Should I buy now or wait (currently in Denver)?

Question

Hey all!

I do not know if Denver is where I will be living forever. I don't even know If I will be living here by January. I have been here for over a year now and can not make up my mind because San Diego is where I want to be. I ended up making friends here so its hard to leave.

In any event I do not want to keep paying rent. I can not stand paying rent when I can be paying off an asset. The place that I am in now I can sublease, so I have been thinking about just getting a house here (preferably a duplex) so that I can start putting equity into my life. If I decide I want to move in a year or less I can always rent it out, right?

I don't know what the smart move is here because I do not know where I will be in a year from now-- I might be here still paying expensive rent or I might be in CA. Not to mention Denver real estate is sky rocketing so I can either be making money on an appreciating home or just keep renting at high prices.

Really tough decision but I'm leaning towards buying a home here in the Denver area and if I move rent it out and get a home in San Diego.

Any advice/insight would be MUCH appreciated!

Scott Trench · Answer

Personally, I wouldn't buy in your situation. Everyone is saying how great the Denver market is. I love Denver as much as the next guy, but I think that you are playing a game of market timing, and your strategy banks on you being able to buy a property, for it to appreciate considerably, and for rents to increase such that you can cash flow in less than a year.

That's bold. Too bold for my liking.

Do I believe Denver is going to appreciate at a rate faster than that of most other cities around the country over the next 30 years? Yes, I certainly do, and that's why I am buying property here.

But my strategy takes into account the fact that I cannot produce short-term cash flow with a totally passively managed rental property at current prices and rents. Rents will have to rise, or I will have to put more money down if I want immediate cash flow on rentals here in the city.

I get around that by house-hacking, and doing the work on my non-occupied units myself. Even just a few years in, rising rents have enabled me to achieve extremely comfortable cash flow from the property I purchased in 2014.

This, I believe will be an outcome that long-term buy and hold investors will enjoy here in Denver.

However, if you choose to purchase buy-and-hold rentals here in Denver you do so knowing that they cannot immediately (in most cases) produce standalone passive income for you without you being involved in management of the property. Therefore, if you do buy with this in mind, you are dependent on prices and rents continuing to rise. Will they? Perhaps.

If they do, great! you made some money. If they don't, you're in a pickle.

For me as a local boy, if prices go up, great! I made some money. If they falter or stagnate, great! I get to buy more. See the difference?

In your position, I would NOT buy property, with the expectation of moving away and having a party in less than a year. In my position, I AM buying property, with the expectation of managing them for as long as it takes to build a portfolio large enough to be run by outside management.

If you do buy, I'd make sure you have LOTS of cash to cover both the mortgage, and any expenses that come up, or else you might find yourself in trouble in a year or two if the party doesn't continue as expected.

Bryan O. · Answer

Hi @Brandon Monaghan. Denver RE has been one of the hottest in the nation for a couple of years now. It is getting difficult to find any deal that cash flows. If you can find one, then make sure that it cash flows after your management costs. That way if you move you will still be covered. You must also decide if you are comfortable being a remote owner. If either of those are no, then do not buy until you move somewhere that those are a yes.

Best of luck and happy investing!

Dorothy Ma · Answer

@Randall Burris I'm interested to hear why you think the Denver market will "plummet"?

Matt M. · Answer

LOL. I know you are from Utah, but Big D is all over the national news. Our real estate prices are skyrocketing, and last month had our lowest inventory for May EVER(well since they started recording back in the 80s). Cheap homes are being bid up. Run down homes in marginal areas are being bought left and right.

I'm biased, but I say buy now, rent out a few rooms, and IF you move, keep it as a rental.

Matt M. · Answer

Sold a client a home in Platte Park last year at $450k. Now it's worth $500k. When he moved here in 2012, I told him to buy something soon. Last night he told me he wished he would have taken my advice in 2012 when I told him to buy at $300k, but he appreciated that I pushed him to buy last year. He wanted to wait for a correction...

The time to buy is NOW. It's competitive, but you can find deals. If all goes well on my two current flips, you'll see that deals can still be found if you work to find them. You can't sit around waiting for an agent to send you something. You have to be actively out looking for yourself and driving for dollars. I'm licensed, and when I find deals, guess where they go... to me, my family, then finally my clients.

Tara G. · Answer

Have you run numbers on duplexes in Denver?

Not being any sort of expert...and in fact being a NOOB, I say do it if you can get a deal on price (and the fixer-upper still works out to a deal after it's all fixed), if you do not need property management, and if you can genuinely make the cashflow math work with current rent rates.  Otherwise, no.I am in the exact situation as you (except leaning more toward San Clemente over San Diego-- and unsure of even staying in Co or going to Ca).  I also would have to sublease my place in Denver.  I am looking at multifamily units in Denver, but I cannot make the numbers work with 11% of rents allocated for property management (and I need it, unfortunately:  my job=extensive travel).I am aware of RE cycles and where Denver likely is.  Long term, I think it's a good place to have a rental.  However, I only want something if it's a true DEAL and the rental numbers have cashflow.  I don't think we have deals right now, unless you're a fixer-upper kind of guy.  (I am clueless in the fixer-upper arena, but would do that if i had concrete knowledge or skills with that type of property).  You might also be able to do it looking at more gritty areas... if you're ok living there.  These two points are pretty consistent on this site and in my reading: investors get real deals on purchase price and the math shows concrete cashflow numbers; that's the type of investor I want to be.  I get it-- waiting feels like a whole lot of time and money waste, but I'm not sure it really is!

Todd Hannebaum · Answer

I think it depends on your long term goals.  If buying in Denver is step 1, what is your next move?  If you want to buy something in San Diego will you have enough left over for a down payment in that market given it's more expensive than Denver?  If planning to finance that purchase, would you be able to qualify for a loan while continuing to hold onto your Denver asset?  If not, will your Denver asset have appreciated enough in the mean time to be able to break even or even profit should you decide to sell it?  You'll likely have commissions, closing costs, holding costs, etc to compensate for.  Also keep in mind that if you do finance the denver purchase, your first several years generally your payments lean heavily towards paying interest, so you're not exactly earning a bunch of equity by making payments alone.

Another factor I would consider is that there are a lot of apartment buildings coming online right now in Denver.  Since they have to lease up a lot of apartments in a short time frame many will give some good specials like the 1st months rent for free.

I do have a buddy who moved from san diego, to denver, back to san diego, and now to tampa.  He has leased personal homes in both san diego and denver long distance while living in these other cities.  He has a lot of experience working in the apartment industry as well and I can tell you his current tenant is driving him nuts.  If you PM me I'd be happy to get you his contact info if you'd like him to share some feedback on his experience.

Chuck Webb · Answer

Are your appraisals currently over-evaluated in Denver?

Should I buy now or wait (currently in Denver)?

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