Colorado LTR vs MTR cashflow

[Kyle Allen]

I’m new to real estate and I live in Denver. I’m interested in getting my first rental property somewhere in Denver metro so I could self manage the property and increase my cashflow. 

The issue I’ve found when analyzing LTR properties with BP Rental property and Rent calculator is my cashflow is negative (I’m using calculations based on numbers outlined in the BP Rental property webinar). 

Either there is a secret everyone else knows or LTR in Denver simply won’t cashflow with the current market prices and interest rates. If I want more cashflow should I be considering MTR in Denver, LTR in cheaper out of state markets, or another option I’m unaware of? 

[Zachary Deal]

How much is the down payment? I know with the prices in the Denver area skyrocketing, the rental rates have not exactly caught up making it difficult to cash flow. You may consider looking in the far outer Denver area suburbs or if you're comfortable investing out of state (if you're Denver based), consider going that route. 

If you want to get into the market for the appreciation play and are willing to negatively cash flow a bit you could consider a negative DSCR loan.

[Kyle Allen]

Quote from @Zachary Deal:

How much is the down payment? I know with the prices in the Denver area skyrocketing, the rental rates have not exactly caught up making it difficult to cash flow. You may consider looking in the far outer Denver area suburbs or if you're comfortable investing out of state (if you're Denver based), consider going that route. 

If you want to get into the market for the appreciation play and are willing to negatively cash flow a bit you could consider a negative DSCR loan.

I’m still very new so my decision would be based on factors that aren’t concrete yet (I.e. my goals) therefore long distance REI isn’t off the table. I’m just not sure if my first REI should tie up my money in a long term asset (appreciation) vs investing in a quicker ROI (fix&flip, BRRRR, wholesale, or simply cashflow)

The typical down payment in Denver metro for single family is around 80k (which I don’t have in liquidity). 

[Jeremy Jareckyj]

Quote from @Kyle Allen:

I’m new to real estate and I live in Denver. I’m interested in getting my first rental property somewhere in Denver metro so I could self manage the property and increase my cashflow. 

The issue I’ve found when analyzing LTR properties with BP Rental property and Rent calculator is my cashflow is negative (I’m using calculations based on numbers outlined in the BP Rental property webinar). 

Either there is a secret everyone else knows or LTR in Denver simply won’t cashflow with the current market prices and interest rates. If I want more cashflow should I be considering MTR in Denver, LTR in cheaper out of state markets, or another option I’m unaware of? 

 I do know it is getting tougher and tougher to find cash flowing , especially in expensive markets. 

Would you be interested in a house hack type of property? that way you can utilize a lower downpayment and potentially rent by the room? that my be your best bet to start with

[Kevin Smith]

@Kyle Allen

You're not wrong.  Without a large down payment, cash flow can be tough to find with a traditional rental right now.  You'll find that many investors in our area are opting for house hacking or MTRs.

Is house hacking an option for you?  This would require a lower down payment, and after a year, you could move on to another property.  If having roommates is not an option, you could still utilize this strategy with a small multi-family property.

Alternatively, a 2BD MTR might be the sweet spot for you.  These can do quite well in the Denver area if well furnished and marketed appropriately.  If you go this route, you'll want to make sure you budget for furnishings.

Some folks are venturing down to Pueblo if they want to go the LTR route, but in that case, you may not want to self-manage given the distance.

Finally, while it's understandable that you don't want to be losing money every month, don't lose sight of the long term gains from appreciation.  Many investors who focus too much on cash flow find they end up with properties that don't offer as much appreciation and give them too many headaches.

[Zachary Deal]

@Kevin Smith Hit some great points! The appreciate play is an underrated component that people who are waiting to get into the market until rates drop more may be missing out on. 

I would be hesitant to flip out of state or some place that is very far from where you live. Lenders will want to know you have a game plan for monitoring a project and being on site frequently especially when it is your first time.

[Jim Victor]

Finding cash flow in Denver is going to be very hard without making a massive down payment or house hacking, which would be GREAT if you can do that effectively.  I think the trick to Denver for most people is to buy something you can afford, grow your W-2 income over time, and turn your primaries into rentals whenever it makes sense to do that, rinse and repeat until death.  When you get appreciation here it tends to be appreciation on steroids, so big jumps in net worth to start growing your portfolio.  Never sell anything, just play the long game.  Get rich slow.

[Eric DeNardo]

@Kyle Allen

There's no secret. It's challenging to cash flow in Denver. You have to find a really good underpriced deal. Or be creative with seller financing, subto, Rent-by-the-room, or something else. Otherwise, you're more in an appreciation market where your value comes as prices continue to rise in the metro area. 

Would love to chat more if you have additional questions!

[Bill S.]

@Kyle Allen I think probably the best approach to real estate investing here in Denver right now is a live-in flip with house hacking on top of that. You might be surprised at what you can do. The market here is a bit of a puzzle for me. I see people buying in the multi-unit space (5+ units) that are buying turnkey properties at a 6 cap and paying 6.75% interest with the loans they get. They are getting a leveraged cash on cash return of less than the 10 year treasury yield with the added risk of owning and managing real estate. It make no sense to me and multi-unit (5+) are typically cheaper that the 1-4 units on a per unit basis.

As for MTR - I have a property I considered going the mid term rental route. My quick analysis had the added cashflow taking several years to recover the cost of furnishing the unit on top of the added management required for a short term rental. The juice wasn't worth the squeeze for me but I did not do a deep dive into it either. My costs might have been high and my rents too low so don't take my one data point as the answer without doing your own research.

[Jeff White]

@Kyle Allen That's great you are looking for your first rental, LTR vs. MTR discussion really starts with your time, MTR does require more upfront work and furnishings with MTR vs. no furnishings with LTR. 

I personally like LTR as a strategy since once you attract high quality tenants, it isn't that much work relative to MTR and STR strategies, but the key is you have to look for properties where you can add bedrooms, so you can do rent by room, rent to market tenants, rent to Section 8 tenants, and the more bedrooms that you have the higher rents you will get.

How to do you add bedrooms?  You have to find properties that have dens, additions, larger square footage to find rooms. The average room size is 10 x 12, so you can think of a 2200 square foot house, and if it is a 4 bedroom now, you know there is definitely enough square feet to add a couple of bedrooms, and that's how you can be creative by making a deal when others see that 4 bedroom house as a 4 bedroom, but you just turned it to a 6 bedroom and made a deal out of it. I'm not saying all 4 bedrooms with lots of square feet will work, but that's just an example of how to find cash flow in a market like Denver. 

[Jordan Connett]

@Kyle Allen Congrats getting into the game. I believe your first is the most important because if you make a mistake out of the gate it is harder to do a second. Main question i'd ask is how much time do you have. as stated above, LTR is less time intensive but for your first deal, you usually will cashflow better on MTR. I personally don't have time to self manage MTRs so I'm only looking for LTRs. I also live in Denver and evaluate ~20 deals a week, and only find 1-2 deals a month that cashflow. so I understand where you're coming from. if you have the time, maybe lean toward MTR right now.

[Jerrod Rosen]

Hi Kyle!

There's no big secret to investing in Denver, it's just that cash flow is hard to come by! The majority of our deals for investors are house hacks to help supplement a large portion of rent or rent by the room. We've been very successful in rent by the room options especially after they lifted the max occupancy rules. We also run a property management company dedicated to managing these assets, would be happy to talk about it! 

[Drew Sygit]

@Kyle Allen many high demand markets no longer cashflow due to the demand-driven increase in property prices and higher mortgage rates.

A 3% increase in mortgage rates => 36% increase in monthly payment!

Check Denver STR regulations.

Or, consider investing in the Midwest, like Detroit:)

PM us if you'd like more info.

[Peter Hu]

Hey Kyle,

It's hard to find rentals that still cash flow in the LTR space, but not impossible.  Do you currently have a primary residence?  If you can find a property with an assumable loan at a much lower interest rate, you could live in the property and house hack it for a year and then turn it into a cash flowing investment property and rinse and repeat.  Feel free to reach out if you want to discuss!