All Forum Posts by: Mark Ferguson

So what do you think @Mark Ferguson still going to sell your rentals?

@Bill S. - As you mention impact fees for developers, I recently read an article about the city of Denver possibly implementing more fees for development, up to $7 per sq ft to fund affordable housing.  Guess what that's going to do? Developers are just going to jack up the price to make up for it and the buyers are the ones who end up paying...that will do the opposite for the affordability housing plan the city had in mind.  Gotta love them! You can read it here:

city nears a pay plan

@Mark Ferguson and @Travis Sperr I agree that the numbers say there is no end in sight. Really anything below the median is really challenging. I also agree that the cost to develope is the main driver. I have mentioned this before but it is worth mentioning again. I have a friend who finds land for developers. They looked at a project where it would have cost them $100,000 per lot just to get intitlement. That was the cost of water and impact fees for schools, roads, sewer and water infrastructure. It's really tough to build a $400,000 house when you start out that far behind.

The construction defects law is really holding a lid on opportunities for entry level buyers. Traditionally when things get hot, people build condos. They go up fast and are usually fairly cheap. That's not happening now. If the politicians wanted to help housing prices in Colorado the solution is pretty easy IMO. Change the construction defects law so that insurers will write builders risk insurance for condo construction. That would do way more than the plaitudes of interest savings.

I am really watching the appartment segment. My gut tells me there is significant overbuilding in the the Class A space. What I can't figure out is what the means for the rest of us. Sure it will trickle down I just can't figure out the impacts. I do know it's a huge red flag when a planner tells me that apartments are so profitable that the developers think they can't overbuild. I'm paraphrasing a bit but that was the jist of what the planner said. This one thing has me cautious about buy and hold. I don't think now is a good time to reach or stretch to make a deal work. Solid deals with equity and cash flow are the only way to do a buy and hold now. 

That is with oil sub $50 for current and past years? What is Greeley supply and demand going to be like if oil rebounds again? Most areas 60 miles outside LA are going pretty solid too I think. IDK but you could have some Denver spill over?

@Mark Ferguson How much of the permit decrease do you think should be attributed to the price of oil for Greeley? It's starting to pick back up from my contacts up there, but it isn't what it once was. 

I'm seeing softening in the around $600k level here in Denver with one of my current clients. Everything $400k and lower is still highly competitive. Even when rates go up here soon, they aren't going to slow us down. 

@Mark Ferguson This isn't unique to Colorado. A lot of place are seeing rise in prices. In Orlando, there are a lot of multi-family projects going up and people are saying there are too many. However, I've spoken with developers and the numbers are saying otherwise. Downtown multi-family is 95% occupied and rental rates are continuing to move. This leads to developers adding more projects because the numbers are supporting their investment thesis. It all comes down to the math and investment pro forma. Do the numbers make sense? At some point, it will reverse and some developers will get crushed. It happens in every cycle. Same goes for flippers.

If the market sentiment is that things aren't going to slow down anytime soon. I would start to be more conservative in my pricing ie. Can you hold the property for double the time instead of the initial period? Do some stress testing to see if your investment is strong enough to hold if things went south. I'm not saying they are but I start to question. As Warren Buffett once said, "be fearful when others are greedy and greedy when others are fearful."

Ian

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The Denver market is wild - inventory is the lowest ever, prices are rising quickly and competitive bidding is guaranteed on just about anything under $400k. 

New construction is happening all over the suburbs and the builders can't deliver houses fast enough. I disagree that the houses are not affordable to local residents because the data says differently in the pace the houses are selling.

Infill new construction of town homes inside Denver's urban core is everywhere with projects typically selling out before completion. Million dollar plus houses are selling at higher volumes than ever. 

There are no market indicators to show this market will slow in the near future. No inventory, higher quality borrowers, low unemployment and rents that won't slow - Not to mention it is Colorado, who doesn't want to live here. I feel like the potential issues will be affordability (not yet because rents and prices continue to grow) or the cost or construction out pacing the values (starting to see that now on the town home products - lack of skilled labor)

I love this ^^ - I am selling a property similar numbers in Denver- bought at $72k, $17k in repairs in 2012, with $6k out of pocket to get it closed. Just went on the market at $220,000 - offers up to $250,000 - FHA appraisal came in at $232,000. Not to Mention the $28k I netted in rent over the 4 years!

It is a great gain.  Do you think it is sustainable?  I bet no, at some point property prices will come into line with incomes.  Denver has so much land, no geographically significant boundaries.  There are some affordable housing ordinance taxes which have raised values in the short term, but longer term I think construction will catch up.    

Tough to pick the peak, but I think we are closer to the peak than the trough.