Denver Market Softening/Retreat

[Mike Stephens]

Hello,

So one thing to get out of the way from the start: the purpose of this post is NOT to debate whether or not there will be a softening in the Denver market. There are plenty of other posts on whether Denver is in a bubble that have been posted the last year or so. I'm happy to post separately on my thoughts there. 

What I am curious on, is for those of you that are in the same place I am, which is firmly believing that the Denver housing market is overpriced, and is due for a flattening out after next year, and in some areas, like small multi-family is actually heading for a price retreat over in the next few years, what are your next moves? I've had a few offers on a duplex in Jefferson Park that I own, that are just ridiculous. Purchased at those prices, these "investors" would be just barely covering expenses, and definitely in the red if they were properly allocating for cap ex.

So what are you all doing? Selling? Just not buying? Buying out of state?  What are your 1-2 year plans.

Thanks,
Mike

[Bill S.]

@Mike Stephens I too own in Jefferson Park but don't agree with your assessment of the market. Here is what I am doing. I am not selling. From what I have seen over the years, real wealth is built through the long term ownership of real estate. Getting in and out of the market is expensive. Taxes and real estate commissions take a bite. If I sell and do a 1031 I am either trading out here in Denver or going somewhere else. I've not sold and here is why. Relatively speaking the trend in real estate is in the same direction. Sure you can get more cashflow in some markets but compared to what cash flow was in 2010 coupled with the prospects of growth in the future I don't see a compelling argument to move unless I shift my investing priorities. The question I ask myself, "Would I rather own my property in Jefferson Park in 40 years or somewhere else?" I can't think a better place to own. Now I'm sure smarter people will do better than me by trading up and making sure their equity is generating proper returns etc. I'm a pretty simple guy and base my investing on my grandfather's advise. Are you making money? Yes, then it's good, don't get greedy. 

Am I buying. Yes and at full market price but with 100% owner financing (low out of pocket expenses). Personally I have stepped away from the BRRRR because I don't have the time to undertake the work of a typical BRRRR that I have bought in the past. I have plenty of cash flow to cover a correction and I think that any possible correction in the SFR market here is at least a year or two away. I limit it to 1-2 yrs because projecting beyond that is guessing in IMO.

People have been calling for bubble or correction in Denver for the past 3 years at least. Sooner or later we will at least get a correction but we don't know when nor how much. Had I stopped doing deals 3 years ago, I would have missed out on 30% appreciation in value and about 15% in rent growth. Not to mention the historically low interest rates. My 1-2 year plan is to continue buying property here. If I found a good deal (my definition) in Jefferson park, I would buy in a heart beat. Shoot I'll buy your place at your price if you do a wrap mortgage and the payment will be covered by current rents. Not trying to make a deal, just trying to make a point.

Happy investing.