We get a lot of questions from clients about investing in Pueblo, so we set out to learn more about the market there. Located about 30 minutes south of Colorado Springs, this steadily growing area has a lower cost of entry than the Springs and Denver. 

I put together some metrics to compare Pueblo and Colorado Springs so that investors can see how this area stacks up and what sort of returns they are looking at if they want to invest here.  Using a real Pueblo property, I ran an analysis on how much it would cost to purchase and what the returns would look like.  

When I’m exploring a new market, there are two main things I look at: property values and tenant base.  I want to know if the home I buy will retain its value, be more fluid, or is on an upward trajectory.  I also want to know more about the people who I would be renting to: what they’re doing for work and how strong the job market is.  To measure these things, I’ve put together several charts that will give us a holistic look at the value of properties and the revenue performance of a Pueblo rental. 

Housing Price Index and the cost of entry for Pueblo

To get a better idea of property values in Pueblo, I looked at the Housing Price Index (HPI).  The HPI measures the price change of the same property over the years.  Data for this metric comes from repeat mortgage transactions on single family properties whose mortgages have been purchased/securitized by Fannie Mae or Freddie Mac.  To put it in context, I looked at the last 10 years of data and compared it against the HPI of the national average and of Colorado Springs. 

All 3 markets trended upwards over the past 10 years, but Pueblo has consistently had the lowest HPI.  This means that there is a lower cost of entry for buying a home in Pueblo, which may be particularly attractive to investors given how much costs have gone up in the Springs.  Over the past 5 years, both Colorado Springs and Pueblo outperform the national average, which speaks positively of the southern Colorado real estate market as a whole.  

What is the job market like in Pueblo?

I found this infographic that illustrated which industries employ the most people in Pueblo and Colorado Springs; the larger text indicates more people working in a particular field.  There isn’t a huge difference in types of industries between these two markets, which is not surprising given their proximity to each other.  

This data excludes military presence, which would impact the Springs more, though there are military personnel who have moved to Pueblo for the lower cost of living.  While I can’t be certain, I suspect that “Professional, Scientific, and Technical Services” may include military and government contractors.  If any of our readers know more specifically about this data, please reach out to us so we can better understand it and provide more in-depth information to our clients.  

Just as important as employment is unemployment.  This graph shows the unemployment rates of Pueblo, Colorado Springs, and the national average over the past 30 years.  As you can see, Pueblo tends to have a higher unemployment rate.  While the Springs has trended closer to the national level, Pueblo has had periods where the unemployment rate hit between 8-10%.    Interestingly, though, while all markets were decreasing pre-COVID, Pueblo’s rate was decreasing at a faster rate than the other two.  

This metric makes me more nervous about potentially investing in Pueblo, since it is a riskier market than the Springs.  As a landlord, I want all of my tenants to be gainfully employed, and if there’s a higher risk they won’t be, that risk is passed on to me.  Getting more data on how the unemployment rate is faring post-COVID will be critical to having a better understanding of the future of this market.  

Is the population growing in Colorado Springs and Pueblo?

This chart shows the population growth of Pueblo and the Springs over the past 20 years.  Population growth is an important yet simple metric.  It answers the question, “Do people want to live here?”  As investors, we want to invest in a market that people want to live in and that will continue to grow.  

Both areas have had steady population growth, though the Springs has grown more intensely over that period than Pueblo.  One concern about the growth in the Springs is that it’s potentially exceeding the available homes for sale or rent.  At the office, we analogize it to musical chairs: there’s 1 chair and 10 people who want to sit in it.  

The immense growth in the Springs raises the question of whether the inability to meet housing demand there will trickle out to nearby areas.  If people can’t find a home in the Springs, should we expect them to start looking in nearby cities?  If so, Pueblo is a contender for these potential buyers and renters.  

How Median Rents and Income Affect Affordability

I talk a lot about median rents in comparison to monthly income.  This is an important metric from an affordability standpoint; if income is keeping pace with the rise in rents, then housing is more affordable.  Most landlords use the 3x rent rule, meaning that tenants’ income needs to be 3 times that of the rent.  

Looking at median rents for the past 5 years for Pueblo and the Springs gives us an idea of how affordable these markets are.  In 2015, the median monthly rent for a 2 bedroom home in the Springs was $924, compared to $653 for Pueblo.  By 2020, the Springs grew to $1243 while Pueblo went up to $861.  Over time, both areas are becoming less affordable, though not excessively.  

When we take into account per capita monthly income, we can determine the burden of rent on the renter’s income.  Overall, the difference in affordability between these two areas is not huge, though Pueblo is slightly more affordable at 24% vs the Springs’ 27%.  I am interested in seeing these numbers for 2021, because the Springs seems poised to break the 3x rule.

What can you get for $50K in Pueblo?

We often ask the question, “What can I get for $50K initial cash outlay?”  In Denver, you would likely only be able to buy a one bedroom or studio condo.  In the Springs, it’s possible to find a small townhouse.  While these two markets are more robust than Pueblo, they are also more expensive.  

For an investor who only has $50K to invest, is it better to wait and amass more capital, or is investing in Pueblo a good long term strategy?  To answer that question, I ran an analysis on a property I found on the MLS using our rental property spreadsheet.  This is a 3 bedroom 1 bathroom single family home near the Riverwalk, a popular area with a lot of development projects.  It’s listed at $180K, and we are assuming a down payment of 20%.  

Between the down payment and closing costs, the all in cost of purchasing this property is $42.5K.  Using Rentometer to get an idea of what a property like this would go for, we can estimate a monthly rent of $1200.  I used the usual assumptions for everything else, though I might increase the vacancy factor a bit since there’s more risk in this market.  

Looking at the summary, we get a Net Operating Income of $10,276, which results in an annual cash flow before taxes of $2150.  The cash on cash return is 5.1% and the cap rate is 5.7%.  

These are good numbers that show a solid investment.  Pueblo may not be as strong a market as the Springs or Denver, but there is a lot of potential in this area.  While $50K is not an insignificant amount of cash, it’s getting harder and harder to enter the market in other areas with this amount of money.  As long as you buy right, you have a very good chance of getting a good return in Pueblo, especially on a single family home.  

Conclusion

Both Pueblo and Colorado Springs are strong markets, especially compared to national markets.  They are growing at faster rates in terms of HPI and stack up well in other metrics, too.  Pueblo has many positive attributes: there’s a lower cost to enter the market, the population is steadily increasing, and housing is still affordable.  Ultimately, these factors make Pueblo a viable consideration for long term home buying investors.  

We are lucky to have Leah on our team, who is a great realtor and grew up in Pueblo.  She knows the area well and can steer investors toward hot locations that are experiencing growth.  If you’re interested in this market, reach out to us and we can help you find the right property for you.

Get Started Building Your Own Colorado Rental Portfolio

For information on how to get started investing in southern Colorado, check out our free 2021 Colorado Springs Real Estate Investing Guide.

You can also check out our real estate investing toolkit which has free spreadsheets you can download to analyze rental properties.

YouTube Video: Should I Buy Real Estate in Pueblo? A Market Overview

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