All Forum Posts by: Mike Stephens

Hello,

So one thing to get out of the way from the start: the purpose of this post is NOT to debate whether or not there will be a softening in the Denver market. There are plenty of other posts on whether Denver is in a bubble that have been posted the last year or so. I'm happy to post separately on my thoughts there. 

What I am curious on, is for those of you that are in the same place I am, which is firmly believing that the Denver housing market is overpriced, and is due for a flattening out after next year, and in some areas, like small multi-family is actually heading for a price retreat over in the next few years, what are your next moves? I've had a few offers on a duplex in Jefferson Park that I own, that are just ridiculous. Purchased at those prices, these "investors" would be just barely covering expenses, and definitely in the red if they were properly allocating for cap ex.

So what are you all doing? Selling? Just not buying? Buying out of state?  What are your 1-2 year plans.

Thanks,
Mike

Hi Colln,

You can find them right in the listings I posted. Click the "More" button in the "Features" section of the listing and you'll see rent per unit (note the "More" button hasn't been working in Chrome for me for about a month, but works fine in IE or Firefox).

Not all sites pull that data from the MLS and a lot of MLS feeds don't send that across so you'll have to get it from an agent, but realtor.com usually has them in Colorado. Also, if you really like a place and the numbers work, you'll want to confirm with the listing agent whether the rents are actual or estimated. Lots of games played there . . .

@Colin Carr - Like @Mindy Jensen said - crazy low Rent to Value ratios right now. Here are two examples of the insanity:

http://www.realtor.com/realestateandhomes-detail/1...

1. Rent: $2,325
2. List Price: $375K
3. Ratio: .62%

http://www.realtor.com/realestateandhomes-detail/1...

1. Rent: $2,425
2. List Price: $350K
3. Ratio: .69%

Honestly the crazy thing isn't even just the List Price, its the fact that those are under contract. It would be laughable if we hadn't seen this before.

I hear what both of you are saying @Travis Sperr and @Account Closed's point - if you are buying something with a very healthy cash flow, and can withstand a 10% drop in rent or increased vacancy and still cash flow, then you don't need to worry about that property's value.

If however, like too many in Denver, you are buying something that cash flows at $50-$100 a door a month, and made that purchase with the eyes on appreciation and rent growth . . . well best of luck on that dice roll.

Hi Colin - short answer is not really. There are always exception, and maybe the top 1% of investors are still getting 2%, but the other 99% are not. Those that are getting them, are getting them via non-conventional routes. The Denver market has gone gang busters that last few years, and competition is fierce.  There was a similar string recently you can find here with some good conversation on the topic.

A lot of people continue buy properties at ratios that make no sense because they are banking on continued appreciation and rent increase. My gut tells me the market has one more good cycle this spring/summer, and its going to soften from there. The end feels near at these prices. . . 

@Marc Allen and @Scott Trench. This is a great discussion - Looking forward to following. I have no idea how people are buying today with comfortable cash flow that would allow them survive a decent drop in rent. Personally I don't buy anything where my cash flow isn't high enough that I couldn't survive a 15% drop in rents and still break even. I have two duplexes here in Denver (one in Jefferson Park I purchased in 2012 and one in Cole I bought in 2013), and I'm doing fantastic on those properties given the rent increases and appreciation, but I don't pretend its all skill. Really anyone buying in '12, '13, '14 should be doing well right now based purely on the luck that our market blew up, but I'm most curious to see who does well going forward, because if I was a betting man, my money would be on a much more flat trajectory for our market the next decade. That said, my properties cash flow numbers worked out when I bought them, and would've continued to even if the market had stayed flat and I'll only continue to buy with that mentality.