Is anyone investing in the Denver metro area these days?

[Kevin H.]

The old investment adage of "buy low, sell high" always haunts me during times like these.  We are finding ourselves in a financial position where we'd like to make some investments in the near future, and would like to start generating some partially passive income.  But, we seem to be in a market where everything is currently red-hot (buy high, sell low clearly isn't part of my strategy).  Whether we're talking stocks or real estate, everything is obviously sitting high on the hill at the moment, though forecasting the future is always difficult. 

Are any of you buying in the Denver area right now?  If so, can you share any of your strategies for finding deals on income-generating properties in a low-inventory market where it seems like more homes than not are being sold at a premium during bidding wars?  

I think we'd be most comfortable by finding our first investment property within a relatively easy drive of our current home, but the prospects for pulling this off sure aren't looking great at the moment.  The last thing we'd want to do is buy at a price that's unreasonably high, and find ourselves in a bad position down the road.  

We aren't sitting in a bad financial spot at the moment, but we're scratching our heads about where we should put our money.  We're in our early thirties, we own our primary residence free and clear, we've got no debt, and we're sitting on about $150K in cash.   

Our current home would probably be well-positioned as a rental property, at least in my estimation.  It would likely pull $1,900/month (+/- $100) in rental revenue, but we're currently living here which kind of eliminates that option.  If we could find another house for ourselves, renting this place would be a viable option.  But, finding another place for ourselves is obviously a bit tough right now, too.  

Just thought I'd see what some of your fellow Coloradans are doing right now…  though I'd happily hear anyone's perspective! 

[Bill S.]

@Kevin H. I am buying in Denver and here is why. It's the very reason folks are not buying. There is no inventory. I am doing direct mail marketing (but I have seen MLS offerings that also meet the bill as well) so I can purchase at below retail putting me in positive position from day one. Rents are also increasing. Many landlords have not kept up. Almost half the properties I am offered are under rented. It's not hard to find a few that the owner wants a bit below what the current market even for their current rent roles. Buy and bring the rents to market and you are good to go. Stack that on top of working in areas that are in transition (the right direction) and there is huge upside potential and it's not all paper as appreciation.

The data says that we have 3-4 more years of low inventory (below a balanced market inventory of 6 months of supply) without considering the continued population growth but accounting for accelerated building. I figure a pretty safe approach is that we have two years more of above average appreciation so, while I don't have to have that, I consider it my cushion. We are not adding stock of below average rent units and in fact the units being added are at the very top end. This is especially the case in the urban core which is where everyone moving here wants to be. The cost of building and the cost of land are the drivers of new build prices. Outlying areas don't offer much refuge either. I had a developer for SFH tell me that one piece of land they were considering well outside of the urban core has $120K in costs (development fees and water taps) per lot before they even turned a shovel full of dirt.

If we get some income/salary increases then that 3-4 years could extend even further. It has happened before in So Cal, so growth periods can extend for years in the right situations leaving those sitting on the sidelines choking in dust. Now all of that said, there are obviously other forces that should be considered like raising interest rates and economic turmoil. Those are exterior risks that impact all markets but you are a fool to not have some margin built in for those potential situations.

Just re-evaluate on an quarterly basis to verify the direction of the wind and adjust accordingly and you should be in a good place.

All of this presumes you can properly manage real estate once you own it. I see people every week that can't do that so don't just assume it will happen.