Thoughts on first rental new construction, Denver

[Jim Frederick]

Hey all, 

Long time lurker.  Wanted to run this scenario past you professionals.   I purchased a single family home, 4 bed 2 bath, about ~18 months ago.  It's new construction in Broomfield Colorado, which is in the Front Range of Colorado, about 20 minutes from Boulder and mountain access.   Paid 462,000 w/ 10% down payment. It's the cheapest model home available in our development. 

The same model house across the street just sold for $488,000 which I was pleased to see.  It's appreciating nicely which is typical for this area as it's pretty close to the mountains and Boulder County.  

I would like to turn this house into a rental and would love some input on the numbers. Current Mortgage w/ PMI is about $2500 per month. Comparable rentals in the area are around $2700 netting us about 200 per month. With current appreciation I would hope to be able to drop the mortgage insurance in about 2-3 years once we hit 20% equity which would increase our monthly cash flow by another 250 dollars.

It's new construction.  Nothing to fix or replace hopefully on the horizon and the home has a 10 year structural warranty.  We would extremely careful with tenant selection.  It's a fairly expensive place to live which I hope translate into a renter pool of mostly professionals.  We are relatively recession proof too as it's a pretty desirable area.    

Would love some input on these numbers and anything I am not considering or being realistic about. Thanks!

[Chris Lopez]

@Jim Frederick Move out, convert it to a rental and buy another place. Then repeat as many times as possible to build your rental portfolio. Yes, cash flow is tight, but remember, you got to buy a place with little money down and you're getting a great interest rate! 

It's my favorite strategy because it's simple to execute and succeed in. 

Yes, you do have risk due to tight cash flow. My recommendation is to hold 6 months of PITI in reserves for each property. As long as you hold to the properties in the long term, you'll build your wealth and retirement.

I've got some impressive modeling numbers, I'll send it over.