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Updated about 6 years ago on . Most recent reply
Boulder Calc Review Help Me Analyze This Colorado BRRRR Deal
*This link comes directly from our calculators, based on information input by the member who posted.
Looking to relocate to Denver/Boulder in 3-5 years with my fiance by transitioning 100% from my W-2 to full-time REI. I'm slowly building properties in Kansas City my hometown while living in Los Angeles while also looking for a house in Boulder, CO. Not interesting in house hacking out of the gate in Boulder.
Looking to BRRRR in the next few years in Boulder knowing in the short-term I'll lose money, but in the long range have a house set up to live in once we move. At least that's the plan in my head.
Plugging some numbers in here's what I'm thinking about:
House is less than a block from CU's campus. 2 blocks from Pearl Street. (This is a real property I'm looking at)
$650,000 - Purchase price
2BR 1Bath
877sqft
$150,000 - Construction rehab loan
$15,000 - Closing costs
$800,000 - TOTAL
5,500sqft lot/1.3acres
CONSTRUCTION:
- Add 1x bedroom w/ closet ground floor w/ bathroom
- Add second-floor master bed & bath
- Add loft/office area
House would be a 4BR 3 Bath when construction is complete.
ARV $1,450,000
2636sqft at $550/sqft.
Rents would be between $4400 - $4700/month.
How insanely illogical is this idea?
Most Popular Reply
@Michael Glaser, you got some good info from @Rocco Montana , but let me give you a more accurate view of rehabbing in Boulder.
It will take you 1,000 years to get a permit.
Boulder does not need your increased tax dollars, they don't want any change to their city, and they drag their feet forever to not only give permission but also to approve anything.
If you do not have 1,000 years to patiently wait for a permit to be approved (almost a sure bet you miss something on the original and it gets denied at least once) then do not buy in Boulder.
Come to Longmont, where it will take you 20-30 minutes to get to Boulder, but our permit office WANTS you to improve the city, and our inspectors want you to pass - as long as you are following the building code.
Michael,
Buying for location and improving the property is always a good idea. From your numbers, looks like a great idea.
A few things I'd confirm during due diligence:
1) Your lot is really 1.3 acres (you list 5,500 sf, which = 0.13 acres). Just so you evaluate what it really is.
2) You can expand according to your plan. Municipalities put up tons of regulation to make this hard. Check with the local experts.
3) Your finished product would support the ARV. Are there $1.45M / $550/sf houses in the neighborhood?
4) Triple check your construction estimates. $150k sounds light to add 1800sf and $800k in ARV.
Of course, you wouldn't want to rent a $1.45M house for only $4400 for very long, unless you're speculating further appreciation on a steep curve. Sounds like a flipper.
Good Luck!
Chris
@Michael Glaser Dosnt seem like a good financial move to me.
Why would you want to lose money on a rental for a few years, and then, when your ready to move into the property, have to fix 3 years of tenant abuse?
Wheres the win?
I live in Boulder, if you're talking about on University Hill, to move thirty with your family, you're definitely not in an area you want to be. Adding sqft could work or could be a nightmare with the city, as they tend to be.
Permitting will be long for a scope that large, be prepared to hold the property for 2-3 months work no work waiting for permits. Are you popping the top? You need to consider your height restrictions in Boulder regarding solar and views.
Do you have a ROCK SOLID construction crew that has operated in Boulder before? If not, hard pass.
I have flips in Fort Collins and Denver and been trying to find something that makes sense in Boulder for two years as I Live there and love it.
I work in construction in Boulder, and the construction costs seem low. For us, I don't think we could pull a pop-top off for less than $175/sf, and that's without remodeling the main floor. Also, if you're a couple blocks from campus AND from Pearl street, then that's a mostly student rental area and $4,400 seems high for a 4 bedroom, but it's been awhile since I was a renting college student, so I may be out of touch.
Boulder is a tough market to eke out a cashflow. I know some people kill it with specs homes, but there's a lot of speculation there and a high cost of entry. If you do take on a project like that, the Newlands might be a better neighborhood for it. Good luck with whatever you take on, and keep us up to date.
Michael,
I totally agree with the other comments regarding the construction costs and having a Rock Solid construction crew. One of the reasons I teach construction and believe in it so strongly, it is the single greatest factor that will destroy a project. Please research your numbers more closely with reputable contractors and make sure you get those prices in writing.
On a different note, you’re “all in” number is missing a few items which could make or break this deal in itself. What are your holding costs; insurance, utilities and your loan.
Once you are able to establish all of your real numbers then you would be able to analyze this deal. As it is, there are too many numbers which will not give you a good answer.
Good luck,
Sue Hough
I should start out by saying there's no good or ideal way to buy a property in one of the hottest markets that I don't reside that I have found thus far. I do keep an eye on it, but I don't have an agent anymore keeping tabs. As highly competitive as it is, it seems to me that a lot of houses are sold off the MLS. Buyers are plentiful and agents, I would assume, have a long line of buyers. Would love somebody's input on how they find deals in and around Pearl St & CU's campus. My thoughts below.
@Jason D. that's a very obvious point and factor in this. I totally agree. Do you pop the top, build a floor plan you want in the future and then put renter proof flooring, cabinets, paint, appliances, etc in and wait?
My thought is two-fold. (since I woke up from writing my original post late last night).
- One, this house has a back porch room that you could rent as a 3rd bedroom. I'll assume said room need new insulation on the walls and ceiling and probably new windows. Total cost $12K-15K. This could get the rent up to $2700. That's still way short to make this make sense, I agree. It does help if we hold it for appreciation.
-Two, we pop the top, make the house nice and try and get a family in the house at a higher rent near to $4400/month. That's probably too risky of a play, I agree @Teague Anderson
@Rocco Montana that's an excellent point about the proximity to beer bongs & late night party goers. In a perfect world, we would get permission to move along with permitting while in escrow. My brother-in-law works for a ROCK SOLID construction company so I'm hoping someone from his company would be able to give us a realistic timeline for permits, moreover costs. $150K is very light. I'm thinking more towards the $200 a sqft mark. I'm not trying to flip this house, but rather set up a property that we could later live in. 3-5 years from now money is going to be way more expensive my estimation. If I do choose to sell this house could appreciate another 25% if Boulder keeps rising. If we chose to renovate it we could have a good play to sell and take the profits into another house that might be in a better family neighborhood. The lot alone is worth $600K.
@Teague Anderson The $4400 rent is a bit high, I agree. Especially if we have to put the work into renovating it to get close to a $4400 renter. Let's say we held it for three years. We'd lose $1,400 a month. If the house appreciated 5% each year you'd have a house worth $752K. 5 years it's worth $829K. You'd be out $84K after 5 years and $50K after 3.
The broader question is...
If you desire to relocate to Boulder and live amongst the town, in town. How do you wisely play the market to work for you?
Some more realistic numbers:
| Purchase Price | $650,000 |
| % Downpayment | 25% |
| Interest Rate | 6.50% |
| Mortgage Term | 30 |
| Downpayment | $162,500 |
| Loan Amount | $487,500 |
| Yearly Principal+Interest | $36,975.98 |
| Monthly Payment | $3,081 |
| Expenses (Yearly) | $5,000.00 |
| Gas | |
| Electric | |
| Water | |
| Insurance | $2,000.00 |
| Taxes | $3,000.00 |
| Other | |
| Expenses (One Time Only) | $174,000.00 |
| Permitting | $50,000.00 |
| Design Fee | $20,000.00 |
| Real Estate Fee | $99,000.00 |
| Closing Costs | $5,000.00 |
| Other | |
| Square Footage | 3,000 |
| Sale Price Per Square Foot | $550.00 |
| Total Sale Price | $1,650,000.00 |
| Building Cost per Square Foot | $250.00 |
| Building Cost | $750,000.00 |
| Holding Period (Months) | 22 |
| Holding Period (Years) | 1.83 |
| Holding Costs | $250,955.96 |
| Payoff of Mortgage | $477,232.58 |
| Counstruction Loan Interest Rate | 10% |
| Construction Loan Prinicipal and Interest | $893,198.23 |
| Construction Loan Interest | $143,198.23 |
| Total Profit | $28,613.22 |
| ROI | 1.8% |
| Annualized ROI | 1.0% |
Interested to hear what you guys think of the above numbers.
Michael,
Some of your assumptions are based on the neighborhood turning into a family community. I don’t think that’s possible with the close proximity to college. It sounds like you might be getting very emotional about this opportunity. Based on your numbers it’s extremely risky, make your decision solely based from the numbers.
Good luck,
Sue Hough
@Sue Hough I'm under no fantasy that this neighborhood is going to turn. Seems to me over 50% of those lots are zoned for multifamily so I don't see that changing, ever. This thread, like many others, is to talk shop in the hopes to better strategize our longterm goal of moving to Boulder.
As for emotions, I always go with the numbers. The numbers for Boulder are far different than the numbers I'm used to for my SFH rentals in Kansas City where I currently invest. Thus, I'm after Boulder-based investors as well as other investors like yourself to scrutinize my thoughts & numbers.
This house I'm discussing was bought last month, Jan 19', for $500K. It's now listed at $685K. That house is a steal at $500K. This was probably a cash deal and the investor will make a cool $150K or so for just being in the right place with cash reserves.
The bigger question is how do you get a deal funnel in Boulder that would make you aware of sellers willing to take a cash offer at 70% of the properties value? If someone could answer that they probably wouldn't be posting on Bigger Pockets, ha!
@Michael Glaser, you got some good info from @Rocco Montana , but let me give you a more accurate view of rehabbing in Boulder.
It will take you 1,000 years to get a permit.
Boulder does not need your increased tax dollars, they don't want any change to their city, and they drag their feet forever to not only give permission but also to approve anything.
If you do not have 1,000 years to patiently wait for a permit to be approved (almost a sure bet you miss something on the original and it gets denied at least once) then do not buy in Boulder.
Come to Longmont, where it will take you 20-30 minutes to get to Boulder, but our permit office WANTS you to improve the city, and our inspectors want you to pass - as long as you are following the building code.
Did @Mindy Jensen just respond to one of my POSTS!!!? WOW!
From what I understand my bro-in-law works closely with the acquisition manager at his construction company. I would imagine they'd have a leg up on getting something pushed through in our 22-month holding/rehab period as listed above. As I type this I'm also cringing speaking way out of my league. Our end goal is to live in Boulder. It's not impossible, but I do feel like Llyod Christmas in Dumb & Dumber "... so you're say'n there's a chance!".
I looked at Longmont years ago and almost made an offer on a house with foundation cracks. It was the only thing I could find on the MLS that would come close to cash flowing. I stopped looking in 2016 and focused everything into KC.
Seems to me the only way to buy something in Boulder is to pay market price for what you want and have the four walls there to remodel within them. Does this sound correct?
That sounds correct to me, however I stand by my original estimate of 1,000 years for approval.
My parents live in an RV and travel around the country, building and remodeling churches. There was a project in Boulder County (not even in the city of Boulder) that eventually was scrapped because the delays were too much.
Look at Longmont again.
@Michael Glaser in addition to what others have said. Bad area for the sale of a $1.4M home. You have no exit, ever. Boulder has strict rental laws as well, so scratch the idea of adding a third bedroom using the back porch and renting it out. You would need to add a heat source in it if you did by some miracle get the work approved.
The way to get off market properties is to market for them. My advise is to identify your ideal subdivision or two or three, buy a list and start mailing. Make your letter very personal and targeted. It's quite likely sometime in the next few years someone will call you with the opportunity your are looking for (keep in mind that a 6% commission is a big chunk of change on a $600K home so there is some incentive for folks to reach out to you). Be careful how you handle them because neighbors talk you don't want them saying you are only lowballing them to their neighbors.
Another consideration (sorry to pile on the bad news), is that the market here is very hot anything sub $700k going up to about $1M, because that's still considered entry level. Once you get into luxury range, which for here starts just below where you're talking about with your ARV being $1.45M, it's not nearly as strong a seller's market. To fetch $1.45M you'd have to have extremely top-end finishes, at least 3-4 beds, garage, flatiron views, good location (which "The Hill" is definitely not, you do not want to be there with a family unless farther over on the Chataqua side or over Rose Hill way, anything 1 block from CU will be student housing). To compete in the $1.45M range you're talking $300-350/ft2 construction cost, not exaggerating. You need to be looking more in the Whittier/Newlands/North Boulder area for your plan, but you likely won't find anything near that price in those areas unless its a total scrape. You will probably need to go more distal like Gunbarrel (maybe, also getting expensive) or out east to the L towns Lafayette or Longmont (Louisville already too expensive).
Mindy is not exaggerating on 1,000 years to get a permit (okay, she's slightly exaggerating). Rentals are required to comply with the rental housing license program which means inspections which means you can't just make a porch into a bedroom without approval (you may be able to get away with it for a while but the enforcement division is real and the fines are too). Popping the top or adding anything beyond 500ft2 means going through the dreaded "site plan review" process which is based on the LEED points program/ IGCC (green construction code) and you'll end up spending a fortune on insulation, solar, high E windows and appliances, etc. You may have to comply with the new "smartregs" program which means many of these same efficiency upgrades just to get your rental license. Boulder is a great place but you've got to be on your A game here. I guess they figure since we have the highest percentage of residents with PHDs in the country we all must have the requisite PHD required in order to navigate the maze of regulations.
Longmont is really up and coming; the SW side closest to Boulder is really nice and has good schools, quick access to trails, etc. Longmont has many of the advantages that Boulder has but property is still relatively reasonable by comparison. Lots of good stuff planned for Longmont so long term I think there's a lot of potential. Demographic is shifting with a lot of young families ending up there; bike paths going in, breweries galore, more and more good restaurants opening, etc. plus Boulder is only 15-20min away. Just avoid the NE end of town, generally speaking of course. It will likely be "transitional"/stabby up that way for a while, although there are some nice pockets up that direction which are totally fine right now. Lafayette is also up and coming, Erie too.
I think you should abandon this plan because the location is not right for what you want to do. Comps in that area do not support an ARV of $1.45M. Also there's no way a 1.3 acre lot exists near where you're talking at that price, so it must be 0.13 acres. A 1.3 acre lot that close to CU and downtown would be closer to $5M.
Keep looking around. You mentioned Denver was an option, and you'll have a lot more to choose from down that way (I like Golden a lot regarding Denver suburbs). Good luck!