Advice: Sell in Colorado, buy in OH?

Question

Hello Everyone, I’m looking for some advice. I’m a new Investor looking to get into the game. I’ve been researching and educating myself for a couple years while saving, paying down debt, and getting in a good position to be an Invester. I have two current routes for entry that I  considering. My wife and I bought a house in 2015 in Denver-metro suburbs for $269k. Through forced appreciation and market appreciation we could sell it right now for between $375-399k. If we sold, I would get access to my VA loan again where we could buy a new home that better fits my family’s needs in the $550k range. With the sale we could potentially make $100k which I don’t have to put into the new purchase because of VA loan, and I could potentially buy, Reno, hold, and rent 2 properties in a market like Columbus, OH. Final assests could be worth $150k each? OR, we keep our CO home, rent it out for around $22oo/month, and buy our new home with refinance plus a separate down payment. Our long term goal is to buy and hold/rent so our first asset is already worth $400k. Not sure about what route to take and would love advice.

Phillip Bicker · Answer

@Matthew Cook

If you are looking at a buy and hold investment, I do not think it makes sense to rent out your current home. You are renting a $375-399k property for $2,200 and you could get a much better return on your money if you invested in a property better suited for rentals. For example you could move this money to the Springs and get a 4plex around $400-425k and get about $3400 in rent or you could move the rental to an area like Columbus that you mentioned and attain the 1% rule (rents of at least 1% of the price of the home).

You are in a great position to take advantage of your VA benefits buy taking the profit out of your current home and using that to invest in new properties (by buying your new property at 100% LTV).

Good luck!

Chris Lopez · Answer

@Matthew Cook - I don't think Denver is "over-inflated." The market has dictated what prices are worth. This isn't like 15 years ago where people got loans like candy.  Is it harder to cash-flow, absolutely! If you're a buy and hold for the long term, keep in mind the long term. I'm focusing on buying in places that are growing and that people want to move to. Seeing properties in the mid-west sell for the same today that they did 20 years ago,  scares me... the underlying asset has not kept up with inflation. That's a deal breaker for me.

Denver is hot right now, but I think properties (and rents) will be worth a lot more in 30 years. Not just in Denver, all across the Front Range. I found this article a few days ago: http://www.jll.com/cities-research/City-MomentumDenver is associated with some big time cities! I want to make sure I can still sell or rent my properties in 30 years.If you do buy out of state, talk with many investors first. I've heard many horror stories that involve high vacancy and unexpected plane flights across the countrty...

Chris Lopez · Answer

@Matthew Cook

Not worth those prices? I disagree. So do the multiple willing and able buyers buying at the price (plus bank appraisers approving it)... it's worth it then. The market dictated the price and trumps your opinion.

Personally, I wouldn't spend too much time focusing on what might happen and trying to predict the prices and market. It didn't work well for me when I did stock trading, so I'm not attempting it with real estate. When I have enough cash/equity, I'll buy AND very healthy reserves. My concern is hitting a speedbump and losing properties due to a cash crunch.

Run different scenarios:

• Continue to live there, pull out cash to invest
•  Sell, buy a new place, and use the difference in cash to invest
• Move out, keep it as a rental, and buy a new place.

Crunch all the numbers in detail and see what works best for you.

Matt M. · Answer

I live in Westminster, and I would say, like anywhere, it's neighborhood specific. We bought our home for about the same price in 2013. It's worth $450k now, but once it hits $500k, I think that is the max for our neighborhood. But the next two neighborhoods over have an HOA, are a bit nicer, and are a bit more, but their ceiling should be a decent amount higher.

It comes down to what you can qualify for on the investment side. Is it 1,2, or 3+ properties you can parlay into and still qualify for something here? You'll have to speak to a lender to find out. Once you do that, then you can gameplan.

Matthew Cook · Answer

Thank you everyone for the valuable comments. @Chris Lopez I think you make some valuable points. I just have a really hard time seeing my current home appreciating a lot more. We bought in 2016 for $265k, right now without a new appraisal the home is valued from the bank at $365k. We've put in a lot of sweat equity so we are hopping to sell for closer to $399-$415k. Is it even foreseeable that this home in Westminster(suburb of Denver) could appreciate much more than that to say$499k making it worth holding onto and renting.? To me that seems insane because I know the market is hot, but these homes are not worth these prices. (IF) I sold for $399k, I get my VA loan back to buy our next family home with, and I get $135k to play with in the single or multifamily arena in the midwest. It's definitely a toss up because I want to have a solid long term portfolio, but that cash at the beginning of my investing career will really give me some leverage and options.

Jennifer Ward · Answer

@Matthew Cook I see we are in nearby neighborhoods.  My husband and I have two rental properties in Denver and we house hack our home in Arvada through Airbnb.  We just put one of our rental properties on the market with the intention to invest around Indianapolis and other Midwest cities.  Feel free to reach out.

Sunny D. · Answer

if you still expect appreciation over next 3 yrs, i would rent your home and sell it afrer 3 yrs so you are still in window where you dont need to pay federal taxes on capital gains. If you expect home to be 500k at end of 3 yrs nothing will beat that return compared to the meagre cashflow you will get midwest after taxes, maintainence, property mgmt, water bills etc. when you are local you save on PM costs.

Frankie Woods · Answer

I would take a HELOC out on your primary before you move.  You should be able to get 90% LTV as a Primary.  Then, pour those funds into your new home.  I would recommend, as others have, to buy an MFR.  That way you can get a return on the money you pull out.  By doing this, you keep the ROI on your current house "about the same or better (obviously you have to buy right and get the right HELOC product.  The one I found from US Bank was 6% interest)" by utilizing the HELOC if  done right.  This is the strategy I'm about to employ.  My VA is also tied up on two properties that I didn't HELOC.  However, they are in CA, and I'm hesitant to sell due to the potential of continued appreciation.  I

This strategy might be for everyone.  I am diversifed and also have properties in the Midwest.  In my current experience, my SFRs in appreciating markets have performed MUCH better than those paper cash flows in the midwest.  This could just be an error on my part, but its what I'm experiencing.

I feel like the HELOC strategy can give you the best of both worlds of attaining cashflow while being in a position to take advantage of potential future appreciation (though this is speculating, it's educated speculating).  Just my $.02.  Happy investing.

James Carlson · Answer

@Matthew Cook

Nothing that crazy new to add. I would just say that it's really about what your goals are. Are you chasing cash flow right now? Or are you more about the buy and hold, potential appreciation? I'm still bullish on Colorado's long-term potential. Too many people are moving here. Not enough housing being built. Simply supply and demand says price growth will remain good for a good amount of time. (Not to mention the "gut" factor, which tells me that there are so many cool areas with so much cool stuff to do that is all bringing coastal money to a place they still consider relatively inexpensive.)

Advice: Sell in Colorado, buy in OH?

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