Deal Analysis – Denver Single Family Rental with ADU

This investment property is a house with an ADU in the Athmar Park neighborhood of Denver. Many single family homes in Denver are negative to tight cash flow at 20% down. Since this has an ADU, it has a strong cash flow over $500/mo! Athmar Park is one of the lowest price neighborhoods in Denver and is transitioning.

This investment property is a house with an ADU in the Athmar Park neighborhood of Denver. Many single family homes in Denver are negative to tight cash flow at 20% down. Since this has an ADU, it has a strong cash flow over $500/mo!

Athmar Park is one of the lowest price neighborhoods in Denver and is transitioning. Over the next decade or so, there may be opportunities to redevelop the lot. For example, next door the owner scraped the house and put up a duplex. All around the neighborhood are new homes as well. Strong cash flow now, good appreciation potential and a possible development exit makes for a great investment!

This property closed in Q2 2020.

Investor Profile

  • Buy and hold investors
  • Did a cash-out refi on existing properties to leverage up and buy more properties with
  • Experienced investors
  • Realistic expectations

Three Learning Options!
  1. Listen to the podcast “#179: Deal Analysis – Denver Single Family Rental with ADU” on the Denver Real Estate Investing Podcast
  2. Watch the YouTube video (at the bottom.)
  3. Read the blog post. Note, the blog is an executive summary. Get the in-depth breakdown from the podcast or video.

Deal Quadrant: Networking

Real Estate Deal Analysis Quadrant
68% of the rental properties we buy are found on the MLS.

Read about the deal quadrant and finding Denver Investment Properties.

Investment Property Details

  • Type: Single Family with and ADU
  • Main House: 5 bedroom, 1.5 bathroom
  • ADU: 1 bedroom, 1 bathroom
  • Location: Athmar Park (SW Denver – Alameda and I-25)
  • List Price: $439,000
  • Purchase Price: $439,000 w/ $5k seller credit
  • Why we liked it: ADU brings in extra income
    • Lots of updates before sale
    • Two egress windows
    • Flooring
    • Updated electrical
    • New windows
    • Other Misc
    • Location Alameda / I-25 – transitioning area with redevelopment popping up
Denver Real Estate Map
Single Family Rental with ADU in Athmar Park area of Denver near Alameda and I-25

Property Contract Details

  • Finding the property: Chris had it under contract before it hit the market. Due to the COVID-19 Pandemic, he had to cancel. It hit MLS and the client was ready to move, so we jumped on it. Because of the existing relationship, we negotiated $5,000 seller credit.
  • Under contract: $439,000 w/ $5,000 seller credit
  • Inspection Concerns:
    • Roof
    • HVAC servicing
    • Root intrusion sewer line
    • Laundry room window replaced
  • Inspection negotiation outcome:
    • Insurance replaced roof
    • HVAC cleaned and serviced
    • Sewer line was cleaned
    • Window was replaced

Property Financing Details

  • Loan Type: 20% down conventional
  • Appraisal: at value, no issues.
  • Seller Concessions: $4,500
  • PMI: None
  • Interest Rate Buy Down?: Yes bought 1.5 points down to 3.75%

Spreadsheet Analysis

Deal Analysis spreadsheet
Deal Analysis spreadsheet
Deal Analysis spreadsheet

Property Operating Expenses

Property Operating Expenses analysis spreadsheet

First Year Returns

Property Operating Expenses analysis spreadsheet

Conclusion

We underwrite our properties with property management. Our owner is self managing, which will bring his cash flow closer to $11,000 a year! It’s a great investment with strong cash flow now and has great upside down the road.

As discussed in our ADU course, building an ADU is typically cost prohibitive, because they cost $150,000 or more to build. Finding and buying homes with ADUs is the best investment route we’ve seen. They are great for investors and house hackers.

Video: Deal Analysis – Single Family Rental with ADU

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Authors
Chris Lopez
Chris Lopez is a Denver area real estate entrepreneur and investor, as well as the host of Bigger Pockets’ House Hackerz and the Denver Real Estate Investing Podcast.
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