House hacking your first property is the smartest decision you'll ever make
So you're looking for your first real estate deal in Denver or Colorado Springs. You're in your 20s or early 30s. You're excited. But damn, prices are sky high.
And you've got a lot of questions: Is the Denver housing market going to crash in 2021? (Short answer: No.) Is it a good time to buy in Colorado Springs? (Yes, but it depends.) And maybe most importantly: What is the best first investment to make in Denver or Colorado Springs?
If you're young and flexible, the answer to that last question is to buy a house hack property.
House hacking in Denver and Colorado Springs is the best first real estate purchase you can make because it sets you up for future purchases. (Want more info, check out our guide to house hacking in Denver and Colorado Springs.)
This is for a few reasons:
It's simple. You don't have to compete against institutional buyers to try to grab a duplex or triplex. So that means you can move quick, and in this market where prices go up every month, acting quickly can mean tens of thousands of dollars in potential equity.
The numbers work. You can live for free plus make some cash flow. You get hands-on experience managing tenants, leases and house-hold repairs.
We could talk all day about house hacking (and if you want to dive into your search for your first. place, give us a shout and let's hop on a call). But for this post, let's keep it simple and run some numbers to get you excited.
Step 1: Scrape, beg or steal money for a down payment. In Denver, a decent home in the suburbs will cost around $450,000-$500,000. In Colorado Springs, it's more like $350,000-$400,000. Because this will be a primary residence for you, you only need 5% down. That's between $17,500 and $25,000. Find it!! Borrow it! Whatever, just get that money.
Step 2: Find a 4-5 bedroom home for, let's say $450,000. With a 3% interest rate and a 5% down payment, your all-in monthly payment would be around $2,200.
Step 3: Find 3-4 roommates. Let's pretend it's a 4br house, so you're renting three bedrooms. Single room rents are around $750. That's three bedrooms times $750 for a total of $2,250 in rent, so that's living for free plus $50 in cash flow.
Step 4: Save that money!! If you're the average tenant in Denver, you're paying $1,500/mo for an apartment. Well, you're not paying that rent plus you're making $50/mo. So sock away that $1,550 in total savings each month.
Step 5: Rinse and repeat! In one year's time if you saved only the amount you saved in rent plus the cash flow, you'd have $18,600. That's enough for a 5% down payment on a $350,000 house. (Hopefully, you're saving a bit more from your job as well, so that stockpile will be bigger.)
Step 6: Move out, keep renting the old house, and house hack the new home. Now you get to rent the room you were living in. That's an additional $750 for a total of $3,000. That's a good cash flow. And you are renting by the room in the current place you live.
By implementing the house hacking strategy in Denver or Colorado Springs, you can build up a portfolio of homes in five years. Once you have those homes and the cash flow, the savings start to compound. You also have access to the equity in the homes to buy more properties. At this point you're on your way. And all because you bought that one simple home.