All Forum Posts by: Maria Vargas

@Tim Winter timely post as I'm educating myself on trust to hold properties. What's the investment more less - initial set up + ongoing? Additionally, are you holding 1 property to 1 trust, or various properties to 1 trust? Thanks for the info, and great share!

Denver is a high priced market and it seems to be hotter than ever, just ask any of the realtors in the area (@James Carlson is a great resource)! But like others have stated, rents are also high making it a great market to hedge against inflation. You may have to get creative as many of us done by renting by the room, or you may need to employ other creative means to make the numbers work. Consider getting into your 'investment' properties as owner-occupant, then converting them into rentals after your 12-month financing requirement. Denver is definitely a great investment market and I honestly do not think Denver will see a price decrease worth waiting for. 

@Dan Cook Denver county recently changed those limitations, and you are now able to have up to 5 unrelated persons under the same roof so you're not actually violating anything with your 5/2 rent-by-the-room model. I believe you're able to have more depending on the sq footage of your property, tho I'm not as intimate with the specifics. 

There's a lot of folks actively advocating for these changes, and the changes this year were a significant win! While this is just my opinion, having Gov. Polis encourage counties with such limitations not enforce them during COVID as a means to help prevent homelessness I think sets precedent for these limitations to go away at some point in the future. 

Now you certainly want to set the stage for harmonious living between your residents and the neighbors, not just immediate neighbors next door. Because we can only control what happens within our properties (to an extent), you'll want to screen accordingly for the type of neighborhood your property is located in. Like you said, our best defense is getting the right peeps in the house!

One point worth considering as related to vetting residents is not just taking a reference from a previous landlord as some landlords will tell you only the good if that's a tenant they're wanting to get rid of. My business partner @Kevin Smith and I have opted for taking character references from existing employers, which also allows you to verify their income and likelihood to keep said income. 

Like most have already shared, we also conduct criminal background and credit screenings using Cozy.co and/or MySmartMove.com (TransUnion). Additionally, we do our best to have the existing residents present when a potential tenant is viewing so that we can take their input into account (final decision rest with us). After all, they'll be living together and the more buy-in you have from your residents the better the living situation for all. This also helps set the stage for a peaceful home limiting neighborly disturbances. Scheduling can get complicated to achieve this, so we typically ask our residents to give us their availability and try to schedule all showings within a couple of time frames. 

Best of luck and looking forward to hearing more about your success with this model! 

@David M. yes, example provided really does help! Thanks for elaborating on that! Super helpful!

@David would you kindly expand on what you stated below, specifically how rentals could negatively impact your DTI? I ask b/c I was under the impression that with a healthy debt-coverage ration from the rental (I've heard lenders like 1.25) that loan doesn't really count against you.

Originally posted by @David M.:

@Kamran Rahman

''when figuring your dti, lenders will refigure your rental profit/loss by taking 75% of your rentals (not your 75% of your rental profit/loss).  So, in some cases rentals can actually make your dti worse."

Hi @Zachary Carnahan, Denver living is just awesome! Congrats on your upcoming move! The points made above by @Maria Bakaj regarding HOAs are really key! Rentals in HOAs can be tricky, and the HOA may derail your intentions to rent altogether. Be sure that the HOA allows renters (check rent restriction in bylaws) and how involved the HOA be in your rental decisions - many HOAs require that rental applicants apply directly with them and may have high application fees or standards that may not be easily met by renters. You also want to know what percentage of owner-occupants vs renters the HOA requires, as that ratio may end up placing you in a 'waiting list' until your unit becomes eligible for rental (this could be years in some cases).

HOA reserves are really important too; condos often (not always) require minimum 10% down payment for financing (which is higher than your standard 5% down for owner-occupant Conventional loan). I learned about the importance of HOA reserves the hard way; if an HOA is low on reserves, you may end up having to dish out a much higher down payment. In my case for a condo I purchased in South Florida, I ended up having to put down 30% for down payment due to HOA not having reserves, and oh by the way I learned of this just about one week prior to going to the closing table. Fortunately, it was still a good deal and I had the money to do it at the time!

Finally, assessments... HOAs are like mini government entities and most of us don't think of government as well-managed organizations; by that logic, many HOAs also lack good management and can result in assessment after assessment. Think of these assessments as new taxes, and they can be as low as a few hundred dollars or several thousand dollars. On the bright side, existing assessments may provide a point of negotiation with the seller (though not as powerful in a hot sellers market like we seem to be in).   

In general I'd encourage you to consider not purchasing in an HOA if your intention is 100% to make this property a rental. Having said that, there are advantages to such properties - perhaps the HOA has a pool, gym or other amenities that you could not obtain otherwise. In my case, the South Florida condo I purchased is waterfront with marina views! Condos can also make for 'easier to manage' properties as you're really only responsible for maintaining the interior (referred to as 'contents' in condo world) and windows. Rarely will you as an owner be responsible for replacing the roof, renovating siding or repairing sewer lines (though this is where those assessments may come into play). 

Best of luck on your journey and we look forward to hearing more on your decision! 

Excellent summary @James Carlson! While I own investment property in Denver county, I've decided to acquire and operate short-term rentals in another market with less restrictions. Still Arvada's provisions are more appealing than Denver's primary residence restriction. Thanks for keeping us in the loop! 

The John Fisher Breakfast Club is truly one of the most worthwhile REI events in Denver, CO! Saturday mornings at 7am can be tough as it means I've got to be a good girl the Friday night prior but every time I attend I am so glad I did!

Another consideration as you convert your househacks into 'true' rentals is related to reporting rental income in your taxes. Yes you'll pay taxes on profits but also have the sexy and appealing deductions associated with rental income including depreciation (ok, now you know I'm a need when accounting is referred to sexy!). Work with a savvy CPA to ensure you're capturing any and all tax benefits associated with rentals, like deducting any improvements and repairs on the property (not quite available to you as owner-occupant). You'll also benefit from keeping your DTI (debt-to-income) ratio in check by reporting said income, which comes in key as you're qualifying for financing for additional investments (even as owner-occupant for next hack). Hope this is helpful!

@Kamran Rahman we've done exactly this for several SFR assets in Denver, Colorado. Acquired as owner-occupant with 30-year traditional financing and had roommates thus 'hacking' our way into investing in a pricey and competitive market. Upon eligibility (12 months) into the next owner-occupant financing, acquired the next and so on (many refer to this as 'nomad'). Our insurance agent adjusted our policy to reflect the now "true" rental property (still managing rental by the room) once we move on to the next property. In our case, we've required our tenants to purchase their own Renter's Insurance policy as part of our lease terms. We've chosen to maintain the properties in our personal names should we want to leverage any equity for refinancing or HELOCs. We've also placed Umbrella insurance on top of it to access additional protection.

There are several ways to hold properties including LLCs like you refer to in your post. I've been educating myself on trusts and considering moving in this direction for holding as there are some advantages with it, namely the conveyance of said properties should my partner or I pass on (positioning our heirs to avoid the probate process). Again, we are just considering this and welcome any input others have on this topic. Thanks for posting and best wishes to you!