In this Deal Analysis, Leah joined me to talk about a townhouse in Pueblo she just helped a client purchase. As Denver and Colorado Springs continue to increase in price, we’ve been focusing more on Pueblo as a great alternative market.
We often have clients who have $50K to invest, which is harder to deploy as markets become more expensive. Pueblo offers investors the opportunity to find a property within that price range and we’re seeing clients get solid returns.
- Listen to the podcast “#70: Growing Returns on a $195K Pueblo Townhouse” on the Colorado Springs 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.
This investor was torn between investing in Pueblo and a Midwest market. He had never been to Pueblo before, so Leah took him on a tour so he could see it for himself. After looking around, he ended up loving the city and was ready to invest there.
This isn’t the first time our clients fell in love with Pueblo. This is why we recommend that anyone interested in the area should spend some time there. Look at the neighborhoods, have lunch by the Riverwalk, and familiarize yourself with the area.
Investment Property Details
This is a 2 bedroom/2 bathroom townhouse located in the Belmont neighborhood of Pueblo. There’s a lot of opportunity to add value—the basement is piped for an additional bathroom and already has a closet and egress window. It would be easy to convert it into a 3 bedroom/3 bathroom home down the line.
Property Contract Details
The townhouse was listed at $190K, and they submitted an offer for $195K. This isn’t bad, considering how many over ask offers we submit in the Springs. There were multiple offers on this property, so Leah talked to the client and they included a limited inspection and appraisal gap.
The house was built in the 1980s and is in good shape—no major issues were found during the inspection.
Property Financing Details
I used the Rental Property Spreadsheet to run the numbers on this deal.
We initially underwrote the property at $1300 monthly rent, but the next-door neighbor is getting $1500 in rent. Therefore, we ran this analysis at the $1500 per month rate.
Property Operating Expenses
The client is setting aside 8% for reserves, which is higher than the usual 5% we recommend for newer properties and townhouses. However, this complex doesn’t have an HOA to take care of external maintenance, so 8% is a safe number.
The $1500 rate for property insurance is high, but we keep finding that insurance rates tend to be higher than Pueblo. This is something we are digging into, since on its face we don’t see an obvious reason for it.
First Year Returns
When we originally underwrote the property, the expected returns were an annual cashflow of $1765 and a cap rate of 5.2%. These are solid numbers that fit many clients’ buy boxes, although they aren’t particularly amazing.
Running the analysis at the most aggressive number, however, gives the client over $3600 in annual cashflow and a cap rate of 6.2%. These are phenomenal returns that get people excited. In Colorado Springs, we rarely see anything over a 6% cap rate, so these returns present an exciting option for investors. What’s even better is that this a beautiful home that the client doesn’t need to do anything to in order to see these numbers.
This deal is a great example of what’s possible in Pueblo. This transaction couldn’t get any easier—the home is turnkey and he hired a PM to manage the day to day of the property.