- Listen to the podcast “#284: DDD: Stocks vs Real Estate and 2 House Hack Deal Analyses” on the Denver Real Estate Investing Podcast
- Watch the YouTube video (at the bottom).
- Read the blog post. Note, the blog is an executive summary. Get the in-depth breakdown from the podcast or video.
Housing gains compared to the stock market
This chart compares the Case-Shiller Home Price Indices vs the S&P 500 from 1990-2020:
As you can see, the blue housing line looks like a soft, rolling hill compared to the red stock line, which is more like a roller coaster. While your reaction may be to put all of your money in the stock market, it’s not that simple. Most housing data only looks at prices and doesn’t take into account buying with leverage and the other ways you can make money in housing (debt paydown, depreciation, etc.) When we look at this data, it shows us that we should keep investing in housing using small down payment percentages and invest at least some of the money saved in stocks and other markets.
Different types of FHA loans
One way to buy homes with a smaller down payment is to use an FHA loan. A lot of people ask us if they can use an FHA loan to buy a multi family property, and the answer is yes, with some caveats. The first caveat is that a self-sufficiency test is required for triplexes and fourplexes. This test entails showing that 75% of the gross rents of the property will cover principal, interest, taxes, insurance, and the monthly FHA mortgage insurance. With housing prices in Denver being so high, it is difficult to pass this test without putting down more than the 3.5% that makes the FHA loan so attractive. The other FHA loan people ask about is the 203k loan, which is a rehab loan product. This loan gives buyers money to repair or modernize a property. This is another loan that’s hard to make use of in Denver because it requires multiple quotes from contractors and has a longer close time. In a seller’s market, it’s hard to buy a property with these stipulations. Keep in mind that the nuances of these loan requirements change all the time, so check with your lender for the latest regulations.
Denver’s new landlord licensing and inspection requirements
Two months ago, the Denver city council passed new requirements that landlords have licenses and their properties undergo inspections. So far, this rule requires that no matter what type of property you own (multi family, single family, etc.) you must apply for a license and renew it every four years. Single family properties must be registered by 2023 and multi family properties of two or more units should be registering now. The license itself is only about $50 and property inspections will be required at the time of renewal. We don’t have all of the details on inspections yet, but we know that they will check to make sure that there are working appliances, smoke and CO2 detectors, and a fire extinguisher. As responsible landlords, these are all things that we should be doing anyway and doesn’t mean people should stop investing in Denver. There will be more information coming out soon, so check back for updates.
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