Rental properties are a profitable move for Denver real estate investors, and those that invest here don’t want to share this secret. The unique combination of growth and re-urbanization makes the area an ideal place to set roots.
But there’s even more opportunity for growth.
New Construction Offers Opportunities in the Denver Real Estate Market Too
Many investors are building new homes, called ‘spec homes’ for the purpose of subletting to tenants. Because of the high demand for open urban areas full of potential, they’re not hard to fill, and Denver’s got it.
Construction experts in Denver know the demand for homes in the city is high, while the supply is low. They are now constructing homes for investors in various neighborhoods. These include Brighton, LoHi, Sloan’s Lake, Berkeley, Highlands, and Sunnyside.
Brookfield Residential recently sold 50 different lots to a company that specializes in constructing rental homes in Brighton.
More and more of these companies are seeking out land to create all-rental communities in the Denver real estate market.
They are moving fast and rental property investors have to move fast, too, in order to get in on this wonderful investment opportunity.
Some of the wealthiest people we know owe their fortune to real estate. Property is an asset that remains a solid investment when the market is strong and there’s potentially room for market ebb and flow.
Now add Denver’s perks and you have the potential to find an opportunity that will keep on giving.
How to Start in Rentals
Rentals are the most straightforward way to get started in Denver real estate. Purchase a single-family home or a condo duplex. The numbers add up to low financial risk if you are capable of finding good tenants.
On average, a one-bedroom single-family home rents for $1000 a month. A condo usually rents for $2000 a month. Regardless of your loan term, this provides you with the ability to profit – each and every single month.
Simply use the Rule of 72 to estimate how long it would take you to double your investment. The formula is 72/ by the interest rate.
If the interest rate is 8%, it would take you only 9 years to make back what you spent and an equivalent amount.
Crunching the Numbers
In order for you to see your money at work, let’s do the math:
- You purchase a condo in Denver for $300,000
- You have to pay 25% down, which is $75,000
- The remaining loan amount is $225,000 and you have to pay $1,000 a month on it
- Your taxes and insurance total $200
- Maintenance costs $800 a month
- You charge $2500 a month per condo
- You end up profiting $500 per condo per month
- If it has 10 homes in it, that is a $5,000 profit a month
As you can see, if you have the right amount to put down on a rental property in the Denver real estate market, obtain the best interest rate, and keep your expenses low, you may reap many financial rewards on your investment – and, fast!
While it is true that you may need to have saved enough for unexpected expenses if they may pop up when starting out, the monies collected and saved, over time, could help you deal with these quickly and easily in the future.
If you don’t have a lot of experience in property management in Denver, keep additional money for unexpected expenses in the budget. A good insurance policy on the rental property can offset some of these costs as well.
Benefits of Investing in Rental Properties
Investing in residential-based rental properties offers many benefits. These include the following:
- Leverage – In order to purchase rental properties, you will need between 10% and 25% down. If you have other properties, you may actually use money that you make from those to put the down payment on your new properties. This leverages your finances so that you are able to quickly buy properties and achieve your long-term financial goals.
- Cash Flow – The flow of cash refers to that which is going out of your business and that which is coming into your business. By investing in rental property, you will have a steady flow of cash coming in and that will help you either break even or profit, minus the amount that you have to spend.
- Debt Payoff – When you purchase a rental property, it is not you that is paying off the debt that you have acquired, but the person or persons that are renting your property. Ultimately, your only initial expense is your down payment, insurance, and any maintenance that must be performed before subletting the property. Over time, you will even make this amount back.
- Write-Offs – When you own property, it is possible to write off expenses and enjoy the art of depreciating the home that you have in order to save on your taxes.
- Appreciation – As time progresses, the value of the rental properties that you obtain will appreciate up to 6%.
Steps for Success
In order to achieve the highest level of success in the rental property investments that you make in Denver, there are a few steps that you should follow:
- Focus on purchasing properties in neighborhoods that are considered to be in high demand among tenants. These are often those that are closest to public transportation, jobs, and schools.
- Put the work into your property to keep it appealing and functioning appropriately. If you do not, you will find that your property quickly gains a bad reputation and it is difficult to attract tenants.
- Use a property management company to help you with the day-to-day activities of your rental properties and to ensure that you are always within legal compliance.
If you’re interested in the Denver real estate market and need advice, or property management services for your current rentals, give us a call.