New in Denver metro area

[Jesse Beckman]

Hi everyone, I am a longtime lurker and first-time poster who just got pre-approved for his first mortgage!

I have been trying to get a feel for what this area is like with the real estate, but can't make a decision on what I should buy. I would love to get a duplex, but it seems to me that it's a small inventory right now, causing prices to fly up. I have been looking at Denver and the surrounding areas trying to find the best place for buy-and-hold properties. Does anybody have any advice or experience on this area? Any advice would be greatly appreciated!

[Jon Holdman]

No way are you truly getting $300 in cash flow from a property you paid $170K for from $1500 in rent. Your "phoney cash flow" might be $300. By phoney cash flow I mean rent - PITI. But as soon as you have other expenses that will be greatly reduced. Here's how I would evaluate that deal:

Price: $170,000

Down: $34,000

Payment: $815 (P&I only, 6% 3 years)

Rent: $1500

Capital, expenses, vacancy: $750

NOI: $750

Cash flow: -$65 a month

Now, if you manage yourself you can earn the PM's cut.  That would make your cash flow something like $144 a month.

A deal like that might be OK as a speculative play, hoping for future rent increases or appreciation.  But it only produces cash flow in the good months.  When you have an hiccup, and you will, it will suck cash out of your pocket.