This Deal Analysis focuses on clients David and Mandy who are using the Nomad strategy to achieve financial independence. They recently purchased a single family home in the Ruby Hill neighborhood in Denver to help them on their way. We talked about why they settled on this strategy and how this property fits their goals.
This analysis was featured on a live episode of Drinks and Deep Dives. You can find the podcast for this blog post within the episode #310: ADU Updates and Nomading with a Young Family.
- Listen to the podcast “#310 DDD: ADU Updates and Nomading with a Young Family” 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.
Investor Profile
David and Mandy didn’t set out to become Nomaders or even real estate investors. They bought their first home in 2018, a 3 bedroom/1 bathroom townhouse in Thornton. After having their first child and expecting their second, they knew they needed to move up.
They’ve always been financially savvy, and David enjoys listening to financial independence podcasts. Real estate came up often in these podcasts, and soon he was listening to Bigger Pockets and eventually our Denver Real Estate Investing podcast. For David, real estate seemed like a good fit, since he has always been a DIY guy who loves doing work on his house.
While he doesn’t want to become a flipper, he has a passion for working on projects around his home. Mandy looked at the numbers and saw it made sense to pursue real estate investment, so she was on board, too. To her, there’s no downside to using the Nomad strategy—she doesn’t mind moving now to achieve financial independence later.
Rental Property Details
This is a 5 bedroom single family home in the Ruby Hill neighborhood of Denver. David learned from the podcast that nearby Athmar Park is generating buzz as a great price location. Since Ruby Hill is just south of there, it’s a great appreciation play.
Appealing Features of the Property
The timing of this property hitting the market made them act quickly. While most homes are listed on a Thursday in order to generate traffic over the weekend, this house was listed on Sunday. David and Mandy wanted to get in quickly and put in an offer by the Wednesday deadline.
The property needs some work, but the layout is unique and rentable. There are 2 bedrooms upstairs, 3 bedrooms downstairs, a 2.5 car garage, and a driveway big enough to hold 9 cars. While one of the bedrooms in the basement is nonconforming, having so many bedrooms is a rarity in this neighborhood. The fully permitted garage is a great benefit since many of the neighbors enjoy working on cars and it could be a draw for a future renter or have the potential to be rented out.
Rental Property Contract Details
The property was listed at $395K. It’s rare to find a house in Denver proper for under $400K, so they knew they had to jump. There was one other offer, so they went over list at $420K. They ended up at $428K and had a limited inspection and an appraisal gap.
Rental Property Inspection Issues
They consider the inspection process a great learning experience. Mandy likened it to being in a car that is spinning out—you just need to get through it.
There were a lot of issues that came up during the inspection such as the AC being completely shot, the roof needing to be replaced, and a sewer scope revealing the line was bellied out with lots of cracks. Though the property was advertised as having recently replaced the sewer, the work was done cheaply and incorrectly.
They also found leaning walls that led to lots of conversations about whether or not foundation issues are dealbreakers for them. Luckily, it turned out the walls were simply not built straight, and the foundation just had a few minor cracks that required regrading.
Fortunately, the listing agent was reasonable and agreed to $15K in concessions. They estimate the initial repair cost at $14K which includes fixing the sewer and grading around the foundation, as well as some smaller items.
Rental Property Spreadsheet Analysis
They were able to put 5% down with a conventional 30 year fixed mortgage. They paid the $6500 in PMI upfront, which was included in their closing costs. Since the spreadsheet automatically calculates PMI separately, $6500 was taken out of the closing costs to account for it.
Even though they had an appraisal gap in the contract, the appraisal came in higher. This meant there was no difference they would have to pay and gave them instant equity.
Property Operating Expenses
Since they are using the Nomad strategy, they are going to stay in the property for a year or so, fix it up, and then rent it out when they move. We ran the numbers using estimates of what they’ll be able to rent it for once they make repairs.
They have some big plans for the property to make it more rentable. The layout of the house is odd, and they needed to wall off the furnace room as well as move the hot water heater. They plan on xeriscaping the yard, painting everything, and fixing the sagging porch. These fixes should put them at the higher end of potential rental income in the future.
First Year Returns
Assuming they can get the higher end of the estimated rent, they will cashflow over $1900 when they rent out the home. David and Mandy ran their numbers a little more conservatively which resulted in them just breaking even. They are focused on the long term, so they aren’t counting on being cashflow positive until year 5. They don’t necessarily need the monthly income, and they’re satisfied as long as they aren’t losing thousands a year. In 30 years when the property has appreciated significantly, their finances will be in great shape.
Exit Strategy / Long Term Plan
They held onto their townhouse and are currently renting it out for $2100. When they originally bought that home, they didn’t consider it as an investment property. Once they started seeing “For Rent” signs popping up around the neighborhood, they realized there was a potential to make it part of their investment portfolio.
They used a HELOC on that home to buy the Ruby Hill property and were required to get a signed lease and security deposit before being approved for their mortgage. In that sense, they walked backwards into becoming landlords, as they hadn’t considered it when initially looking at new properties.
So far, being landlords has been a great experience. A unique benefit to the Nomad strategy is that they know the properties they’re renting out intimately. Since they’ve lived there, they already know the layouts, maintenance history, and quirks of the home. This makes it easier to figure out solutions to issues that pop up.
Now, they’re going back and forth figuring out their next Nomad property. They want to have more stability for their kids once they’re old enough to enter school. Since David moved around often as a Navy brat and Mandy lived in the same house all her childhood, they have different perspectives on what home means to them. Regardless, they agree that they aren’t the kind of people who buy a home with the intent on living there for 30 years.
Connect with David and Mandy
If you’d like to connect with David and Mandy, you can find him on Instagram @dorsettd or email [email protected].
And if you’d like to find an investment property of your own, reach out to us.
Get Started Building Your Own Rental Portfolio
For information on how to get started investing in Denver, check out our 2021 Denver Real Estate Investing Guide. You can also sign up for our free Real Estate Investing Newsletter and download free real estate spreadsheets and toolkits.
