Appreciation play in Highlands Ranch, CO

[Shawn Loftis]

I own a home in the Firelight subdivision in Highlands Ranch, CO.  My wife and I are planning on moving closer to the DTC within the year (Centennial or Aurora).

The house is approximately worth 400k - rents (best guess) around 2300 - 2500 / month. We would pull money out as owner occupied to get down payment on new place so assume 320k would be financed around 4%. I'm assuming insurance would be $100 more per money for rental. PITI 2k per month. Assuming 3k vacancy and 6k capex / maintenance per year.

I would be coming out of pocket 3k -5k / per year on average.  

House has 2 year old appliances - painted 2 years ago - new roof / gutters this year.  Will need AC unit ($3.7k) - water heater ($2k) sometime soon - Carpet is end of life - would replace after 2 or 4 years of rental ($6k).

I know this isn't a deal you would buy for a buy and hold because it is most likely an alligator and the transaction costs would be a killer.  I've already bought and already have the transaction costs regardless. 

I would like to get feedback on potential vacancy rates on the higher end of the market.  This is my biggest concern.  If it doesn't rent out June - August is there still a market for it? I would guess 98%+ of homes in this area are owner occupied and most people would rather buy then rent.

I would basically be speculating that there is 15% more market appreciation in the next 3 years before it levels off and I would be paying 9-15k for $60k potential on the back end.    

Is that too thin for the risk?  

Thoughts and feedback welcome - Thanks

[Travis Sperr]

Not a play I would make. Take your cash and put it into property that will cash flow.

I never buy on appreciation, you are betting on the next three years - but if you hold it any longer you will lose your capital gains exemption not meeting 2 of the last 5 years rule.

I just bought a property earlier this month in Denver on the MLS that will gross cash-flow $800 a month with 25% down - I share that because "there are no deals in Denver".

You close with $60k in potential on the backend -minus- 3-5k negative each year, higher costs to sell, (although minimal) potential rehab to resell. Of course the biggest unkown - what the market will do.

You might make some money on the deal - but I would rather park it in better deals for longer term hold.