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Are you interested in building a Denver rental portfolio but not sure where to start? Then… Start here! This quick start guide to Denver real estate investing will help new investors learn the Denver market and help existing investors stay up to date.
If you have feedback or ideas for the next edition’s guide, please let me know. If you have questions or want to start buying Denver rental properties, please set up an investment consultation with us.
Table of Contents
- Denver Real Estate Market Trends
- Executive Summary
- Single Family (Homes, Townhomes, and Condos) Stats
- Income Properties (2-4 units, 5+ units) Stats
- Denver Metro Price Appreciation (Homes vs Condos)
- Denver Metro Inventory (Homes, Town homes, Condos)
- Months of Inventory (MOI) (Homes, Town homes, Condos)
- Are Denver Real Estate Investors Buying at the Top?
- “When will the Foreclosures Start?”
- Population Growth
- Relationship Between Population and Residential Sales
- Housing Appreciation Rates During Recessions
- Rent and Vacancy Data
- What Causes Rent Growth?
- Cap Rate vs. Interest Rate
- Strategy and Asset Overview
- Building Equity for Long Term Wealth Creation
- Can I BRRRR in Denver?
- Denver Real Estate Investing Underwriting Overview
- Denver Real Estate Investing Market Homes – Detached Single Family Residence
- Denver Real Estate Investing Market Townhomes – Attached Single Family Residence
- Denver Real Estate Investing Market Condos – Attached Single Family Residence
- Multifamily – 2-4 units
- Denver Real Estate Investing Market Multifamily – 5+ units
- Updates and Resources
- YouTube Video: 2021 Denver Real Estate Investing Guide
Denver Real Estate Market Trends
There is no shortage of data and charts to share about the Denver real estate market. This guide shares the key data points and charts so you can understand the big trends in the Denver market to informed real estate investing decisions. Books are not the best medium for sharing the latest news on the market, so here the focus is on the macro trends. To get the most up to date information on the market:
- Plug into our monthly market update podcasts and blogs on the Denver Real Estate Investing Podcast. Find it in your podcast player or visit our Denver Real Estate Market Updates and Trends page.
- Review our quarterly in-depth trends packets and investing maps for Denver and other Colorado markets. Many of the charts in this post are from Your Castle Real Estate.
Executive Summary
The Denver real estate market is NOT in a bubble! There are no indications of a price drop. We are still in an extreme seller’s market (more buyers than sellers), with very low inventory. Denver is seeing strong population and job growth. In fact, the shift in more people working virtually seems to have accelerated people and jobs moving to Colorado.
After the initial lockdown in March and April, the market continued to appreciate strongly, often by double digits. Take the appreciation rate with a grain of salt because it is partly due to the mix of properties the market is selling. In Q4 2020, the number of homes and condos sold for over $1,000,000 was up over 100% from the prior year and the number of homes sold between $300K-500K was down 3%. This trend is not sustainable! Expect this to reverse in 2021. Do not be surprised if several months in 2021 show a decline in the average sold price from 2021 (especially in the 2nd half of 2021).
The majority of renters are paying their rents. More are on payment plans. Expect higher vacancy since it is nearly impossible to show occupied properties and there is a chance you will have some tenants needing to move out early due to a lost job. I had two tenants break their leases and move out in 2020. One tenant communicated well and was great to work with. It minimized vacancy and turn times and helped her find a better living situation. In contrast, another tenant did not pay for six weeks and we offered “cash for keys” to get him out. The second tenant cost three months’ worth of rent loss (6 weeks of him not paying and 6 weeks of turn/vacancy time), a full security deposit refund (this was the “cash for keys”), and $1,500 in turn costs.
Is it a good time to buy investment rentals in Denver during the COVID Pandemic?
Yes, assuming:
- Your personal financial situation (job/business) is stable.
- Your risk tolerance can handle more speedbumps in the market than usual (see above for higher vacancy and potentially more turns).
- Your investing timeline is five years or greater. The fundamentals of the Denver market are strong but expect some pandemic speedbumps along the way.
- You have strong cash reserves. We have always promoted 6 months or $10,000 per property. That is the minimum cash cushion! I have increased mine up to 9-12 months.
- Can your risk tolerance and cash reserves handle higher vacancy and/or a tenant not paying for months while evictions are in limbo?
If you have any questions or want to discuss your situation, please reach out and set up an investment consultation so we can discuss in more detail.
Now, on to the data!
Single Family (Homes, Townhomes, and Condos) Stats

Income Properties (2-4 units, 5+ units) Stats
The Denver real estate market continues to appreciate. We had a good increase in prices in 2017 and 2018; appreciation was flat in 2019 and has bounced back in 2020. Inventory is incredibly low, which has resulted in a drop in MOI (Months of Inventory) and DOM (Days on Market). It is a strong seller’s market. Why? Denver remains at low vacancy levels and rents are strong.

Denver Metro Price Appreciation (Homes vs Condos)
Homes appreciated at 6.5% annually over the past 45 years (1974-2018). Condos grew 5.5% per year. Condos were not as affected by the 2008 recession as homes were. Around 1986 the desire for single-family homes began to outpace condos. While both segments continue to see appreciation, the trend line is beginning to flatten.

Important Points:
- The average priced home in metro Denver in 1971 was $27,000!
- On average, home prices rise 6% per year, just a bit above inflation.
- Homes have gone up in price all but 4 years in the past 44! So, just because we are at record high prices DOES NOT mean prices have to fall next year. People who say that are wrong 90% of the time!
- “Experts” love to talk about a 7-year cycle. Do you see one on the chart? Prices rose from ‘71 to ‘87 (16 years). They held about steady for 4 years. Then rose for another 16 years. Then dropped for 3 years. Note how large the 2006 – 2009 drop was.
- Currently prices have been rising for 9 years.
Key Takeaways:
- It is important to understand the market and prices move in long waves. It is also hard to appreciate this in the era 24/7 news.
- Stay informed from the Denver Real Estate Investing Podcast and Your Castle’s quarterly trend packets, but do not overreact and make a snap decision based on them. Look at the long-term trends.
Denver Metro Inventory (Homes, Town homes, Condos)
Inventory levels of homes and condos available for purchase had been growing in 2019 but dropped again throughout 2020. As you can see, inventory is the lowest it has been in over 13 years.

Important Points:
On the left side of the chart:
- The solid line on the top of the chart is the number of homes and condos for sale, from 2008 to today.
- Notice the line is very high in 2008, due to LOTS of bank foreclosures.
- Buyers did not buy as much during the downturn due to the scary media headlines, job loss, and general uncertainty. As a result, inventories were high.
- The dotted line on the bottom shows the number of homes sold each month.
- Notice it has been trending upwards. This was caused by an improving economy and growth in the population.
- Note more homes are sold in the summer than the winter.
- Investors buy consistently all year.
- Families with kids in school prefer to move in the summer.
- On the right side of the chart
- Notice that the number of sales is about the same as the number of homes for sale.
- There’s very little inventory and it is competitive for buyers.
Key Takeaways:
- We did not arrive in this low inventory situation overnight. It took almost a decade to burn off all the excess bank inventory.
- This is not reflected in the graph above, but inventory has grown even tighter. The last few months of 2020 had more properties under contract than active inventory at the end of the month! At the end of Dec 2020, there were 2,541 active listings and 3,625 properties under contract. The dotted line is above the solid line. December had the lowest amount of inventory ever in the last 40 years of recorded data.
- If the inventory is tight:
- Buyers will have to compete hard (write great offers) to win a home.
- Sellers will generally have an edge in negotiations.
Months of Inventory (MOI) (Homes, Town homes, Condos)
Months of Inventory (MOI) is a great metric to track the strength of the market. It is the measure of how long it would take for all the properties on the market to be sold if no more inventory came on the market. We have been through a tight inventory in the past (1993-2000). MOI on 10/05/2020 was 0.8, the lowest it has been in 30yrs! The COVID crisis has contributed to a further tightening of inventory.

Important Points:
- For example, if one home is selling per month in a certain neighborhood and there are currently 6 homes on the market, there would be 6 MOI in that neighborhood. (Six MOI = 90 days on market.)
- MOI was high in the mid to late 80’s, reflecting our slow Denver market at that time.
- As the market strengthened going into the 90’s the MOI plummeted. During the 90’s MOI was under 4, a strong seller’s market.
- MOI began increasing in 2001 and leveled off around 2004 at 6-7 MOI (buyer’s market).
- As the market began to strengthen after our downturn in 2007 – 2009 the MOI went down quickly. This indicates there are more buyers than sellers, and housing inventory is not keeping up with housing demand. This is where we have been since 2011.
- We have far more demand for homes than we have supply, so prices are going up.
Key Takeaways:
Low MOI results in a strong sellers’ market which then implies:
- Multiple offers, and picky sellers.
- Buyers must focus on preparation with strong contracts and pre-qualification letters.
- Sellers need to price and market their property appropriately to get top dollar. It is a great time for real estate investors to trade up using a 1031 exchange.
Are Denver Real Estate Investors Buying at the Top?
Clients often ask if Denver is at the top of the of the market? We do not have a crystal ball, but the data does not suggest the market is at the top or prices will drop soon. Personally, we are not counting on it. Let’s play out a worst-case scenario of buying at the top of the market in 2007.
What if you purchased a home for $305,000 in June 2007, the worst housing recession in Denver history? If you held it for five years, you would have actually been up by $10,000. If you held it for a total of 8 years (the national average), your home would be worth $423,600 . . . $112,000 MORE than the purchase price!

“When will the Foreclosures Start?”
National Stats: Only 3% of US homes are currently “underwater” (home value is less than mortgage balance), while 97% have equity. Therefore, we will not see any material increase in foreclosure activity from the COVID crisis. Everyone who loses a job or has economic trouble will just list normally, sell, and harvest their equity. Of all active forbearances that are past due on their mortgage payment, 77% have at least 20% equity in their home.

Colorado Stats: In November 2020, Joe Massey of Castle & Cooke Mortgage put together a great presentation on Colorado Forbearance data. This section will contain the executive summary with the numbers (which means copying and pasting from Joe’s PPT slides!). If you want the full commentary, listen to podcast #239 or Google “Colorado Forbearance and Foreclosure Data.”
Sources: Colorado Census Data; Bloomberg; Mortgage Bankers Association; Black Knight; Castle & Cooke Mortgage Portfolio Data
- Number of homes in Colorado = 1,658,238
- 37% of homes are owned Free and Clear = 613,548
- 63% of homes have a Mortgage = 1,044,690
- Peak Forbearance of 8.65% Nationally and in Colorado = 90,366
90,000+ forbearances means there must be a MASSIVE wave of foreclosures coming soon . . . RIGHT? Let’s break down the forbearance numbers:
- Number of homes Forbearance = 90,366
- 25% Have never missed a single payment = 22,591
- 30% Completed Forbearance and Performing = 27,110
- 6% Paid off – Sold or Refinanced = 5,422
- 34% Remain in Forbearance = 30,724
- 5% Delinquent = 4,518
4,500+ homeowners are delinquent after forbearance and are at risk of foreclosure. 4,500+ delinquent homeowners account for 0.27% of the homes in Colorado. If all 4,500+ homes hit the market tomorrow, would that move the needle on inventory? No, it would not. Remember, the 4,500+ figure is for all of Colorado. Let’s assume all those houses are in Denver. Based on the current inventory levels, we would still be in a seller’s market.

What about the other 34% or 30,724 properties that are still in forbearance? Again, we do not have a crystal ball, but best guess is that those properties will have a similar breakdown similar to above. We highly doubt all 30,000 properties will go into forbearance.
Analysis: Do not hold your breath expecting a wave of foreclosures to hit the market and cause prices to drop or plateau. Denver real estate investors should not count on there being a wave of foreclosures to buy property cheaply.
Population Growth
Metro Denver is one of the most desirable places to live in the country, which is why so many people are moving here! Local economist Patty Silverstein and the Census Bureau expect the Denver population will continue to grow around 50,000 people per year. Where are they going to live?

Important Points
- Metro Denver hit 3,000,000 people in the fall of 2014.
- We are expected to increase our population by 50,000/year for the next 10 years. That is a LOT of growth.
- Population growth alone will support the housing market and continue to make the demand for housing (both rental and purchase) stronger than the supply for years to come.
- There are 849,000 millennials in metro Denver and 36% of them still live with their parents.
- As the economy continues to improve and the large population of millennials age, they will begin moving out of their parents’ homes and begin renting and purchasing property.
- This movement will put additional pressure on both the rental market and the housing market over the next few years, continuing to strengthen both markets.
- Expect both rents and home prices to keep rising for at least the next few years.
Key Takeaways:
- More and more people are moving to the Front Range and they all need to live somewhere.
- Our increasing population should help nervous buyers breathe easier.
- The demand for property will continue to outstrip the supply for the foreseeable future.
- The Millennial generation’s demand for housing will be very strong in the future as they grow up and move out of their parents’ homes.
Relationship Between Population and Residential Sales
Sales unit volume relative to population fluctuates depending on Denver’s economy. Sales in 2019 were only 8% higher than 2004… but metro Denver now has 25% more people than it did in 2004!
Sales figures include Single Family Homes and Condos

What historical insights can give us insight about our future market?
This chart compares the number of home sales transactions to the population of metro Denver.
- The blue line is the population (right axis) – basically the number of expected homes sales in a year given the population that year.
- ‘75 – ’79 – Coming out of a recession there are a lot more home sales, as you might expect.
- ‘80 – ’92 – Big recession in Denver. People do not buy homes when there is a lot of unemployment and consumer confidence is low.
- ‘93 – ’02 – Our local economy improves; workers get more confident and there are a lot more homes sales.
- ‘03 – ’05 – Huge boom in home sales due to the culmination of irrational lending practices (e.g., “liar loans / stated income loans”). We go way beyond the average number of sales for the existing population.
- ‘06 – ’09 – The inevitable reaction to a boom. The market busts, sales plummet.
- ‘10 – ‘13 – The inevitable reaction to a bust. The market turns and home sales skyrocket.
- ‘14 – Surprise! The number of sales in ‘14 was actually lower than in ‘13. The inventory is so low there just aren’t enough homes to buy. Everyone thought that ‘14 sales would skyrocket and lead us to another bust, but they were wrong. (It is hard to predict the future!).
- ‘15 sales were about even with’14.
Key Takeaways:
- We are NOT in a bubble, since we are selling almost EXACTLY the number of homes in our market of 3 million people as we should. It is not like 2005.
- While in ‘06 a bust was likely to follow the huge number of sales from the previous 3 years, that is not the case now.
- There is no evidence from this data that any sort of bust is on the horizon.
Housing Appreciation Rates During Recessions
Nationally, homes have appreciated in four of the last six recessions. The appreciation rates vary widely across the front range from recession to recession. All Front Range markets have appreciated in FIVE of the last six recessions, with Fort Collins being the only exception with a small dip in 1981. “Recession” does NOT equate to “Housing Crisis!” Even if a house is “upside down”, the monthly payment does not change (given the typical 30-yr fixed mortgage.)
Remember, the 2007 recession was caused by a housing and lending crisis!

Rent and Vacancy Data
It is important to consider historic rental rates along with vacancy rates. When Denver rental vacancy is below 6%, we experience rent growth. From 1981-2019 average rent growth was 4% as shown below (5+ unit Apartment data only):

Important Points:
- This chart shows the correlation between rental vacancy rate and median rent in metro Denver since ‘81.
- Not surprisingly, when vacancy rates are high, rents stall and vice versa.
- During the 80’s vacancy rates were high, and rent growth was very slow.
- During the 90’s vacancy rates were low, and rent growth was very strong.
- During the 2000’s vacancy rates skyrocketed in the first few years and rent growth was very slow.
- Since then, vacancy rates have mostly fallen (except in 2010) and rents have risen.
- Today’s ultra-low vacancy rate has led to massive rental increases. Rents have risen over 30% in the past 3 years.
- Long term buy-and-hold investors are taking advantage of this trend by buying more rental properties.
Key Takeaways:
- Renters are suffering through some of the strongest rental increases in metro Denver history.
- Because of the lack of rental unit construction, this dynamic is not expected to change for years.
- This is causing many renters to take the plunge and purchase a home, further increasing the demand for homes.
- Low interest rates make home ownership (as compared to renting!) relatively affordable.
- The ones who are in a better position are landlords and home sellers.
What Causes Rent Growth?
Average apartment rent relative to average Denver per capita income is currently at 23%. The 35-year average is 24%. Rents are more expensive relative to income than they were in 2005-2013, when at historically very low levels. They are now near the historical norm. There’s a clear link between occupancy (1-vacancy rate) and rent growth. As vacancy rates gently drift upwards, rent growth will soften.

Apartment Association of Metro Denver (AAMD) Summary for 3Q 2020.
- The amount of non-payment of rent remained low, with most respondents saying their results show less than 5% of tenants not paying.
- Metro Denver apartment market showed an overall quarterly decrease in vacancy to 4.9% from 5.1%, with a year over year increase of 0.2% from 4.70%. Vacancy decreased for most counties reported.
- Only 2100 new rental units finished construction and were added to the market. We filled 2,900… so we filled every new unit delivered plus 800 or so units that were vacant.
- The average rent went up slightly, from $1506 to $1522.
- And finally, discounts and concessions are up a little, too.
Property Manager Updates
The AAMD does a great job capturing a 300-unit new apartment being delivered, but it is really hard to capture the data from small landlords. That’s why we started our Denver Property Management Update Podcast episodes. Below is a summary of what local property managers are saying. Please take the data with a grain of salt as it is a fluid situation and includes my “Back of the napkin” note-taking.
- Overall, property managers (PMs) are reporting strong rent collection, often within 2-5% for the same month in 2019. More tenants, however, are on payment plans. It is taking longer to collect the rent, but they are collecting it.
- A higher percentage of tenants are staying and renewing their leases.
- There is strong leasing activity with many PMs reporting continued rent increases. Most PMs recommend having the tenant renew if possible, even if rent is flat. Because of COVID, property managers cannot follow their typical protocol of showing properties with the current tenant in place before the lease expires. Expect longer turn times and higher vacancies.
- Less than 0.5% of tenants are not paying any rent. The outcome depends a lot on the tenant. Some are communicating and working with the PMs to break the lease early in good faith. Others are being offered cash for keys to move out. A small number of tenants require eviction. With the various eviction moratoriums and court backlogs, it is very hard to evict a tenant. Plan on good communication. If you hit the unlucky jackpot of having a tenant stay there for 6 – 9 months of paying no rent, make sure you have the high cash reserves to ride it out. Communication is key.
- Not surprisingly, tenants who do not have the ability to work from home are having the most difficult time paying rent due to lost hours and/or their job.
- There are programs out there to help tenants catch up on rent. PM’s have reported helping tenants get 6 months or more of back rent that sometimes exceed $10,000. If you have a tenant not paying, get them connected with these programs. Since many of these programs are changing with various government programs and funding, a list could not be provided. Check with a property manager or research your local City, County, and State housing support resources to see what might be available.
Key Takeaways:
- Overall rent collection remains strong with a growing tenant pool. Many PMs have reported an influx of out-of-state tenants moving to Denver.
- Denver real estate investors should be prepared to have higher vacancy do to longer turn times and higher tenant turnover.
- Keep strong cash reserves (6-12 months) in case you have a tenant that cannot pay for months at a time.
Cap Rate vs. Interest Rate
There is more to investing than just looking at cap rates (or whatever your favorite metric is) when it comes to real estate investing in Denver. Since you, me and other investors use financing to buy rental properties, we have to look at the interest rate and its relationship to the investment. The spread between your cap rate and interest rate is often overlooked.
The below chart compares two scenarios: both have the same assumptions for annual appreciation (5% per year), vacancy (5%), property management (8%) and maintenance reserves (8%). Based on actual investor purchases on the MLS. Buying at today’s higher prices is more profitable than buying at 2006’s lower prices.

Focus on the concept that the relationship between cap rate and interest rate is very important. Why bring this up? In case you haven’t heard, in 2020 interest rates dropped and are at historic lows from the pandemic.

I have a perfect real-life example that illustrates the cap rate comparison. In 2020, I purchased two 3/2 condos in Aurora. They are in the same condo complex with all the same operating data (Rent = $1,850/mo, PM = 10%, Vacancy = 5%, HOA = $350/mo, Repairs = 5%, Taxes = $1280, Insurance = $430), except the purchase price ($196,000 vs $212,000) and interest rates (3.875% vs 3.25%) are different. The loans are 30-year fixed conventional loans. They even had the same initial repair costs of around $4,000.
The first condo closed in early March, weeks before interest rates dropped. The second condo closed in September, after interest rates dropped.

Maybe that second condo wasn’t a good investment, after all it is making $9 less a year! Look at the NOI (net operating income), it’s the same! When we are planning for retirement cash flow, NOI is the number to focus on.
I am ending this section with this point on cap rate vs interest rate, because cap rates are likely to continue to compress. Historically, cheap debt pushes asset prices up. Cap rates are only going to get lower. My plan is to get as much “cheap” debt as possible to buy assets as prices increase.
Strategy and Asset Overview
In case you haven’t heard me say it before, I’m a KISS (keep it simple, stupid) person. This is especially true for real estate investing in the Denver area. While day trading years ago was not a successful venture for me, it taught me that the “trend is your friend.” In day trading, these are short term trends that last from hours to days. Short time frames are for stock trading, but real estate is a long term investment. Identifying the longer-term trends in real estate is crucial for building long term wealth. Many people get tunnel vision on small details and lose sight of the big picture for building wealth.
The most important trend to focus on is the market growing or shrinking based on population and job demographics? Very few markets, businesses or things in life plateau or stay stagnant. They are either growing or shrinking. A growing market gives you so much more opportunity and is much more forgiving for mistakes. My focus is riding the growth trend of the Denver real estate market, which has a high probability for prices and rents to appreciate over the long-term.
In 10, 20 and 30 years, do you think Denver will have a smaller or larger population? Will prices and rents be higher or lower? I have asked this question hundreds of times and have had no one answer less/lower. Everyone has said more/higher.
It is nearly impossible to make the market fit your investing strategy. Rather, you need to make your real estate investing strategy work in the Denver market or invest in a different market. That means forgetting about overly simplistic rules, such as the 1% rule. This rule simply does not work in the Denver market. Complaining about the market and waiting for prices to drop is a poor strategy, which most likely leads you to sitting on the sidelines for many years.
Take a minute to flip back a few pages to review the chart under the “Relationship between population growth and residential sales” header. Denver is in the “goldilocks stage” where you can buy cash flowing properties AND expect price appreciation. This is a great recipe for long term wealth building.
Before going over the examples of current properties and their cash flow, let’s spend time on the price appreciation to build equity. Most investors are familiar with cash flow, but far fewer are familiar with optimizing their return on equity (ROE). Before you can maximize your ROE, you need to build the equity first. Maximizing your ROE often has a greater overall return than just focusing on cash flow.
Building Equity for Long Term Wealth Creation
A big focus of my real estate investing strategy is building equity because that is what the Denver market is most likely to return. If you are unfamiliar with the concept of optimizing your return on equity, then check out our blog post and podcast Return on Equity. It is also published as a chapter in the 2020 Investing Guide.
There are three main ways to build equity in properties:
- Paying down the principal balance on your loan. This is usually the slowest and is based on the loan amortization and/or you making extra principal payments.
- Prices appreciating based on market conditions. You have the least control over this.
- Adding value to properties to increase the equity. The BRRRR (Buy, Rehab, Rent, Refinance, Repeat) process is a very popular strategy.
Can I BRRRR in Denver?
Using a BRRRR investing strategy with single family homes is incredibly difficult in Denver’s current, low-inventory real estate market conditions. The strategy works very well in a buyer’s market, which is high inventory, like we had 10 to 13 years ago— the exact opposite of our current market conditions. The investors consistently executing BRRRR’s in the Denver area are the experienced ones with established investing businesses in place. They have staff, capital, and advertising campaigns to make it happen. Many of them are having a hard time finding true BRRRR opportunities. It is not impossible, but when people weigh the time and money investment needed to find these deals, most people are better off buying a standard “good deal” at 20 or 25% down with a low interest rate.
The best opportunity for BRRRR’s are in the 5+ multifamily space. For properties that are four units or less, their appraised value is mainly determined through similar sales comps. In the 5+ space, the value is mainly determined through the income approach, which is based off the net operating income (NOI). It’s easier to find an apartment building to increase the NOI than it is to find a single-family home to buy far below fair market value.
Here’s what to look for in 5+ multi-family properties to potentially BRRRR / add value:
- Under market rents
- Units that need updating
- Poor property management / lax ownership
- Implementing utility bill-back
- Reducing utility costs with energy efficient lighting and low flow toilets
Expect a 12 to 24-month turn time while 1 to 2 units are turned every 4-8 weeks as leases lapse. Then stabilize, refinance, and pull part or all of your initial investment out. Since we are in a pandemic, assume longer turn times and conservative rent bumps. These typically require $250,000 of capital or greater. Review our recent investment property deal analyses to see recent transactions.
Most investors are not in a position to buy value add multifamily buildings. For most investors, riding the Denver growth trend and focusing on point #2 above will lead to the most equity growth and require the least amount of work and time on the investor’s part. However, it requires patience since it is typically a 3–7-year time frame. An important question to ask yourself is: “Where is the sweet spot in my time and energy invested in relation to finding a great deal?” If it takes you 200 hours and $5,000 in costs, is that worth getting a property for $30,000 below fair market value? It depends on the value of your time. Both from a work perspective and personal perspective. As a father of two young daughters, grinding hundreds of hours to finding one or two deals is not worth it to me. Now, if this was seven years ago before I started a family and the Envision Advisors, then I may have a different answer for you.
As the equity builds, you will tap into your “real estate piggy bank” to redeploy the equity into more rentals. The two common ways are to sell and trade up using a 1031 exchange or to do a cash-out refinance. The Return on Equity article mentioned above goes into detail on both options.
Denver Real Estate Investing Underwriting Overview
Hopefully you did not get too lost in the equity section above. I started with that section first to you focus on long term wealth creation, not just cash flow in year one. This section will walk you through a typical deal (not the best or the worst, but a typical deal) for each asset class.
First, let’s talk about underwriting properties!
Everyone underwrites properties differently. Until you understand how a property is underwritten, you will need to take the cap rate and cash flow with a grain of salt. If you have ever reviewed an offering memorandum for an income property, then you know listing agents are notoriously light on expenses. It is not uncommon for our cap rates to be 1 to 2% lower once we calculate the actual expenses. Underwriting properties realistically and conservatively is important to us.
The table shows the basic underwriting rules for Denver real estate investments that the example properties are using.

Investor vs House Hacking
This section was the most difficult to write as there is so much information to cover on comparing different asset types, while keeping it simple enough. The biggest item debated was comparing returns for traditional investors compared to house hackers. They are both buying rental properties, but with very different tactics. The best way is to compare the same property from each asset class for both types of investors. Let’s clearly define each type of person.
Landlord Investor
Landlord investors are the traditional investors that most people think of for real estate investing. They are buying rental properties with tenants in place or putting tenants in there after closing. Typically, they are putting down 15-25% down, depending on the asset class. Most landlords investing in the Denver real estate market are buying condos and multi families (both 2-4 and 5+ units) as they have higher cap rates (so, better cash flow) than detached single family homes.
House Hacker
House hacking is where you buy a place as an owner-occupant for favorable loan terms (lower down payment: 0-5% and lower interest rate: typically 0.5 to 1.0% lower than an investment loan), move in, rent out space to reduce your living expenses and then eventually move out to convert it to a rental property. The analyses presented focus on after the house hacker moves out and converts it to a rental, not while he or she is living there. Our attitude is that you are buying a future rental property, so prioritize that analysis over while you’re living there (presumably for free or reduced living expenses).
One final note: the term house hacking is used interchangeably for both house hacking and Nomad™. The main difference between the two is that house hackers have tenants/roommates to reduce their living expenses. Nomad™ is where a person buys a future rental to take advantage of the favorable loan and down payment options for owner occupants, but do not have tenants/roommates. People who Nomad™ are often families with children or people who value privacy over having roommates. At the end of the day, both are buying future rentals for almost nothing down!
In Q3 2020, we published Ultimate House Hacking Guide for Denver, a comprehensive book and podcast series to cover all the details of house hacking.
Denver Real Estate Investing Market Homes – Detached Single Family Residence
Detached (no walls are shared with other properties, like a condo or townhome) SFR’s generally have the lowest cap rates (currently 4% to 5% cap) as a traditional rental with one lease. The two most common variations to increase cap rates and cash flow are the:
- Room by room rental strategy. Here, you rent out each room individually with its own lease. A 4 or 5 bedroom is needed to see the extra cash flow. A 3-bedroom house as a standard rental or room by room will generate about the same cash flow. The benefit is that you will get more cash flow than your standard lease. The downside is that it is a lot more work. It is 4 or 5 individual leases with individuals sharing common space (which the owner generally furnishes). Make sure you check and understand the occupancy rules for where the property is located. In Denver metro, they typically range from 2 to 5 unrelated people that are allowed to live together. Most investors do not rent room by room because the extra work is not worth the extra cash flow. Again, it depends on your situation. We still have not found an established property manager to manage room by room rentals (again … too much work!) If you are a PM that will manage room-by-room, please reach out.
- Accessory Dwelling Units (ADU’s) or income suites. These are technically different, but have similar returns, so they are lumped together for simplicity. Each has separate living spaces; depending on the layout, living space could be completely separated or include some shared areas (laundry, backyard, entryways). The benefit is that you will get more cash flow than a standard lease and management should be easier than a room-by-room rental. The negatives are that zoning and permitting are tricky. Some areas and zoning allow you to rent out the ADU as long as it is your primary residence, but do not allow two separate leases when you move out. Many ADUs and income suites are simply not permitted in some locales. Be aware of the occupancy rules as well. Discussing the details is too much for this book.
Financing options for 30-year conventional loans:
- Landlord Investor: 15-25% down
- At 15% down, you will pay PMI since it is below 20% down.
- House Hacker:
- VA: 0% down
- FHA: 3.5% down
- Conventional: 5% down
- There are many other loan programs as well, but the three above are what our clients use 99% of the time.
The table below compares buying a detached SFR as both a landlord investor and house hacker and then renting it out with a single lease or room by room.
Denver Real Estate Investing Case Study: 4-bedroom, 3-bathroom House in Athmar Park
Property Overview: This detached SFR is a 4-bedroom, 3-bathroom house in Athmar Park. It’s in a great location, on a corner lot, has a large, detached garage and is fully remodeled. Buying in a transitioning part of town should hopefully return a higher price and rent appreciation. Buying a remodeled property can make sense (1) there isn’t often a huge price difference between a remodeled place vs one that is outdated and (2) repairs and capex should be lower than normal for the first 5 years or so. A client purchased it as a house hack in Q4 2020.
Purchase Price = $478,000; Taxes = $2,100; Insurance = $1,500; Repairs = 8% of rents (underwriting at long term average); Vacancy = 5%; Initial repair costs = $2,200 (included in total investment); Annual price and rent appreciation = 3%.


Here are important notes about the table:
- There are numerous variables to adjust that will change the numbers, such as buying down your interest rate, prepaying PMI (for down payments less than 20%), changing the down payment amount, and so on. It is impossible to compare all the scenarios. As we work with clients, we always run different scenarios to identify the “sweet spot”, where you get the best return for your long term goals.
- The appreciation returns of 13.7% and 43.9% does NOT mean the property appreciated that amount. At a 3% appreciation rate, the property appreciated $14,430 (3% * $478,000) in year one. The $14,430 amount is divided by the total initial investment to illustrate the potential appreciation return:
- Landlord Investor: $14,430 / $104,340 = 13.7%
- House Hacker: $14,430 / $32,640 = 43.9%
- Regardless of how you rent it out, the appreciation, debt paydown, and depreciation give you the same return! Do not focus solely on cash flow.
- The debt paydown in the house hack example is greater than the landlord investor because the house hacker has a higher mortgage balance because of the lower down payment.
Understanding the four returns of cash flow, appreciation, debt paydown, and depreciation is discussed in detail in the 2020 guide. Check out The Four Returns in Real Estate Investing: Cash Flow Is NOT Everything to learn more about these concepts and how they look in the Denver real estate investing market.
Denver Real Estate Investing Case Study: House With ADU in Lakewood
Property Overview: The property has a main house (2-bedroom, 1 bathroom), a detached ADU (1 bedroom, 1 bathroom), and detached garage in Lakewood. There is room to park an RV or boat, which can be rented out for additional income. It’s a big lot and both units were remodeled. It was purchased in Q4 2020 by a house hacker. His plan is to live in the main house and rent out the ADU as a furnished medium rental (30 days+.) The analysis below assumes both units are rented out as traditional, long term rentals. The location and big lot provide an additional potential exit strategy to develop the lot in the future.
Purchase Price = $482,000; Taxes = $3,351; Insurance = $1,800; Repairs = 8% of rents; Vacancy = 5%; Annual price and rent appreciation = 3%; Seller credit = $3,000 for inspection items for client to handle initial repair costs.

Here are important notes about the table:
- There is additional potential rental income for renting out the garage and RV spot (an extra $150-$300/mo), which would increase cap rate and cash flow. As we work with clients, we always run different scenarios to identify the “sweet spot”, where you get the best return for your long-term goals.
- The same notes for the detached SFR examples apply to this example, for the sake of space, please review the earlier sections.
Denver Real Estate Investing Market Townhomes – Attached Single Family Residence
In 2020 we saw a trend of buying more new-build townhomes. The combination of the low interest rate environment, great locations since they are infill developments, lower competition (fewer bidding wars), and lower maintenance costs for the initial years can make them attractive investment. As an organization, our clients purchased more new-build townhomes than resales townhomes. The majority of our new build townhome buyers are house hackers. The purchase price range is $500,000 to $650,000.
There are a few new build layouts that have permitted mother-in-law suites on the first floor. They are a great opportunity to increase rents using Airbnb or a medium-term rental, or simply getting higher rent for a private living space on a long-term lease.
Financing options for 30-year conventional loans:
- Landlord Investor: 15-25% down
- At 15% down, you will pay PMI since it is below 20% down.
- House Hacker:
- VA: 0% down
- FHA: 3.5% down
- Conventional: 5% down
- There are many other loan programs as well, but the three above are what our clients use 99% of the time.
The table below compares buying a new build townhome as a house hack versus a landlord investor.
Property Overview: This property is a new build townhome near Denver University. It’s a 3-bedroom, 3.5-bathroom layout. The first floor has a garage, bedroom w/ private bath. The main floor has the kitchen and living room w./ a 1/2 bath. The upstairs has the laundry and two master suites. The layout and location give it great flexibility to rent out the entire unit or the rooms individually. Preston Newberry purchased this as a Nomad property. The scenario compares buying as a Nomad and as a landlord investor.
Purchase Price = $560,000; Taxes = $2,000 estimated ($1,200 at purchase); Insurance = $1,462; Repairs = 5% of rents; Vacancy = 5%; Annual price and rent appreciation = 3%; Seller credit = $5,000; HOA = $115/mo; Initial repair costs = $7,000 (appliances and window blinds)

The same notes for the detached SFR examples apply to this example, for the sake of space, please review the earlier sections.
Denver Real Estate Investing Market Condos – Attached Single Family Residence
Condos still offer the lowest entry price point and typically have the highest cap rates. Most condos need $5,000 or less in initial repair costs. The majority of investments are 3-bedroom, 2 bathroom condos in Aurora. The 3/2 layout is the typically the sweet spot.
Financing options for 30-year conventional loans:
Make sure your lender understands HOA’s and their underwriting rules. Condos have the most complex lending requirements.
- Landlord Investor: Assume 25%
- House Hacker:
- VA: 0% down
- FHA: 3.5% down. Some condo complexes are not FHA approved. You can ask for an FHA spot approval.
- Conventional: 5% down
The table below compares buying a typical 3/2 condo as a house hack versus a landlord investor. Please note that this complex would require an FHA spot approval for a house hacker.
Property Overview: This is a 3-bedroom, 2-bathroom condo in Aurora. This is the same condo used as an example in the “Cap Rate Vs Interest Rate” earlier in the chapter.
Purchase Price = $212,000 Taxes = $1,280; Insurance = $430; Repairs = 5% of rents; Vacancy = 5%; Annual price and rent appreciation = 3%; HOA = $350/mo; Initial repair costs = $4,000

The same notes for the detached SFR examples apply to this example, again for the sake of space, please review the earlier sections.
Multifamily – 2-4 units
Most 2-4 unit multifamily properties that we purchase are in the Denver suburbs: Aurora, Lakewood, Arvada, Wheat Ridge, and Westminster. They generally have the best cap rates and are all brick, built in the 1960’s and 1970’s. Multifamily buildings in core Denver have lower cap rates and are typically built in the early 1900’s, which often lead to higher costs in repairs and capital expenditures.
Financing Options
2-4 unit multifamily is eligible for residential financing.
- Landlord Investor:
- 30-year fixed rate conventional: 25%
- 5 to 10-year ARM (adjustable-rate mortgage): 20%
- Before COVID caused interest rates to drop, many landlord investors used a local bank (often First Bank) to buy at 20% down and have an interest rate around 4%. 30-year conventional loans were often 4.75 to 5.25% range. Now that COVID has pushed rates down, many investors are now locking in a 30-year fixed interest rate in the mid to high 3%’s range.
- House Hacker:
- VA: 0% down
- FHA: 3.5% down
- Conventional: 15% down for a duplex
- Conventional: 25% down for a triplex or fourplex.
The table below compares buying a duplex as both a landlord investor and house hacker and then renting it out with a single lease or one unit as a room by room.
Property Overview: This duplex is in the Capitol Hill neighborhood of Denver. It’s an up/down layout. The bottom unit is 3 bedrooms, 1 bathroom. The top unit is 4 bedrooms, 1 bathroom. It’s all brick and built in the early 1900’s. All major mechanical systems have been updated including roof, plumbing, electrical, and windows. It’s a great location with easy access to public transportation, restaurants, bars, and Downtown Denver. It’s zoned G-RO-5 General Urban Residential Office, which allows for a potential development exit strategy. A client purchased it as a house hack in Q3 2020.
Purchase Price = $740,000; Taxes = $3,200; Insurance = $1,800; Repairs = 8% of rents; Vacancy = 5%; Initial repair costs = $20,000 (included in total investment); Annual price and rent appreciation = 3%

The same notes for the detached SFR examples apply to this example, for the sake of space, please review the earlier sections.
The table below compares buying a duplex as both a landlord investor and house hacker.
Property Overview: Great up/down duplex near west Colfax in Lakewood. Quiet neighborhood in an up-and-coming area with strong rental potential. Older property with good upside with sweat equity potential and plenty of parking. Both units are 2 bedrooms, 1 bathroom. A client purchased this as a house hack in Q3 2020.
Purchase Price = $435,000; Taxes = $1,936; Insurance = $1,225; Repairs = 8% of rents; Vacancy = 5%; Annual price and rent appreciation = 3%; Seller credit = $3,500 for inspection items for client to handle initial repair costs; Initial repair costs = $5,000

The same notes for the detached SFR examples apply to this example, for the sake of space, please review the earlier sections.
Note on all scenarios: The cash flow difference between a house hack and landlord investor is not that significant when compared to the down payment difference. This is a great example of why you should house hack if you can.
Denver Real Estate Investing Market Multifamily – 5+ units
Note to readers: There is a lot more educational content coming in 2021 for commercial and multifamily properties. There wasn’t enough time to get it in this 2021 edition. The following section touches on the key points.
Multifamily properties that are 5 units or larger require a commercial loan, which have no favorable owner-occupant financing terms. Therefore, this example will not compare a house hack scenario. Rather, the example focuses on a value-add scenario. As written in the earlier section, “Common Question: Can I BRRRR in Denver?” we are seeing the best value add opportunities in the 5+ multifamily space.
Our clients are typically buying a turnkey property, or a value-add. This example will focus on a value-add example, as turn-key properties are relatively straightforward. For turn-key properties, cap rates typically range from a high 4 to mid-5 cap rate.
Financing Options
Commercial lending is a completely different world than residential lending. This section will highlight key differences:
- Minimum down payment: 25-30%
- Interest rate range at time of writing: mid 3’s to low 4’s
- The term, amortization, amount down, your experience and the property will all affect the rate.
- Amortization: 25-30 years
- Term: Commercial lending does not have 30-year fixed terms. They are adjustable-rate mortgages (ARM’s) with terms typically between 1-10 years before the rate will float.
There are quite a few financing options for value add multifamilies. Here are two common ones:
- Buy with a shorter-term acquisition loan of 1-3 years. Some investors will fund the renovations from their own cash or utilize a construction loan. After the property is updated, rented out, and stabilized (typically 6 months), then refinance into a new loan, with the goal of pulling out some or all of the initial investment.
- Buy with longer-term loan, but with an interest only payment for years 1-3. The reduced monthly mortgage payment is used to fund the property renovations. For simplicity, the example below uses this option.
Property Overview: This is a two building multifamily with a total of 12 units. It was built in the 1960’s and is located in Lakewood, CO. The rents were below market, providing a great opportunity to update the units and raise the rents.
Purchase Price = $2,225,000; Down payment (30%) = $667,500; Acquisition / loan costs = $30,000; Renovations = $120,000 ($10,000/unit)

Updates and Resources
Ultimate House Hacking Guide for Denver Updates
In 2020, we published the Ultimate House Hacking Guide for Denver book. I had an internal debate where to put updates to the book with house hacking updates. Here is where it ended up!
Here are two main updates since the book was published:
- As mentioned earlier in this chapter, more house hackers are buying new-build townhomes. If you are looking to buy a house hack, put new-build townhomes on your radar. Tune into the podcast for more deal analyses on new-build townhomes.
- The FHA self-sufficiency test is making it harder to buy triplexes or fourplexes. The self-sufficiency test requires that the mortgage payment (PITI) is no greater than 75% of total rents. It does not apply to duplexes. The continued increase in prices makes it harder for properties to pass the self-sufficiency test. In 2020, we did not sell a triplex or fourplex to a house hacker.
Opportunities and Considerations for the Denver Real Estate Investing Market
- As mentioned earlier, stay conservative and hold high cash reserves! Be prepared to handle higher vacancy and a choppy 2021.
- Take advantage of the current low interest rates.
- Consider refinancing current properties (both rentals and your primary) to lower your monthly payment. Reminder: If you refinance your primary, it may reset the one-year occupancy rule. Talk with your lender to clarify loan details.
- Even though cash flow is getting tighter, consider buying more properties and lock in a low interest rate. Remember, low interest rates drive up asset prices and compress cap rates.
- Tap into your equity to buy more rentals. Two great options are cash-out refinances and selling while utilizing a 1031 exchange to buy more properties. Check out our exclusive portfolio analysis software Property Llama to analyze your properties and see how you can optimize your rental portfolio.
- The Colorado November election repealed the Gallagher Amendment. Expect residential property taxes to increase. I’m not qualified to discuss this issue in detail, but if you’re an expert, please reach out. Publishing educational content on this topic is a 2021 goal.
Occupancy Limits
At the time of writing, Denver is considering raising the occupancy of unrelated people who can live together from 2 to 5. It looks the limit will be passed! Stay tuned to our podcast for updates throughout the year.
A big thank you to Jeff White for sending over the Group Living Text Amendment prepared by Denver’s Land Use Transportation and Infrastructure Committee from October 6, 2020. Slide 24 has a great chart showing the occupancy limits around Denver metro and other cities.

Conforming Loan Limits
A big thank you to Joe Massey of Castle & Cooke Mortgage for sending over the new conforming loan limits for 2021. The five counties (Adams, Arapahoe, Denver, Douglas, and Jefferson) in the Denver metro have the same 2021 loan limits:
- One Unit Limit: $596,850
- Two Unit Limit: $764,050
- Three Unit Limit: $923,600
- Four Unit Limit: $1,147,800
This is the limit for the mortgage balance, not the purchase price.
YouTube Video: 2021 Denver Real Estate Investing Guide
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