All Forum Posts by: Scott Trench

Dalton - Currently there is a real shortage of condos in Denver.  I think that you may find that the price to rent ratios on luxury condos will leave you with a low rental cash return and that you risk competing heavily with higher quality condos in the near future.  This situation is largely due to a set of laws that I heavily criticize regarding builder defect laws.  Check out this link:

http://www.westword.com/news/has-condo-development...

Basically, it is super easy for the builders of condos in the Denver area (and all of Colorado for that matter) to get sued on a large scale for relatively minor problems in the construction of these structures.  This results in the situation we have today in Denver  - a situation where a very tiny fraction of available housing is in the form of condos - a small percentage compared to other similar markets.  Instead, apartment buildings are constructed with apartments that are often hard to distinguish from condos but are currently rented by apartment style tenants. 

It is my view that investors should be wary when purchasing condos in the Denver area, because I tend to believe that the mounting pressure to protect builders and incentivize them to bring condos to the region will drive down the price of existing condos over time.  Further, there is already quite a bit of inventory in place ready to be converted to condos when/if the legal status of these current apartments ripens them for sale as condominiums.

My two cents!

I was asking myself this question the other day:

If I was an average person investing in a random town in a random part of the United States, would I be better off investing in Real Estate, or the Stock Market?

Turns out that that's pretty easy.  It seems clear that you'd be better off over the long term investing in the stock market if you buy a median priced property and rent it at a median rate in the United States.

Unless you leverage.  And the more the better. 

I'd invite you to check out this model that I built (which can be downloaded for free from the fileplace) and put input the assumptions that best match your local market. How does a property acquisition in your market fare compared to an investment in the stock market? What happens when you lever up? How about with HUGE leverage as in FHA Financing (28.5-1 levarage ratio at 3.5% down)?

In some markets with unfavorable rent to price ratios, you'll need a lot of appreciation to make up for an average investment with relatively low cashflow.  How much appreciation do you need for Real Estate to earn you a better return than the stock market?

Notice that the default assumptions I use are for a pretty standard purchase - a 20% down property that appreciates at the national average rate of 3.4% and that cashflows at the median price to rent ratio of 10.08 to 1.  

It's funny - my math (which is open to interpretation - please challenge my assumptions or the construction of my model!) suggests that a monkey randomly choosing properties throughout the country would do pretty well by just continuing to invest in leveraged real estate at random over the long term.  

Do you agree?  What is your market like? Does this change your strategy or how you think about investing in your local market?

 @Stacey Yates This is what I did. 

As an owner-occupier, I bought a duplex in foreclosure using FHA financing. In particular, I found a property that was available through Fannie Mae's HomePath program - meaning that investors were ineligbile to offer on the property for 20 days (only people who intended to live in the property, like me, were eligible).

The rent from a roommate plus the other half covers the mortgage payment, making my cost of living cheap, while I get to learn about the market, practice making improvements to the property, and get experience managing tenants.  

One of the huge benefits to this house-hacking approach is that cashflow properties just aren't as available in Denver right now.  The market is too crazy.  As a new investor, it seems a little crazy to try to compete with experienced investors in what they consider to be the most competitive market they've ever seen.   

My goal is to yes take advantage of the "cashflow" of the property (vs what I'd be paying as a renter), but more so to take advantage of appreciation.  With 5% down, I'm leveraged 19 to 1.  If the property goes up just 1%, I get a 19% return on equity.  It's my bet that the neighborhood I carefully selected will appreciate a little faster than that.  House-hacking is a relatively lower risk way to take that chance at appreciation because if things don't work out, I can just continue living happily in my house and renting out the other side...

PM me if you have more questions about getting started.  Best of luck!

@Luke Miller and @Micki M. 

That's incredible!  This is why I love working here at BiggerPockets so much.  Helping make this kind of story possible is what it's all about!

Lucas  - what do you think about posting your story to the success stories forum?  It would be great to show how this worked out for you.

Also - do you mind me asking which neighborhood you ended up buying in?

 Hey could you please screenshot the difficulty you are having with this and send that in an email to [email protected]?  We'll have our development team look into this.

Thanks for bringing this to our attention!

@Brandon Monaghan Welcome to both BiggerPockets and Denver!  I'd be happy to chat with you about finding places to live, work, and things to do in Denver.  I've been here about 2 years myself, and just bought my first property in November.

I currently work here at BiggerPockets ;)

Welcome @Walker Hinshaw Nice to see you making your first post finally. 

@Micki M. definitely was hoping to see you at the meetup!  Maybe at the one in March!

I am a huge fan of this concept.  When I encourage people to bike for this reason I point to a recent example of how this proved powerful to me:

I had a friend that just didn't understand why I bought a property in the neighborhood that I bought in.  When I took her through the city on a bike ride, I was able to show her just how obvious the improvements to the area were, which direction they were heading, and show off some advantages to the neighborhood that might have been really tough to fully comprehend just driving through. 

@Ben Leybovich and @Joshua Dorkin 

As a newbie investor myself, perhaps I'm the rare position of being able to provide value in response to the question that you've posed here.  

I myself have repeatedly talked about my professional background in data analysis and financial modeling.  My ability to work quickly and accurately in spreadsheets is  perhaps my most valuable professional skillset that you can quantify.

I build almost everything out in my own spreadsheets when I plan out my finances, website anlaysis, and yes, my real estate expenses and projections.

That said - as you yourself have noted - I don't know what the hell I'm talking about when it comes to investing... yet.  I haven't had ten years investing and learning in the school of hard knocks. 

THAT's where the calculators come in.  Yes it's data entry.  BUT - it's pretty darn easy to forget an input, to not even consider closing costs, to not consider electrical, water, or any other number of expenses that come up in the course of an investment for a newbie.  The calculator puts those expenses right in front of your face.  It forces you to make a guess on all those numbers, at at the very least acknowledge their existence as costs that landlords must consider - something that the spreadsheet obviously can't do.  

For me, if I really want to pull those numbers into Excel and play around with the inputs for hours and run all sorts of fancy monte carlo sims, etc, that's great - I can use the calculator as a guide and do that sort of manipulation myself.  I've probably logged 5,000 -10,000 hours in spreadsheets and can model out 30 years in under an hour or so.  Most people can't do that.  They don't have the time or inclination to develop a skillset that you seem to be taking for granted.

The calculators for less experienced folks serve both the purpose of forcing them to consider each input AND they perform the mathematical calculations needed to predict the future of the investment.

Are they the one perfect solution to anyone and everyone?  No.  There isn't one of those perfect solutions anywhere.  But they are a pretty darn good product to help newbies wrap their heads around basics of a first investment and they provide a framework for intelligently analyzing an investment.  Plus - we define each expense and suggest ways to look them up!  

One of my favorite Podcasts of all time (aside from the BiggerPockets Podcast of course!) is Pat Flynn's "Smart Passive Income" Podcast.  

I was wondering if there is a natural tendency for Real Estate Investors to be drawn to this type of "investing" - investing your time and internet marketing savviness to generate passive income producing assets like web pages, affiliate marketing content, etc.  I think that this is especially appealing to those of us that don't have a lot of money or access to capital that is generally required to get started in Real Estate.

I'm wondering what other BP users think of Pat Flynn.  Who follows both BP and SPI?  I know that personally, I like the idea of using an approach like Pat's to generate cash flow that I can plow back into Real Estate.