Income Real Estate Trends – 3Q 2023
Updates brought to you by Your Castle Real Estate.

The Denver income property price per unit increased by 4% 3Q vs the same time last year.  There has been positive appreciation every quarter since 2017, just with a pullback last quarter. Inventory continues to increase giving some relief to buyers. DOM have significantly increased from the same time last year. The seller’s market has slowed down. Denver remains at low vacancy levels and rents continue to grow (though at a slower pace).

Data Source: Recolorado.com; Your Castle Real Estate Analysis. TTM = Trailing twelve months.

SOCO: INCOME PROPERTIES

The Colorado Springs income property market prices held steady after consistent double-digit appreciation.  The COS market often lags the Denver market, so this likely marked the end of the appreciation cycle.  Inventory has been growing significantly which is a relief for buyers. This resulted in an increase in DOM/marketing time.

*Data for properties of 2+ units. Keep in mind that low data-point count drives large swings in results. 

Data Source: PPAR MLS; Your Castle Real Estate Analysis

DENVER: INCOME PROPERTY PRICES

DENVER: The overall average price per unit declined 30% between 2007 and 2009. Prices have been seasonally increasing ever since. The losses from 2007-2010 were regained by 2012.  2013-2020 has average +12% annual growth in price per unit.  2020-2022 has had greater appreciation than we had expected. The 5+ unit average price has a very low unit count.

Data Source: Recolorado.com; Your Castle Real Estate Analysis

SOCO: INCOME PROPERTY PRICES

COS: Prices have been gradually increasing for several years. Properties consisting of 2-4 units makes up over 90% of the income market. Gaps in the chart illustrate an absence of the respective property type in that time.  The trend lines represent a rolling 1 year average.

Data Source: PPAR MLS; Your Castle Real Estate Analysis

DENVER: INCOME PROPERTY UNITS SOLD

There has been volatility in unit count sold over the last few quarters. Third quarter 2019 saw a big spike in sales. In 21Q3 there were more income properties sold in a single quarter than there have been in over 14 years! 22Q2 saw a rebound back in units sold, with a seasonal dip in 22Q4. Recent pullbacks were triggered by rate hikes. The vast majority of units sold historically are in the 2–4-unit segment; this quarter no 5+ were sold.

Data Source: Recolorado.com; Your Castle Real Estate Analysis

SOCO: INCOME PROPERTY UNITS SOLD

Close count has been relatively steady over the past few years. There was a dip in 2019, but despite COVID, 20Q4 saw the highest quarterly sales of the past three years. 2021 followed similar patterns to previous years. In 2022, 2-4 unit sales declined. 5+ units (small data set) have held steady. As people are priced out of Metro Denver, they spread out to SOCO and buy up more 2-4 unit properties as seen this quarter.

Data Source: PPAR MLS; Your Castle Real Estate Analysis

DENVER: DAYS ON MARKET

Most income properties are 4-units or less. Multi-family properties used to take longer to market than smaller income properties.  The 5+ unit properties fluctuate wildly due to the extremely small sample size; in fact no 5+ units were sold this quarter.

Data Source: Recolorado.com; Your Castle Real Estate Analysis

SOCO: DAYS ON MARKET

Most income properties are 4-units or less. Marketing time for this segment has been relatively stable since 2016. The multi-family properties are usually at 2-3x DOM of the small properties. DOM fluctuates greatly for the 5+ units due to an extremely small sample size. It’s just about the mix and type of properties being sold.

Data Source: PPAR MLS; Your Castle Real Estate Analysis

DENVER: QUICK STATS

Active inventory up from last year, except for the smallest segment which has significantly fewer properties for sale.  There is more inventory across all size segments, likely driven by increased interest rates. Current MOI has rebounded upward back to historical levels except for the smallest segment.

Purple = Oct ‘21 – Sep ’22 Yellow = Oct ’22 – Sep ‘23

Data Source: Recolorado.com; Your Castle Real Estate Analysis

DENVER: RENT AND VACANCY

When Denver rental vacancy is below 6%, we generally experience rent growth; it’s currently at 5.6%!  1981-2021 average rent growth was 4%. (5+ unit Apartment data).  2012 to 2017 averaged 8.6% average annual rent growth. It had started to slow during COVID, but up 13% year over year! Rent average is now $1,838.

Source: Apartment Association of Metro Denver

SOCO: QUICK STATS

Duplex and single unit properties lead in active inventory. Mixed use is a very niche market, with few sales and high MOIs. These properties as staying on market longer with the seller’s market cooling and rates increasing.

Data Source: PPAR MLS; Your Castle Real Estate Analysis

ASCENT OF THE RENTERS

There is a strong relationship between home price (e.g., affordability) and what percentage of the population rents (vs. owns). More expensive cities have a higher percentage of renter households. 

  • As Denver’s housing prices have increased in the past decade, the percentage of renters has increased, too.
    We anticipate the projected increase in prices from 2023-25 will mean fewer people can afford homes. It’s a great time to be buying rental property!
Source: YCRE analysis, Census Bureau

On the chart

  • If home prices continue to increase faster than wage growth (or if mortgage rates go up); we’d expect to see ownership rates in Denver decrease.

What does it mean for the client?

  • It would be wise to become a homeowner now before it’s altogether unrealistic to save for a down payment. 
  • If one has the means, it’s also a good time to acquire investments properties as the tenant pool grows.
  • 50% of the households in Denver, CO are renter-occupied in 2023.
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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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