Denver real estate market conditions (Aurora, Wheat Ridge: fit in, foreclosures, rental market)

[Anu2]

My younger sister just graduated from college in CO and she wants to move to Denver with two of her friends. They claim they can't seem to find an affordable place to rent in a good area and she wants me or my father to buy a place and rent it to her.

I have no problem with this in theory because I love investing in real estate but I have no understanding of the Denver real estate market whatsover. Are there good deals to be had under $200k there? Could we get a 3 bed/3bath place in a good area for this price? Are prices dropping a lot? How is the rental market?

I am simply looking for a high level understanding on whether doing something like this would make any sense whatsoever or if it's just a bad investment.

Thanks for your help!

[2bindenver]

Real estate can be a really good investment. But "Denver" is too large an area to define a good investment property.

I have worked for investors all over town from $125,000 to $300,000. I usually advise spending less than "average" for the area to insure a steady stream of qualified tenants.

There are properties to be had under $200,000 3 bed 3 bath - older? newer? in town? suburbs?

Vacancies rate is 3-8% depending on area and prices are not dropping, but generally holding steady.

[Anu2]

I really don't know the area so can't say much about location. My criteria would be a low crime area where young people (20-somethings) would want to live and that isn't ridiculously far away from the city. Also a place where there would be decent 5 year appreciation. I would prefer something newer that doesn't require too much work (besides minor cosmetic changes or a new appliance or two). Are there places left where my rent will more than cover a mortgage (based on 10% down)?

Also, how is the market holding up there? It's crashing in most of the country--not sure about Denver's market conditions...

[2bindenver]

Denver has been stable and steady since 2001. No double digit appreciation rates, so nothing over-inflated to fall from.

See www.ofheo.gov/media/pdf/1q07hpi.pdf (broken link) Specifically page 19 & 20 and then 34. The last line says the Denver - Aurora marketplace has appreciated -1.09 over last year, -0.34 over last quarter and 14.78 over the last 5 years

I would suggest Globeville, Highlands, Berkely - all hip places to live and be - and fairly central to access employment centers, but they are not new. Some rehabs are sure to be found in all areas.

[tfox]

Yes, you can get cash-flow properties here (unlike many places). Rent is a little lower than average here, so that sometimes makes substantial income-generation difficult, but rents are most likely on the increase at the moment.

I'm not a realtor, so I don't have access to all the numbers, but I'll just give you my impressions.

Right now, the market overall is a strong buyers' market with negative single digit price appreciation (i.e., depreciation). There's a lot of inventory and a large number of foreclosures. There are some deals to be had on the foreclosures, but most of the foreclosures require more work than you said you'd want to do.

Believe it or not, some neighborhoods are hot and selling quickly. Higher end housing is selling well, and city-center neighborhoods like Highlands/Sunnyside/Berkeley are doing very well (those are probably weak-to-moderate sellers markets). The worst off are many lower and middle-income suburban areas that have been hit hard due to foreclosures.

So, if you can find the right property, I think you can do well. When you invest in real estate, you have to consider whether you're investing primarily for appreciation potential, for income, or both. You need to define your priorities because it's very difficult to find a property that has both great income potential as well as great appreciation potential.

[Anu2]

I actually don't care too much about income potential other than being able to cover my mortgage + rental maintenance costs. I'm looking at this more as an overall investment--buy now, rent for ~ 5 years, possibly make minor improvements to make the house more marketable, sell for a good profit in the future. The only reason I'm even considering this market is because of my sister but again if this makes financial sense then it works for me!

Thanks for the help so far! Any additional thoughts would be appreciated!

[Anu2]

2bindenver or tfox:

Would you mind sending me some of the ZIP codes for the areas that you mentioned?

Thanks!

[tfox]

IMO, the major trend in Denver is the rediscovery of close-in neighborhoods. (This does mean older housing, but some can be in reasonably good shape). Close-in neighborhoods that once languished for years in obscurity one-by-one get discovered and property values and rents both shoot upwards. A good example is North Denver, which at one time was mostly ignored. This rediscovery has already happened in Highlands. Berkeley is now getting discovered, and nearby Jefferson Park and Sunnyside are a lot of people's picks for "the next Highlands." Things could cross over Sheridan Blvd into eastern Jefferson County as well, I've had my eye on Wheat Ridge and Edgewater in their sections east of Harlan.

I'm using examples from North Denver, but you can use similar examples from South Denver too. There's lots of examples. 5280 magazine had an interesting article on "10 hot hoods" that might give you some more info. Interestingly, the "hot hoods" that are truly hot right now were left off the list; I think that they were trying to pick tomorrow's trendy choices.

Another totally different route that you could go is try to snap up some cheap single family homes in suburban neighborhoods that are currently out of favor. Today's distressed market won't last forever, and in fact it may already be coming to an end. As inventory goes off the market, you could end up with a very nice rental that you got for a bargain price.

[tfox]

If you mean zip codes for north Denver (which really means NW Denver: highlands, berkeley, etc), the area is largely 80211 and 80212. The 80204 zip code contains some North/NW Denver neighborhoods but also parts of downtown Denver and parts of West Denver.

[2bindenver]

Two articles for your consideration:

Colorado's economic growth eighth-fastest in nation, an article from The Denver Post, reports that Colorado's economy grew 4.9% last year. That inflation-adjusted growth rate ranked eighth in the nation and topped the 4.3% increase in 2005. While the state's unemployment rate dropped from 4.8% to 4%, core inflation in the Denver metro area rocketed from .8% in the second half of 2005 to 4.9% in the second half of 2006. Colorado's per capita GDP was $41,798 - 111% higher than the per capita GDP of the U.S. as a whole.
The Denver Post - Colorado's economic growth eighth-fastest in nation

30-Year Fixed Mortgage Rates Rise Again, an article from Realtor Magazine Online, reports that mortgage rates increased for the sixth week in a row. The average 30-year fixed rate hit a 10-month high of 6.61%, according to Bankrate.com's weekly national survey of large lenders. The average 15-year fixed-rate mortgage increased to 6.33%. According to Bankrate's weekly report, mortgage rates are climbing in response to strong economic data and indication from the Federal Reserve that lower interest rates aren't likely in the near future.
REALTOR® Magazine-Daily News-30-Year Fixed Mortgage Rates Rise Again