George Turner

    When looking to invest in Denver property, do your homework on the market, who lives there, and each property's details. Look at current rent prices, costs, and the cap rate to see if it's a good deal. Make plans to draw in certain people and think about how the units are set up. Have clear goals like what cap rate you want, how much money you hope to make, and where in Denver you prefer to buy. Develop a step-by-step plan and begin with easier, safer options. Ask for help from a real estate expert or a company that manages properties to spot great deals.

    Good luck!

    [email protected]832-776-9582Podcast Guest on Show #469
    NETWORTH BUILDERS5236 Reviews
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  • Chad RockeBusiness Member
    Real Estate Agent · Denver, CO · Member since 2021 · 383 posts · 181 votes
    2y

    @George Turner

    You are taking the right steps to significantly improve your net worth. Congrats.

    I am investor friendly agent with 8 doors and currently house hacking. I host a monthly meetup, always the last Thursday of the month at Zeppelin Station. Next one is May 30th 6-8. Swing by and we can chat more.

    [email protected]715-550-1731
    Rocke Real Estate Inc.547 Reviews
    WebsiteView Page
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