Why so few Multi-Families in North Denver?

Question

Hello. I'm a new member to BP living in south Denver, but grew up in Arvada. I've been house hacking for nearly 5 years, which has provided a very small positive CF each month. For my next investment I am interested in an owner occupied 2-4 unit property. I work in Westminster and Boulder so I started looking for RE in the Westminster/Northglenn/Broomfield/Thornton areas. From what I can tell there is basically one cluster of Multi-Family properties on the southwest corner of 92nd and Lowell, aside from 10+ Million dollar apartment buildings. My findings are based on 3 year sales records, so I may be missing something here, but can anyone provide insight as to why there are so few Multi-Family locations in that area? Obviously inventory is extremely low right now so this may be a long process. Thoughts, ideas, suggestions? Thanks!

Bill S. · Answer

@Tim Jones you should focus on older areas. Back in the 60s zoning regs and cookie cutter building really kicked in. If you find an area built before that you will have better luck with locating multi unit properties. In addition, due to the housing shortage after WWII there were many older properties that were "modified" by adding units so that is an added possibility for an older area. At one point I worked in Arvada and got to know the area just North of Old Town. There are a number of multis in that area. There are even some 4 unit props. Finding someone selling is another matter.

When looking in those older areas be sure to carefully read the comments because there are lazy agents that list duplexes as SFH because they want the exposure but don't understand how to enter property in the income section of the MLS.

Dan Mackin · Answer

@Tim Jones They would show up as SFH since that is what they technically are.  I'll use my home town of Erie as an example since it is where I did the most research into it.  For Erie the requirements are:

1. Accessory dwelling can be up to 33% of the main dwelling or 800sqft.  Whichever is smaller

2. A new accessory dwelling must be approved by a special review process with the town.

3. Lot must be at least 6000sqft

That really is it.  Overall it isn't a horrible process to set one up with most homes as long as they meet 1 and 3.  Number 2 is where some issues can arise because they post a sign in the yard about the review so that your neighbors can be informed and speak out if they want to.  Technically if you have a decent sized upstairs you can turn your basement into one with a small amount of plumbing and electrical work.  I did see a property of this sort sell last month in the old town area of Erie.  The main home was a double wide and the accessory dwelling was a garage apartment that was already rented.  It may be worth looking into other areas to see what their laws are with these types of dwellings.

Tim Jones · Answer

@Dan Mackin That's a great suggestion. So you are thinking that there might be some SFR out there that have a monther-in-law suite or something? Would those show up on MF listings or as a regular house? Probably just a regular house. I recently visited my brother in Tucson and we drove through a neighborhood where every house had an extra little dwelling in back. Pretty cool.

Tim Jones · Answer

Thanks for the quick responses gents. The explanations certainly make sense. I'm definitely not dead set on those areas, but I was curious why there was nothing there. What are your thoughts on a MF owner occupied in general? I'm single with no kids, so I have the flexibility to move. I also work as a PM in construction so a rehab effort is in my wheelhouse. It seems like there are some pretty good benefits on the procurement side if you go owner occupied such as being able to bid before investors, qualifying for FHA loans. and using the rents as income on the qualification. Are there other strategies you would suggest that help on the procurement side?

Dan Mackin · Answer

Just as an extra thought.  Some communities up north allow "Accessory Dwellings" on SFR if you want to do some house hacking.  There are restrictions of course on what's allowed, but if you are dead set on MF it could be a good way to keep moving with it.

Travis Sperr · Answer

@Tim Jones  The areas you mentioned are the suburbs, typically higher density properties are closer to the city center, where the burbs are waves of houses. There are some 4 unit buildings in older parts of Westminster 72nd and Lowell-ish as well.

You hit the nail on the head about inventory - there is nothing available in the Denver Metro - I just saw today that year Feb 14 vs Feb 15 there were 25% less listings. So not only are the prices hurting you (avg sales price up 17% in same time frame) the rents are so high that anyone that has owned those multiunits is finally getting the rents that are allowing them to cashflow well!

If you are dead set on a multi in the areas mentioned, you might find that mailing owners direct will yield better results than what is listed.

Good Luck out there!

Dan Mackin · Answer

From what I have noticed in my research it seems that MF likes to show up around established town centers.  If you look at Arvada, Boulder, Colorado Springs and other spots like that where there was actually a downtown there seems to be more MF.  Most of it would likely be due to the town allowing the zoning at the time.  The areas of north Denver that you are looking were mostly planned developments which likely didn't leave as much infill of other types of zoning.  Just my guess.