Over years of learning about real estate investing in Denver, Colorado, I’ve come up with my own formula for buying rental properties in Denver, Colorado that produce real cash flow. Here’s what I’ve learned.

The following is a true story but names have been changed in case the parties involved read this!

Firstly lets talk about the history of Denver and why it became a place to be. Care of Wikipedia at https://en.wikipedia.org/wiki/History_of_Denver

The history of Denver details the history of the City, and County of Denver, Colorado, the United States from its founding in 1858 to modern-day. Located on the banks of the South Platte River close to the foothills of the Rocky Mountains, Denver was founded in November 1858 as a gold mining town. The gold quickly dried up and the city moved to become a supply hub for new mines in the mountains. Denver grew rapidly, becoming the new county seat of Arapahoe County and eventually the state capital. Investors from Denver built a rail line from Cheyenne to western Kansas which traveled through Denver, bringing new people and supplies. New roads and improvements to rail and air travel in the early twentieth century made Denver a hub for transportation. Until World War II Denver’s economy was dependent mainly on the processing and shipping of minerals and ranch products. With war looming, Denver was in a prime location for more federal activity, being situated far from either coast. After the war, oil and gas companies fueled a skyscraper boom in the downtown area. With the combined spending of the energy companies and the federal government, Denver expanded quickly. Denver went from having a small urban core surrounded by rural farms to a booming downtown dotted with skyscrapers and surrounded by growing suburbs.

It’s ten o’clock in the morning and Sarah has just gotten another phone call from the Denver, Colorado property manager who’s currently trying to fill a vacancy in his duplex. She’s told that the existing tenant is breaking the lease because someone has broken in and stolen the tenant’s tools—for the second time in 12 months.

This Denver, Colorado property has been nothing but problems since Sarah bought it a year ago. Here are just a few of the things that have gone on over the past year:

Sarah’s been unable to secure a tenant for longer than six months.

Sarah had to replace two broken windows from vandalism while units were vacant.

Sarah received three midnight phone calls reporting gunshots.

There is a busted crack house across the street.

The next-door neighbor (an elderly woman) was kidnapped from here front porch and is still MIA.

You would think that after dealing with these headaches, Sarah would abandon real estate investing in Denver, Colorado all together.

But that’s not the case.

In fact, she’s more passionate than ever about acquiring rental properties.

Why?

Well, for one, Sarah’s learned some very painful and important lessons from the above nightmare. In fact, over the course of the past year, she’s come up with a strict set of criteria that will ensure that many of these problems aren’t repeated. I’ve taken Sarah’s formula, added a few notes, and even threw a couple of my own criteria into the mix.

The result? A near-perfect formula for buying rental properties in Denver, Colorado that provide cash flow. And the near-perfect formula is even more streamlined with companies like Rootstock who helps people just like Sarah buy rental properties in Denver, Colorado(yup, properties that are already rented out so you don’t have to find tenants) for investment purposes.

It sounds too good to be true, but it really isn’t. Trust me.

Before I continue, I just want to emphasize that this strategy is the result of HOURS of reading, multiple conversations with other investors, Denver, Colorado property managers and real estate agents alike, and an in-depth analysis of our own investments —this strategy is a bi-product of our own personal experience and could vary depending on yours.

Here we go…

The first step to ensuring that you don’t end up with a real estate in the Mile High City of Denver, Colorado, nightmare is:

What’s Ahead:

Educate your self about the diversity of Denver and the different neighborhoods like Lakewood, Westminster, Arvada, Sunnyside or RINO (fast gentrifying going on in RINO and LODO and all of Downton Denver – and this means you get higher appreciation – so 30 returns will be great but cash flow will be lower for sure.

You always a have to balance this out especially in Denver.

Before getting into specific techniques for Denver, I’d like to re-emphasize that just like any other investment out there, if you don’t know what you’re doing, you will get burned and lose A LOT of money. I always recommend doing your homework and investing FIRST in your education. This is especially true when buying investment propreties in Denver.

If you want to talk to experts about Denver Investment properties just reach out to one of our sellers.

All of our sellers are in this for the long game. They are all here to be involved in win win deals. This means that. Every time they work with somebody, it needs to be beneficial for the other person as well as them. If you call them up and talk to them about it, they’re willing to share the information about Denver and the surrounding places freely. This is definitely a win for you because you get Denver based. Highly sought after, relevant and trending information. That’s relevant right now. People pay a lot of money for this local knowledge.

For the Real estate investor that is in Denver. The benefit to Then, as you now understand that there are decent, honest, transparent and fair company to work with. While you may not buy a property from them in the short term, they know that if they give you true facts and great information about the real estate market and what’s happening locally that you will remember them. Not only will you remember them, but maybe you refer them to other investors that are looking for property to purchase in Denver as well.

There is lots of availability and opportunity to buy investment property in Denver, despite the fact that there’s been a ton of appreciation over the last years. You have to be patient if you want to find a good deal. A number of investors in Denver now a turning to the really long game. Instead of just fixing flip. The long game when it comes to real estate is over a 30 year. And if you work out the return, especially if you have a solid rental and you put the money in now or certainly invest in the property. Maybe when the cost of Labor and materials is a little bit lower than over a 30 year. You will do really well.

Part of the reason that you do really well is there significant growth in Denver and the Greater Colorado region. Did you know that currently there’s about 5,000,000 people in some people suggest that in 20 years they’ll be. 10 million people here. What do you think that will do to the real estate prices in Denver? And in fact, every place in Colorado?

Isn’t pricing all about supply and demand and the yacht building more land so therefore the price will go up because the demand will go up and the supply just can’t be increased? Yes, we can build more houses in Denver and we’re seeing that we’re seeing a lot of houses being built. How East toward Kansas City? I mean, there’s a ton with the Great Plains. However, the more properties that are really sought after a closer to the Front Range, nestled in there places like Lakewood Golden. Boulder is obviously nestled right under the Front Range. Boulder, one of Denver’s neighboring areas, is really a city of its own and has been known for high real estate prices and really good returns on investments over the years. So that’s something to think about.

Here are a couple of things I do to get educated:

Talk to other investors – make sure you are getting solid advice from people who have accomplished what you are trying to do, not from broke family members! You will be surprised by how many well-meaning people are eager to give you free advice on something they know NOTHING about.

Read, Read, Read and read more about Denver.

I am a HUGE fan of reading. It’s advisable to read a variety of authors who have different approaches. Your job will be to read enough material to begin seeing patterns and to form your own opinions and strategies.

Consider Buying Courses

There is a TON of quality content out there; however, just like any other industry, there’s also plenty of snake oil salesmen peddling get-rich-quick schemes, so be careful. Usually, a thorough Google search will help sort out the bad apples.

Know everything there is to know about the Denver Real Estate Market

I recommend buying in an area that you are familiar with, at least for your first few properties as you get your feet wet. If you are not familiar with an area, try spending a few weekends in your target market over a period of months. Drive around in 2-3 zip codes you are interested in and talk to neighbors, local shop owners, Denver, Colorado property managers, etc. so you can get a feel for the area and the potential clientele you’ll be dealing with.

What type of neighborhood should you be looking in?

Well, each person’s strategy is different, but here is how I analyze properties and scout out neighborhoods:

I evaluate them as one of three categories…

A Class

These are in “pride of ownership” neighborhoods occupied predominantly by homeowners. The houses are typically well maintained with green lawns, tree lined streets, etc.

Did you know you can look up property records in Denver as they are all online.

These tend to make great homes to impress your friends, but don’t usually pencil out as great investments. I stay clear of these areas.

B Class – Westminster has a lot of B, Broomfield, closer neighborhoods to Downtown Denver and Mile High Stadium and Coors Field.

Might also be near the Denver light rail system.This typically has the largest range of product between the three classes. These houses usually serve the greatest number of people within the community and have the largest amount of inventory.

I usually try to target a neighborhood where there is a large portion of blue-collar workers and where there is a 35/65 percent ratio of renter to homeowner. You can usually tell if you’re in one of these neighborhoods by the number of utility vehicles parked in driveways – cable repair vans, constructions trucks, etc.

C Class in Denver – Montbello, places in Aurora, some areas in Lakewood, Colorado

These are in “run-down” neighborhoods occupied predominantly by renters.

These rental properties in Denver, Colorado typically have a high renter turnover rate. People tend to RUN in these areas at night, NOT jog. There’s high crime, gang and drug activity, substantial cop presence, etc.

I am not saying these are poor Denver investments; typically the cash flow on these deals can be high. But the successful investors taking these on are probably running a tight operation and have a specialized Denver, Colorado property management team in place. For someone looking to acquire one or two investment properties as a way to supplement income, I would recommend against this. I haven’t purchased one and I don’t think Sarah is eager to buy another one either.

The foolproof formula for buying income-producing rentals in Denver, Colorado?

1. Buy below market 10-20%.

Think of this not only as a way to grow your net worth, but also as a way to ensure your financial security. If you ever have to sell due to an emergency, that 10-20% is going to allow you to lower your offering price to move it quicker. On a positive note, if you don’t have to sell in an emergency, you’ve just made an instant return on your investment.

1. Denver, Colorado property must generate at least a 15% ROI, cash on cash.

That means the rent minus the debt (if mortgaged) and expenses must equal 15% or more. For example, a $20K down payment would have to yield at LEAST a yearly cash flow of $3,000. This is actually fairly low – most of my and Sarah’s deals have been well above the 20% threshold.

1. Buy in a B-class neighborhood, 35/65 percent ratio of renter to homeowner.
2. The rent should be at LEAST 1% of the purchase price.

For example, a $100K home should rent for at LEAST $1000 per month.

1. Do your due diligence regarding repairs before buying.

If the repairs plus your down payment exceeds 15% ROI, move on to the next Denver, Colorado property.

1. Maintain six months of cash reserves per Denver, Colorado property to pay the debt service.

This should suffice for any unforeseen repairs or vacancies.

Take Action

These next few years will probably go down as the best time to purchase income-producing rentals in our lifetime. In many markets, you can acquire Denver, Colorado property far below the cost to build. Interest rates are at historic lows. Generation Y is three times the size of Generation X and is expected to continue to rent for the foreseeable future—while Denver, Colorado property values have dropped significantly, costs to rent have not.

So what’s Sarah up to now?

Since the acquisition of her Denver

 nightmare duplex, she’s gone on to purchase three additional B-class properties and is in the process of buying a fourth this month. Each house brings in roughly $400 a month in cash flow. And even though she still has to deal with the occasional headache resulting from his duplex, she’s still on track to generate a second income so that his wife can stop working during the first three years of childrearing.

As I mentioned earlier, companies like Watson Buys help you purchase rental properties, offering a wide selection of homes to buy, that in many cases are already being rented out. Meaning they come with renters! So you don’t have to mess around with finding tenants to fill your rental Denver, Colorado property – it’s plug and play.

If you’ve ever thought about investing in Denver real estate, what’s holding you back? If you’re already investing in Denver, Colorado or anywhere in Colorado is there anything you might add?