It seems like every other day someone posts to the forums talking about Denver or surrounding front range cities here in CO and how "Red-Hot" and "crazy" the market is.

I remember that was said in 2013, when I first thought about investing here.

They said it in 2014 when I bought my first property.

They said it all throughout 2015 as that property appreciated.

They are saying it today in 2016 as I bought another.

Now, if you listen to all this market chatter, I was a fool in 2013 for thinking about buying into a hot market. I was a fool for buying in that hot market, and I'm a fool for having kept it so long.

The problem is that I made a ton of money on that purchase, and I continue to profit from it with each passing month. I am profiting on my recent purchase as well.

So am I a fool? Perhaps. Perhaps, after I write this, the market will come crashing down, and I will lose everything I've invested. Or, perhaps the market explodes to even greater heights for the next decade, never slowing as Americans uproot and continue moving to my city. I don't know what the future will bring.

But so what if I didn't get great cash flow when I bought? - Rents have gone up, and I've gotten better at managing the properties! So what if I don't have great cash flow on my recent acquisition? It could be that rents go up another 10-15% next year and all the sudden my cash flow is excellent.

The point I'm trying to make here is that no longer is it useful for folks to say things like "The Market is Red-Hot" or "The Market is Crazy here in Denver!"

Sorry folks - it's been this way for years. The market is normal right now. Appreciation has been steady at 10-12% per year. It's foolish to think the party is over, and it's foolish to bank on it continuing. This seems great for me, because I get to buy foolishly, and it's no different an outcome than if I were smart.

The way I see it, folks considering markets like Denver have two choices -

One, be a fool and buy into this market, knowing that you can get better immediate cash flow in other cities, and that the only way you come out ahead is if appreciation continues.

Two, be a fool and fail to invest at all or invest in a city that has far lower prospects, but far superior present day cash flow opportunities.

Who is the greater fool? I honestly don't know. Real estate investors love math, don't we? We love models with predictable, consistent, repeatable results. That makes Denver/Boulder/Ft Collins/CO Springs an anomaly. You can't predict what's going to happen next in our market. You can't predict appreciation as reliably as you can predict cash flow.

But I think it's fair to say that dollar for dollar, the folks that invested 5 years ago in Denver are doing a little better than the folks that invested in the midwest, both in equity and present day cash flow (midwest folks - feel free to challenge that point!).

The point is - don't listen to anyone telling you that the market is peaking, and don't listen to anyone that is telling you that it's going to keep going up. And, in my opinion, while it's foolish to depend on appreciation to drive your real estate business forward, it's equally foolish not to hope for appreciation and buy the slightly nicer property in the spot with much better prospects.

So what should you do in a hot market like this one? Some folks will tell you to time the market. I don't think I'm smart enough to do that. All I can do then is the good old "dollar cost averaging" and buy properties consistently every 12-18 months, and ride the long-term prospects of this city. Perhaps I'll keep winning on purchases over the next few years, and perhaps the market comes crashing down and offering me some new deals.

We'll just have to wait and see.

Scott Trench

Podcast Guest on Show #223