State of the Market: Colorado Springs Q3 2020

In the last 12 months, Colorado Springs homes and condos both appreciated at 7%. While appreciation has slowed a bit, Denver Metro prices are at half this growth rate. Colorado Springs is a stronger seller’s market than Denver regarding appreciation rates. Home inventory is up while condo inventory is down.

This is the first of our quarterly podcast series on the State of the Colorado Springs Market. If you’re not sure where to start, this is it! Every quarter we’ll release a new one to give the latest data.

My cohost is Jenny Bayless who is an investor and agent in the Springs.

This is the first of many! Give us feedback and help us improve it.

Three Learning Options!
  1. Listen to the podcast “#194: State of the Market: Colorado Springs Q3 2020” on the Denver Real Estate Investing Podcast
  2. Watch the YouTube video (at the bottom.)
  3. Read the blog post. Note, the blog is an executive summary. Get the in-depth breakdown from the podcast or video.

Why Invest in Colorado Springs

  • Defense Industry
    • Several bases (Peterson, Schriever, Ft Carson w/limited on base housing), Air Force Academy, plus current home of Space Force.
    • Opportunity to provide rental housing to military members, as most do not wish to buy when they know they will only live here for a couple of years.
  • Commercial
    • Major employer presence in the City to include Verizon, HP, Comcast, Time Warner Cable, Amazon
  • Tourism
    • Pike’s Peak, Garden of the Gods, and numerous parks and trails- these landmarks aren’t going anywhere, and people flock to the city from all over to visit.
    • Provides a source of revenue to the city and its businesses, but it also draws people to want to live here.

Colorado Springs has a strong economy allowing for multiple investment opportunities

  • US News and World Report, 2018: #1 Most Desirable Place to Live
  • Apartmentlist.com, 2019: #4 fastest rent growth rate in the nation’s large cities
  • US News and World Report, 2018: #2 Best Places to Live
  • Realtor.com, 2019: #5 Hottest Housing Markets
  • MSNBC: #5 Best Cities to Live, Work and Play

Market Trends: Colorado Springs vs Denver

In the last 12 months, Colorado Springs homes and condos both appreciated at 7%. While appreciation has slowed a bit, Denver Metro prices are at half this growth rate. Colorado Springs is a stronger seller’s market than Denver regarding appreciation rates. Home inventory is up while condo inventory is down.

Colorado Springs market trends historical
market trends Colorado Springs
Colorado Springs market trends homes vs condos

Market Trends: Extreme Seller’s Market in Colorado Springs

Colorado Springs months of inventory

COVID-19 Rent Trends in Colorado Springs

  • Overall vacancy rates for apartments in Colorado Springs is 4.5% for Q2 2020. Buildings with “9-50” units had the highest vacancy rates at 5.9%. Buildings with “0-8” units had the lowest vacancy rate of 0.0%. Historically, larger buildings have the highest vacancy rates.*
    • This is in line with Jenny’s personal portfolio (consisting only of high-demand single families), in that she historically has tenants either extend their lease year after year, or places a new renter within a day or two of the prior tenant leaving, with an effective portfolio vacancy rate of 0%.
  • Average rent rate increased by 2% from last quarter, and only 11 new apartment units were added to the inventory levels.
  • Only 5% of renters were delinquent in making rent payments (does not mention actual collection rate)◇

* Source data: Apartment Association of Southern Colorado Q2 2020 Report

◇ Article by Rich Laden, “Second-quarter apartment rents reach a record high in Colorado Springs

Colorado Springs has a strong rental economy, but not enough supply, resulting in low vacancy and increased prices.

Mortgage Rates in Colorado Springs

Colorado Springs market trends mortgage rates

Is It Still a Good Time to Buy Rentals in Colorado Springs?

There are a lot of factors that go into answering this question. As usual, there is no clear answer.

  • What is your personal situation?
    • Do you have job stability?
    • Do you have cash reserves to handle any potential issues?
    • Chris Lopez is increasing his cash reserves from 6 months of PITI to 9 months of PITI per rental.  Jenny is keeping her reserves at 6 months of PITI, but has also opened up lines of credit “just in case”
    • What’s your time horizon for holding the rental?
  • We are seeing no major indicators that there will be a price drop. 
    • There is continued demand from job and population growth, and supply is not keeping up.
    • Inventory is still incredibly low.
    • While cap rate is an important metric, it’s not the only one. The spread between the cap rate and your borrowing interest rate is more critical. The recent drop in interest rates has increased the spread.
    • Jenny’s personal anecdote: During COVID, two rentals came vacant due to planned turnover, and in both cases she was able to get them re-rented in a matter of days, and in one case raised the rent by $200/mo.  There is still a large demand for rentals that are priced at the median rental rate or less.

Many of our agents are actively buying rentals, house hacks, and Nomads™ for themselves. We are long term wealth building focused.

We’re always happy to discuss your personal situation. Please schedule an Investment Strategy Consultation.

Underwriting Colorado Springs Rental Properties

Forget about the 1% and 2% rules from Google and BiggerPockets! The rules state that the monthly rent should be 1% or 2% of the purchase price. You will rarely find properties that meet these rules in Colorado Springs. These rules do not equal great rental properties or long term wealth building.

Forget about the 50% rule from Google and BiggerPockets! The 50% rule states that 50% of your rental income will go towards the property operating costs (All the costs except for mortgage payments). In Colorado Springs metro, we’re typically seeing between 25% to 35% of rents going toward the operating costs- similar to Denver.

We underwrite conservatively and realistically!  Make sure you understand the underwriting numbers from listings and other agents.

underwriting Colorado Springs rental properties

Opportunities / Tips

  • Take advantage of the opportunity to stabilize your existing rental properties
    • Refinance your primary residence and/or rental properties.
    • Perform those upgrades you’ve been waiting to do, in order to mitigate any unexpected maintenance issues.
    • Ensure that your savings are adequate!
    • Continue to manage efficiently.
  • Tap into your equity
    • If you’ve owned a property (primary or rental) for a few years, you’re probably sitting on a significant amount of equity.  Remember, home values had an average appreciation of 7% from just 2019-2020 in Colorado Springs. Consider:
    • A HELOC
    • A cash-out refinance
    • Selling, utilizing a 1031 exchange and trading up to buy BIGGER and better rental properties
    • Not sure what the right move is? Then reach out to us to run your property through our “Equity Optimization” Spreadsheet to present all scenarios.
  • Still consider purchasing
    • The market still offers an affordable entry point to purchasing rental property
    • Median sales price for El Paso County in June 2020 was $360,000
    • Shop for rental properties that rent for $1,600 a month or less.
    • Per the census, the median household income in Colorado Springs  is ~$60,000.  If we back into the 3x rent rule for qualifying a tenant, this would come to roughly $1,600/mo, so you would capture the majority of the market share of those looking to rent.

Considerations

  • Home prices are increasing at a slightly faster rate than rent prices 
    • Rent prices increased by 4% year over year (2019-2020)
    • Compared to 3% national average
    • Home values increased by 7% year over year (2019-2020)
    • Compared to 4% national average
  • What does this mean?
    • A house that was bought for $200,000 in 2019, would be bought for $214,000 in 2020, assuming a 7% price appreciation.  That same house’s average rent is only increasing 4% per year, or what was $1,200 last year is only $1,248 today.
    • If we were to buy an identical house in 2019 and 2020, the Gross Rent Multiplier (GRM) went from 13.8 to 14.2.  If we project this out over 5 years, we are at 15.6 GRM
gross rent multiplier chart

The deals are still there, rent is still great, but the longer you wait, the more you will lose to appreciation.

How Can We Help?

There are three main areas that make us different than other agents:

  1. We’re investor-friendly Realtors® in Denver and Colorado Springs. Over 95% of our transactions are investment properties. Our properties range from single family rentals to small apartment buildings (<20 units.)
  2. Many agents are impressive one person shows. We’re team centric and have a small team working with clients. Our agents are specialists based on geographic location and investing type (multifamily, residential, flips etc.)
  3. Investors buy properties to achieve a certain rental cash flow goal for retirement. Most financial planners are great at stocks, bonds, and life insurance, but do not understand the real estate investing world. One of our team member’s roles is to work with clients to track and help optimize portfolios to help achieve the retirement cash flow number. Every year we meet to review the portfolio and to make sure we’re on track to achieve your goals.

We’re always happy to discuss your personal situation. Please schedule an Investment Strategy Consultation.

If you’re interested in Denver investment real estate, read about Denver real estate market trends.

YouTube Video: Quarterly Market Update Colorado Springs Q3 2020

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Rental Property Spreadsheet • House Hacking Spreadsheet BRRRR Calculator Spreadsheet • Fix and Flip Deal Analyzer Investing Maps • Rehab Pricing Estimator
Authors
Jenny Bayless
Jenny Bayless is an investor-friendly agent with Envision Advisors, Colorado real estate investor, and the host of the Colorado Springs Real Estate Investing podcast.
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