A real estate market lull in Colorado Springs means buy-and-hold investments make sense for investors who can buy low and wait out the cycle, but a variety of other opportunities exist as well.
Buy and hold
“If you’re able to buy and to hold for a reasonable period of time, you’re going to make money in the Colorado Springs market,” Jan Kifer, broker/associate with ERA Shields Real Estate, said. “That comes from what we see going forward with regard to population, with regard to business growth, with regard to military.”
“So all those things point positively to a good environment going forward. That doesn’t mean you’re not going to lose a little bit if you purchase now, but we think you can buy smart and not even lose, but you need to be able to hold,” Kifer said.
Low-end single family or multi-unit properties offer particularly good opportunities for investors who can buy and hold through the current market cycle, Lania DeMers, owner of Rocky Mountain Realty Company, said.
“In the past, people got the wrong idea watching television that you could buy a house and flip it and make hundreds of thousands of dollars before you ever got it finished,” Kifer said. “That’s never been the case in the Colorado Springs market.”
In addition, rental property investors must be able to hold the property, Kifer said. “You can buy wonderful rental properties at this time, but you may not rent it the day of closing, so you better be able to hold a month or two. But then you’re going to have, I think, wonderful appreciation going forward.”
Rentals
The Colorado Springs Multiple Listing Service contains more than 8,000 available listings for single family residences, but “only a little bit over 200 on the investment multi-unit side,” DeMers said. “When people aren’t buying, they’re renting.”
The rental market is “not that great, at least right now. I think that’s going to come up very, very quickly because people can’t buy homes anymore” with the lending restrictions, Tom Lazzaro, broker/owner of Performance Plus Realty, said. “Everything’s tightened up, so I think we’re going to see the rental market shoot through the roof here by the beginning of next year.”
In the past, single family rentals have been preferable to multi-family rentals, and “I would assume going forward, it would be that same type of thing,” Kifer said.
Large multi-unit properties would be the safest long-term rental investment, but they are rarely available because people hold them for long periods, Lazzaro said. “But for the independent investor buying a single family as a rental here and there, I would say that’s a good way to build up as well.”
HUD “fair market rents” for Colorado Springs in 2007 were set at $554 for a studio, $622 for a one-bedroom, $785 for a two-bedroom, $1120 for a three-bedroom and $1325 for a four-bedroom.
In contrast, “fair market rents” for Denver were $630 for a studio, $718 for a one-bedroom, $909 for a two-bedroom, $1291 for a three-bedroom and $1504 for a four-bedroom.
Boulder’s “fair market rents” were even higher, at $716 for a studio, $830 for a one-bedroom, $1041 for a two-bedroom, $1518 for a three-bedroom and $1820 for a four-bedroom.
New construction
“We’re…in the top three in the nation for new home building, so that’s going like mad still which is also hurting the resale market,” Lazzaro said.
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Investors purchasing new construction may be able to get discounts by purchasing four or five units at once, DeMers said. Investors should be aware, however, that the market currently has a glut of new homes and that expansion plans exist for more new homes, she said.
New construction creates opportunities for model home leasebacks, Lazzaro said. “Model leasebacks are a real big investment vehicle…that not too many people even know about. So I would say because of all the new home building there’s lots to choose from.” (For more information, see Builder Leasebacks: The Model Home Investment.)
“Buyers are selling their models and leasing them back from anywhere from 18 months to…two to three years,” Lazzaro said. “That’s a great way to gain some appreciation, and when you’re ready to sell, you’ve got the neighborhood model home on the market.”
Foreclosures
“Colorado documented the nation’s highest state foreclosure rate for the year [2006], one foreclosure filing for every 33 households—or 3 percent of the state’s households. The state reported a total of 54,747 foreclosure filings during the year, an 85 percent increase from 2005 and the eighth highest total among all the states,” according to RealtyTrac.
The number of foreclosures available in the area mean even more properties added to an already large inventory. Foreclosure opportunities have not been as attractive to investors as those in some other states, but Colorado’s laws will be changing on January 1, 2008, Lazzaro said.
“Our foreclosure laws no longer have a curing period and then a redemption period. It’s going to be one long curing period….I think that gives the homeowner between four and five months to try to cure that loan and avoid the foreclosure,” Lazzaro said. “But once it goes to sale, it’s gone, whereas right now, once it goes to sale…the homeowner has a 75-day redemption period in which to still try to get the home sold.”
After the law changes, investors will have the assurance that the foreclosure sale is final and will not have a redemption period to wait out after the sale. This will make the foreclosure market much more attractive for investors than it is now.
Eastern growth
“The greatest amount of growth…is out east, along what they call the Powers Corridor. Powers is the main thoroughfare road going north to south on the east side of town,” Lazzaro said. “That’s where the heaviest amount of new homes are going up, and it just keeps on growing and growing and growing.”
The area west of Colorado Springs leads up into the foothills, whereas the eastern side of town pushes out towards plains and is home to more subdivision communities, DeMers said.
Large subdivisions are in development in the eastern part of town, in the Powers Corridor, DeMers said. “There’s the Banning Lewis Ranch expansion out that way. There is a proposal for development of 22,000 acres and…projections are up to 75,000 new residences and businesses over the next 10 to 15 years.”
The Banning Lewis area is “going to be huge for another 20 years,” Lazzaro said.
The Powers Corridor is good for long-term investing, but “I would not invest for short-term along the Powers area mainly because you’re going to be competing with the new home building market, so if you can wait it out…five to 10 years and then turn around and sell it, great,” Lazzaro said. “If you’re going to do a quick fix and flip, I would not be doing that along the Powers area.”
The town of Falcon to the east is “having an incredible amount of growth,” Kifer said. “It’s kind of like, you build it, and they will come. There has been nothing but a little country store and a filling station out there. They built a shopping center. They have opened huge divisions out there.”
Commercial growth is strong in the eastern area along the Powers Corridor, Lazzaro said. “There’s tons of malls going up….[If] you wanted to open up a business along Powers, you’re probably going to do very well.”
Other commercial opportunities include office buildings and triple net leases, he said. “That’s probably going to be hot for a long time.”
Southern military demand
Fort Carson is located to the south of Colorado Springs, and military demand provides potential for rentals in that area. The town of Fountain, which is just south of the Powers Corridor and borders Colorado Springs and Fort Carson, is a good place for investing “because people who are in the army want to live in Fountain just because it’s so close,” Lazzaro said.
“We’re going to see a lot more growth in that area,” Lazzaro said. “There’s already a lot of new building going on, there’s plenty of new builders doing their model leasebacks down that way, so as far as heavy growth, it’s up and down the Powers Corridor. That’s where I’d be putting my money in, that’s where I’d be seeing the most growth.”
Although “long-term, you really can’t go wrong anywhere,” Lazzaro said, “Fountain would be a prime place because there’s going to be so much growth and so much building going on that your properties can’t help but appreciate.”
Multi-family properties have not been doing well recently, but the vacancy rate is declining and the best cash flow rental opportunities would be near the military installations, particularly in the southern and eastern parts of the city, Kifer said.
Western opportunities
Growth is also happening in a western direction, “going up Ute Pass towards Woodland Park,” DeMers said.
In the western foothills of the mountains “there are new hospitals and Wal-Marts and…highway expansions that are going on there. Just things that we have never seen,” DeMers said. “It’s always been a two lane highway going up and down that pass and mostly tourists, but now there’s developing communities and the real estate is really increasing and rising in that area.”
For long-term appreciation and future opportunities, DeMers said she would focus on the western areas, such as the west side of Colorado City, Manitou and Ute Park. “I just think that there are more concentrated populations of people that are active in the city life that are kind of sprawling toward the west that would come to Colorado Springs to work and be situated between Colorado Springs and Denver.”
The new hospitals in the west are attracting medical professionals, DeMers said. “And because of the atmosphere, it’s always very desirable even in a flat or slow market to live on the west side. You just get that feeling of being in the mountains and the mountain views and the trees.”
Future opportunities also exist in the older, northwest areas of Rockrimmon, Briargate and Tri-Lakes, which have higher-priced, older homes, Kifer said. Those areas dropped first in the lull and will likely recover first, she said.
Young people in downtown
Downtown Colorado Springs is popular with young people, Kifer said. “The only thing that I think is a sure bet is the older homes downtown, the little houses…because that’s where our young people want to go.”
Long-term appreciation will probably be good “in the downtown area where the young people are flocking,” Kifer said. “Fixing…a house and hanging on to it, it would probably rent before other properties and it has been a very appreciating area.”
“In the middle of town, there’s almost nothing left as far as buildable land,” Lazzaro said. This makes rehabbing of older homes more successful there than in outlying areas where new construction offers more competition.
Downtown may offer cash flow opportunities, DeMers said. “There’s a great amount of growth, and the new zoning for commercial in that area. It’s always been a pretty small…western town, but now you see high rise buildings and parks and different communities down there.”
Long-term, volume investing
Overall, the Colorado Springs real estate market is not for investors seeking a quick buck, Lazzaro said.
Rather than seeking the one stellar deal, Lazzaro said successful investors in Colorado Springs focus on volume of good deals. “You’re not going to get a $300,000 home for $150,000….If you make…$15,000 to $20,000 on a flip, you’re doing great….Know that the deals are out there, so you can make money in volume, not on a per deal basis.”
“If you’re looking for the long haul and something that’s going to…pay you back well for the next five to 10 to 20 years, this is a good town for that. It’s a faithful, steady growth town,” he said.
