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Updated over 3 years ago on . Most recent reply

User Stats

45
Posts
20
Votes
Andrew Dincola
  • Flipper/Rehabber
  • Denver, CO
20
Votes |
45
Posts

Newbie- Buy and hold in Denver or out-of-state?

Andrew Dincola
  • Flipper/Rehabber
  • Denver, CO
Posted

Hey BP!

I’d love to hear what successes or failures you’re having in quickly building your portfolio with cash flowing buy and holds in these expensive Denver and surrounding Colorado markets? I’m looking to determine if my next step is to build here or look out of town or out of state.

Here are my goals:

• Create $3000/mo in cash flow.

• I plan to do this before I turn 33 (in Oct. 2026- in 5 years)

• If I average $150/mo per property I will need to acquire 20 properties to hit my $3k goal

• This means I need to purchase 4 properties a year

• I'd like to do this using some form of the BRRRR strategy

Some information about me:

• I live in this market

• I co-own two properties with my sister, both of which we live in respectively. (We’re each only on 1 mortgage but her husband is on mine, too)

• I’m renting rooms at my house (girlfriend in my room, tenant in another) but without a positive cash flow.

• I’m going to be looking to buy a duplex I can house hack, and will likely sell the house I’m in (I should get around $50k free from capital gains from the split)

• I have experience in rehabbing and am currently assisting the management of flips for a fellow investor and potential future partner, but I’m currently just billing for labor as a sub- AKA w9 income that won’t be 2 years old until 2023 (3 years from my goal deadline)

• My DTI isn't currently great but I'm actively pushing to increase my income

• My personal credit is above 720

• Needless to say, I’m a newbie

The next step (besides confirming my market) is calling every bank I can to see who can help me pull off a BRRRR, because the dilemma I'm getting caught on is, after I rehab a property, how I will be able to qualify for the refinance in order to hold it.

Which is where my question comes in: Should I be dedicating my energy to starting out and building my portfolio where it is either so expensive or so tricky to build? Whether that means finding ways to prove my flipping income (and more importantly pushing hard to bring that income way up), learning more about and mastering a niche like seller financing, or partnering with someone who is better qualified and doing something along the lines of 40 properties instead of 20… etc?

OR should I put more energy into building a portfolio in a market somewhere else as a long-distance investor?

What strategies are working here for you?

I appreciate you reading this far. Thanks in advance!

Andrew

Most Popular Reply

User Stats

337
Posts
331
Votes
Ben Rhodin
  • Realtor
  • Denver, CO
331
Votes |
337
Posts
Ben Rhodin
  • Realtor
  • Denver, CO
Replied

HI @Andrew Dincola! You are a ways ahead of being a newbie I would say. Though you may be a newbie in property count, you definitely have a defined vision and goal that you want to achieve! This is the #1 thing I suggest anyone tackle before getting into investing. Now it is just figuring out how to best achieve this goal of $3k a month for you.

I agree with what David said above me, but I believe you can get to the goal that you have in mind sooner, and easier than you believe. If FI is your goal, and you want to achieve this ASAP, I would suggest you continue house hacking here in Denver each and every year. If you are not worried about loosing some comfort, I would suggest sticking to rent by the room, and really supercharge your FI.

If you qualify for a traditional mortgage, and you are able to acquire a 5-6 bedroom home here in the Denver area for between 450-500k (with the current prices of homes) then by renting out the other 4-5 rooms that you and the GF don't  occupy, you will be able to live for free, and producing cashflow. An average room in Denver goes for about $700 a month (some for more) so if you rent 4-5 you'll be looking at around 2800-3500 a month in rental income (while you live there, adding 700 when you move out). It is not unheard of for my clients to be making $1000 on top of their mortgage while they occupy the home, and are living for free. So with that you would just need to buy one of these properties every year for the next 3 years and you'll hit your goal. 

But remember, you are also living for free, and can accelerate your savings rate. So the way I suggest people strategize is after they get into their first house hack, begin saving for the next DP (about 25k for an average home here), then when you have that saved the rest of the year you can put the extra savings towards other investments like out of state. If you can purchase 1 house hack, and 1 out of state  investment each year that would get you to your goal in no time (relatively speaking). 

I would agree that you should keep your current place, if its able to cashflow as a rental, and you may be able to pull out the equity in other ways. But if you need to sell off that property in order to get into a more optimized property (whether because you can't qualify or whatever the reason), then I would say go for it. I would also say that while the small multifamily is the traditional way to go for a house hack, it is not the best way here in Denver. Our small multifamily properties tend to be old, torn, and over priced, there are other ways to achieve the multifamily feel of a house hack, without paying that high price tag. Say renting out a finished basement unit in a single-family.


Finally, as I realize I've been ranting for a while now. While the BRRRR strategy is great, and everyone wants to utilize it, it does come with the some drawbacks. The biggest one you already pointed out... If you are BRRRing then you sacrifice cashflow in order to pull your money back out, so you need more properties in order to achieve the same amount of cashflow. The other issue is that BRRRR is usually more suited for lower price areas, like the mid west, as adding 20% in value is much easier on a 50k property, than it is on a 500k property. So unless you get really good at finding off market properties here in Denver, a full BRRRR is probably going to be tough. But if you change your mindset, and are up for sacrificing some short term comfort for long term gain you can very quickly achieve your goal without having to acquire 20 properties.

There are also multitudes of other house hack strategies that work well here, and I'm more than happy to help you find the best pass to your goal!

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