Advice for first-time house hack in Denver

[Rafi Barash]

Looking to get my first property in Denver by doing a house hack. Considering townhomes and multi-family but most likely looking to do a single family rent-by-room house hack since I'm single and in mid 20s.

Thinking something along the lines of:

- 550-750k spot with 75-115k down payment at 7.6% APR

- Ideally 4-5 bed, 3-4 bath where I could occupy basement room and rent 3 other rooms for ~1k each

- Looking at following areas (open to others): Wheat Ridge, Lakewood, Sloan's Lake, Berkeley, Sunnyside

I was specifically wondering what y'all think about the following but would appreciate any advice :)

- What areas near Denver are best for SFH house hack?

- 550-750k is a big range, thoughts on going with lower price further outside Denver (ex: Lakewood or Arvada) or higher price in more desirable area (ex: Sloan's Lake)

- Should I be more open to multi-family / townhome?

- Should I put closer to 20% down or leverage more with 10-15% down?

Thanks in advance for any and all advice :)

[Jeff White]

@Rafi Barash  Congrats on taking the first step, usually people get hung up on too many strategies, and the best way to start your real estate investing journey is house hacking, especially right after college. 

I think that is very impressive that you have 75-115k saved up to invest in your first property. That's amazing place to start.

I'm a local investor and realtor here in Denver metro, and I've found success with house hacking here in Denver for myself (rent by room, Airbnb, Section 8, LTRs, etc) along with my clients too. It is that powerful of strategy that speeds up your time towards financial independence much faster than any other strategy!

Currently, there are a few ways to house hack in the Denver metro area and still live for free depending on your level of comfort.

1) Rent by Room - personally, my favorite strategy, you buy a large house, live in one room, and rent out the other rooms. This strategy is very effective, especially on houses with lots of parking and houses with lots of bedrooms and bathrooms in areas near the popular locations around town. 

Realistically, you can get $750-900 per room that shares a bathroom, and $900-1100 per room that has a private bathroom. If you do the math, when you get to 6+ bedroom houses, the numbers work out better with living for free and also cash flowing while living there. My last two clients closed on houses that became 8 bedrooms rent by room house hacks that cash flow, so it is possible in this market. 

2) STR - Short-term rentals or Airbnb. This strategy is great, but it fluctuates depending on the time of year, you probably won't live for free because it is more challenging since you are only Airbnbing a small space or basement unit.

3) MTR - this is a good in between style of creative strategies since you can furnish a place nicely that would rent out on Airbnb but you want a long-term high quality tenant like a travel nurse or corporate rental that stay for 2-3 months vs. under 30 days for most Airbnbs.

Combining strategies is the best way to go, ideally, you would find a house with a separate entrance or walkout basement, live upstairs in the one of the bedrooms, rent out the other upstairs rooms and STR/MTR/LTR the bottom unit. You get the best of both worlds, and would easily live for free and probably cash flow, even with a 7% interest rate.

What are your short-term and long-term goals?  Do you want to add value? Do you want cash flow? Do you want higher appreciation? A little bit of both?

Personally, I don't recommend starting with properties with HOAs since HOAs can restrict your ability to house hack it with different strategies, and they can even restrict your lease from being under one year. 

Here's my answers to your questions:

1) It depends on your goals, some investors want more privacy, so they understand they won't get the same cash flow as someone that wants to rent out all the bedrooms and live in the smallest rooms. On the other side, some investors prefer great locations closer to work or closer to things that they desire (bars, restaurants, parks, etc), and they understand they won't cash flow as much due to the higher purchase price for those areas. So, it goes back to your goals...do you want more cash flow?  Do you want more appreciation?  Better area?  There are lots of areas that still work great.

2) I would stay away from multifamily properties for beginning investors due to high purchase prices for multis and high maintenance/deferred maintenance as well. They aren't good for investors that are looking to house hack in Denver metro because of those reasons. 

For townhomes, those usually have HOAs, and with HOAs, it can be an issue too since you can't control if the HOA changes policies on short-term rentals, lease lengths, etc, so HOAs can be your worst nightmare even if they appear good today.

3) It depends again, do you want higher cash flow? Do you want to live close to Sloan's Lake and put a little more down to make the numbers work?  There are plenty of areas close to the popular areas that work just fine where you don't need to put so much down. 

Hope this helps!  I'm very passionate about house hacking, and I think it is the best strategy for any investor just starting out from college since you have the flexibility. Let me know if you would like to connect, it is a great time to buy in Q4 2023 since your competition isn't nearly as intense, and you can get a better deal now than you will in Q1 2024.