Metro Denver - An investment opportunity
| Square Miles | 4,531 |
| Population 2005 | 2,625,581 |
| Population 2006 | 2,663,017 |
| Labor Force | 1,442,267 |
| Employment | 1,302,832 |
| Average Annual Wage | $46,466 |
| Median Age | 34.4 |
| Households | 1,033,927 | Counties: Adams County, Arapahoe County, Boulder County, City and County of Broomfield, City and County of Denver, Douglas County and Jefferson County |
Astute investors are ahead of the crowd. Market fundamentals indicate that Denver offers the opportunity to achieve greater returns with maximum safety through ownership of fee-simple, income producing real estate. Single family rental homes fit the bill.
Why Denver - Why Now
During the past 6 years, the majority of the country has seen double digit appreciation in home prices. Denver has run contrary to this trend, experiencing relatively flat prices, especially in homes priced below the median price range (< $250,000). This price range represents the ideal single family rental investment. In this price range rents are in line with values and produce a better investment profile.
Foreclosures have risen steadily from a low point in the late 1990‘s up to record numbers in 2006. We anticipate foreclosures to peak in 2007 and then decline as the market improves moving forward. These recent record foreclosures have added to the demand for single family rentals as former home owners are forced into the rental market.
The flat market in Denver was caused by the tech bust of 2000 that resulted in the loss of 70,000 jobs for Colorado. In addition, a moderate building boom fueled by loose lending practices exacerbated the market slump by taking buyers away from the resale market.
Net in migration for 2007 will be 25,000 – 35,000 per year, up from only 5000 in 2005. Combined with the increase in renters who have been foreclosed out of their homes has created a record low vacancy rate. Recent data shows that vacancy rates for family rentals is just 3 percent for Denver and only slightly higher for surrounding areas. This low vacancy rate has not been seen in over a decade. These low vacancy rates are now translating into rent increases further supporting the rental investments. Below a 5% vacancy is considered full occupancy and ultimately creates accelerated rent increases.
Increasing net in migration and population growth = Increase demand
Why Denver - Why Now
By 2005, Denver employment levels had surpassed the previous highs of 2000. Currently, job growth in Denver is steady at just below 2 percent, which is above the national average.
The implosion of the sub-prime and near-prime mortgage markets will force more people to rent than buy. In addition, record foreclosures will supplement the supply of homes on the market and also create more tenants and put further pressure on rent increases. Despite the record number of foreclosures, the supply of existing homes on the market is currently well balanced at 6 months. Supply below that creates upward pressure on prices.
Denver was recently ranked as the 18th largest economy in the US. Denver’s economy is growing at an annual rate of 3.8%, well above the national average.
Inflationary monetary policies by the FED will help to contribute to higher appreciation rates in Denver. The strong economy in Denver will benefit from the lowering of interest rates nationwide.
Why Denver-Why Single Family Rental Homes
Homes can currently be purchased for below replacement cost. The ideal Rental Homes are priced below what they sold for 5 years ago when that sub-market peaked. For prices to reach the historical trendline they will have to increase at rates exceeding the historical averages.
Lowest vacancy rate in a decade (3%) is causing rapid rent increases. Expect 10% per year increases for the next 3 years
There are restrictions on future housing supply due to a construction slow down and an increase in construction costs. Inflation has caused construction costs to increase by 35% in the last 2 years.
Historically, Denver’s average appreciation rate has been 6.46 percent per year for the last 30 years. Appreciation rates for single family homes over the past 6 years have been well below this level. Particularly the ideal Rental Home is in the price range that has experienced NO APPRECIATION in the last 5 years. Future appreciation levels should exceed 6.46 percent in order to achieve price and growth parity with the historical average. It is reasonable to expect home price appreciation levels on the order of 10 percent per annum over the coming 3-7 years, beginning in the next 12-24 months.
Denver is at the bottom of its cycle while the majority of the country is just over the top. This value placed market is poised for good times in the next few years. Don’t miss this rare opportunity to buy in at the bottom. There is no better investment than a leveraged income property. It’s like buying gold with the banks money and getting someone else to pay for it.
Have you asked yourself what markets appreciate when California’s values decline?
Denver is the answer!
In Summary:
- Non bubble market. Prices below year 2000 prices on many of the single family rental homes. Prices below replacement cost.
- Affordability with median price of around $250k. (Average single family rental value $188k)
- 3% Vacancy Rate for single family rentals in Denver County!
- Restrictions on new financing and record foreclosures = increased pool of tenants.
- < 4% unemployment.
- Job growth ∼2% per year
- Population growth 1.5%+ net in migration 25k+ per year and growing.
- 6 months balanced supply of resale homes on market.
- New construction down by 40% year over year (supply restrictions in near future).
All these factors combine to make Denver the right place at the right time to invest in single family rentals