Real Estate 101

The Denver Real Estate Investment Market Shows No Signs of Slowing Down

The Denver, Colorado, Real Estate Investment Market is One of the Hottest in the Country

The Denver metro area has been hugely popular among top real estate investors for several years, which is a major reason it annually paces among the hottest housing growth. A growing economy, strong job market, diverse and exciting lifestyle, and beautiful surroundings are just a few reasons why Denver continues to see increasing population growth rates.

The residential real estate market in Denver continues to churn unimpeded even in the times of COVID-19. The rest of the country has been experiencing a tight housing inventory for the past year, but Denver is unique in that its housing crunch and tight inventory began before the pandemic. When COVID rocked the country’s real estate markets, Denver was already experiencing an average home supply of six weeks and an average of 38 days on the market.

Post-COVID, Denver’s average home supply has dropped even lower. Currently, Denver has a two-week inventory, and homes are on the market for an average of 24 days. This makes Denver one of the tightest and most competitive markets in the nation—causing investors to be extremely aggressive when they find a property to invest in.

It’s easy to see that Denver is trying to catch up with the housing demand that started before the pandemic. A bird’s eye view of Denver shows:

• Median single-family home prices have increased 14% from $486,731 to $553,231 (2/2020 to 2/2021).
• The multifamily investor and rental market remained stable and high, with occupancy staying within the 94% range in the past year.
• Rent prices increased 1% YOY to an average of $1587/mo.
• Denver saw significant increases in multifamily permits (+45%) and single-family permits (+23%). Notably, Denver’s increase in multifamily housing starts happened as many other markets saw decreases post-COVID.

Dealing with a tight inventory

Denver has struggled with a tight inventory since 2011. In 2020, Denver’s incredible buyer demand and intense competition among buyers created the perfect storm for homes to sell quick and prices to climb higher.

More homes sold in Denver during 2020 than ever before in a calendar year, which decreased the supply of homes leaving builders unable to keep up with the demand of new homes. For comparison, at the end of 1990 there were 11,839 homes for sale. In 2020, there were only 2,541.

At the end of February, there were only 1,120 single-family homes and 904 multifamily homes available for purchase across metro Denver, according to a monthly update from the Denver Metro Association of Realtors.

To put that into perspective: metro Denver has averaged nearly 14,000 active listings at the end of each February dating back to 1985. Despite the hefty number of single-family homes available to go on the market, the number of homes available for sale has never been lower.

No wonder more than half of the listings that hit the market in February were claimed in under a week.

In comments accompanying the report, Andrew Abrams, chairman of the DMAR Market Trends Committee, detailed how he wrote one offer for $101,000 above the asking price and another for $90,000 above and lost them both in February.

Stiff competition has resulted in another surge in home prices and bidding wars between interested buyers. In order to help win bidding wars, many contingent home buyers are using specialized lenders that will buy the new home for cash and sell it back after the contingency is taken care of.

The cause behind Denver’s tight inventory

Denver has grown exponentially over the past seven years. It’s one of the fastest-growing cities in the country and was named by US News & World Report as one of the best places to live in America in 2019, second only to Austin.

So, why is Denver so popular, and why are people flocking there in droves?

For the past decade, Denver has boasted steady population growth, a low unemployment rate and a strong economy. Since 2010, Denver has seen a 25% increase in employment and a 17% increase in population.

Many experts believe the city's active lifestyle and central location will continue to draw employers and workers considering relocations. Colorado offers tax incentives to attract large employers, leading businesses and people to exchange the expense of living on the west coast for a more moderately priced area.

Even during the pandemic, Denver showed it could attract major corporate office users such as Palantir, Healthpeak Properties Inc. and LogistiCare Solutions LLC, as well as tech companies trading the bustle of Silicon Valley for the mountain ranges of Colorado.

It’s a destination for tech workers fleeing the pricey Bay Area and for metropolitan East Coasters looking for more expansive outdoor space. The new work-from-anywhere culture of the coronavirus pandemic is one of the top reasons Denver is experiencing its most competitive housing market in history.

One of Denver’s most attractive attributes is its low unemployment rate. From 2010 to 2019, Denver’s unemployment rate dropped from 8.7% to 2.7%. Of course, 2020 and COVID caused that downward trend to derail, with unemployment jumping from 2.7% to 7.4%. While it has dropped to 6.7% in February, Denver’s unemployment rate is still higher than the national average of 6.2%.

Denver’s diverse and exciting lifestyle is another huge selling point bringing people to the area. Everyone from millennials to retirees are flocking to Denver’s “down-home” atmosphere. There is no shortage of things to do in the Denver area, and the most popular activities speak to people of all ages.

There are tons of coffee shops, restaurants, and breweries. Sports fans have the options to sit on the first base line at a Colorado Rockies game, hit the ice with the Avalanche, catch a Broncos game, and sit courtside at a Nuggets game. Live music enthusiasts are just a stone’s throw away from Red Rocks Park & Amphitheater.

What Denver real estate investors can expect

Housing in Denver is thriving. Home appreciation is up, the number of homes sold is up and days on market are down.

During the latest year alone, Denver appreciation’s rate has been at nearly 4%. If it remains steady, the annualized rate of appreciation becomes 7.35%. Home prices in the Denver-Aurora-Lakewood metro region are expected to increase between 7 to 13% in the next twelve months.

Denver's strong economy gives buyers the ability to spend more on housing, consequently increasing real estate prices. But, with inventory so tight, would-be homebuyers are having problems purchasing homes because of availability. Home values rose so much over the past six or seven years that affordability became an issue for a person earning the median income in this area.

Experts believe that Denver’s tight inventory and increase in demand for homes will push prices higher over the next year. If mortgage rates remain low, it will continue to bolster the home buying activity and pull the home prices up.

Real estate investors need to move aggressively when they find a property that makes the numbers work—with a certainty of financing behind them. Knowing their exposure through Lima One Capital's line of credit is one way to do this, and some investors may choose to pay cash on properties and then cash-out refinance after closing.

Investors should also consider build-for-rent strategies to create new housing stock, or multifamily bridge financing given the strength of that type of housing in Denver.

While inventory might be harder to find, investors with strong real estate investment strategies can still profit. It’s now more important than ever to have a lender capable of helping you:

• Secure a loan with the best price and maximum leverage for your next rental investment
• Close properties quickly and certainly
• Run your construction or rehab projects smoothly

If you’re interested in obtaining a loan for investment property in Denver, Colorado call us to learn more. We are experts in financing FixNFlip projects for investors looking to purchase and rehab an investment property, rental properties and portfolios, multifamily real estate investment opportunities, and new home construction for builders on urban in-fill, spec homes, model homes, and teardown/rebuild projects. Our team of experienced professionals will help guide you through how to get a new construction loan for your next investment.

Get started today and scale your rental property portfolio with Lima One, the nation’s premier lender for real estate investors.