Last year, I was trying to convince you, loyal reader, why then was a great time to buy real estate in Denver.

A few of you listened, and I congratulate you. Still, many others decided to wait it out and missed out on some amazing properties selling at the lowest prices this market has seen in ten years.

Of the homes that I sold in the past year, each client got an amazing deal,. These homes often came with built-in equity (purchased under market value), some with the potential for some sweat equity (strap on the tool belt for these homes), but every home is now worth more than it was when it was purchased.

In fact, one home in particular was recently assessed at over double the purchase price. Now, of course that is an extreme example of equity gain, but according to recent statistics, on average, homes in Denver gained over $29,000 in value during the past three years. So, while many of the thirty largest metropolitan areas in the country are still seeing declining home values, the Denver real estate market has recovered and is already gaining value again.

If you had been contemplating a home purchase last year but decided to wait, don't beat yourself up about it. Interest rates are still near the lowest levels on record and, according to many experts in the field, are going to remain low for at least the next 12 to 24 months. So, money is cheap and many of the major national and regional banks have relaxed the grip on their money and have begun to lend again in earnest. In fact, a 620 credit score will open the door to an FHA loan and a score of 740 might let you see a conventional mortgage rate of around 4.25%. (Of course, there are many factors in obtaining a mortgage and you should consult your mortgage professional for all of the details.)

Now, dear reader, you are likely wondering if there are any good deals left out there in the Denver market. To this I can say that there positively are still good deals in the Denver market. Sure, you missed the bottom of the market as a whole, and yes there are neighborhoods which are starting to see significant demand, price increases and even some bidding wars(?!), but there are “bargains” to be had in some great neighborhoods. And, according to the Wall Street Journal and other publications, Denver offers some of the best home values when compared to renting similar properties.

This being said, the number of properties for sale in Denver is hovering around 10,000 which is less than half of the number of properties for sale even three years ago. What this means for a potential homebuyer is that desirable properties listed for sale under $400,000 are often under contract within a few weeks of coming on the market, and in many cases, are receiving multiple offers. There is competition in the market again and the buyer that is pre-qualified for a mortgage, has a down payment ready to go, and is working with a Realtor is at a distinct advantage over those potential buyers who are “just looking around” and aren't prepared to make a strong offer on something they like.

So, if you are considering a home purchase in the next six months, there are a few very important things you should do to prepare. First, speak with a Realtor, then speak with a mortgage professional to get pre-qualified for a mortgage. This will set a price range of homes for you to begin looking at and will save you some possible disappointment if you were to fall in love with a home that you couldn't afford. Once you have become qualified for a mortgage, have your Realtor begin a home search based upon what is available in your price range.

Think about why you are buying the home when you are speaking with your agent, and try to be honest with yourself. If you love to cook, then perhaps a great kitchen is the most important feature in your new home. If you have two cars and a motorcycle, then maybe you need a garage to keep those “toys” safe and out of the weather. Maybe an outdoor space is paramount, or the home's proximity to restaurants or parks or good schools is what you find to be the deciding factor. All of these things will help your Realtor narrow down suitable homes and neighborhoods for you.

Why this is the time to buy a home in Denver

What many real estate brokers will tell you, is what you've probably already heard, "with that kind of budget, you should buy a property."

And, you know what, they're right. If you are paying $750 or more a month in rent, you have a steady job and aren't planning any drastic changes to your life in the next three or so years, then you are doing yourself a disservice by not buying a home.

Let me give you three good reasons why buying is a good idea:

One - You want to keep as much of your money as you can. If the U.S. government said they were going to take an additional 1/3 to 1/2 of your income every year, what would you do? You probably march on Washington with a pitchfork in your hand, right? Yet, many of us do that every month when we write a check to our landlord, we give our hard-earned money away, to someone else, for a roof over our heads. Crazy, isn't it?

If you could, why wouldn't you pay yourself that rent money? It sounds like a no-brainer. Think of it as a forced savings account, one that could be worth tens or hundreds of thousands of dollars upon the sale of your home.

In addition to this savings account, the IRS will let you deduct all of your mortgage interest from your income, every year, and I'm not afraid to tell you, I deduct nearly $10,000 of mortgage interest per year. That has allowed me a receive a substantial return from the IRS, every year. Plus, if you happen to pay mortgage insurance on your mortgage, you can deduct that as well.

Here's to paying yourself!

Two - If you buy a house (and continue to make the payments), it's yours! That's right. There is security in that. You can set down roots in a place (this many not be good for folks who need to be able to pick up at a moments notice and go travel the world, but my neighbors did just that) You can plant vegetable roots, as in a garden, trees, a lawn, if you'd like.

You will no longer have a landlord telling you what color you can or can't paint your bathroom, no building manager towing your car for not parking in the right parking space, in a house there is no neighbor above you, below you, sharing a wall with you, stinking up the hallway with pungent food or cigarette smoke. No bedbugs from the guy down the hall (this has become a real problem in recent years in the U.S. and worldwide). I'll tell you, it's liberating.

Home owners are more likely to be involved in their community, which means the neighborhood gets better over time. The children of home owners tend to do better in school, are more likely to be involved in extra-curricular school activities, and are more likely to attend (and graduate from) college.

Three - Housing prices tend to rise over time. This is an historical fact. In recorded history, in the U.S., property values have risen approximately 5% per year. This includes the time of the Great Depression and this recent Great Recession. At the very least, it is a hedge against inflation, but in some cases it can offer better returns than that.

Think back ten years of the Denver housing market and let's look at only the Highlands neighborhood in Northwest Denver. If you had been fortunate enough (or savvy enough) to buy a home in this neighborhood in 2001, you would have paid about $205,000 and if you had bought last year, you would have paid about $330,000 (these are average prices folks). That is over $100K of increase in home prices in less than a decade! Of course the Highlands neighborhood is a wonderful exception, but what if you (or your REALTOR®) are savvy enough buy property in the next Highlands neighborhood?

Of course, moving past the idea of renting is difficult for many people and for a myriad of reasons. Sometimes, I think this is a difficult fact for us, as real estate professionals, to remember.

Here are the reasons why I think people are still shying away from buying into the housing market and then why these reasons just don't make logical sense.

To paraphrase billionaire Warren Buffet when he summarizes his money making strategy,
"Where there is fear (in the market), I see opportunity." This cannot ring more true than in the current real estate market because most potential buyers are just plain scared.



-It's possible that with what people are hearing in the news, that they don't believe they will be able to get a loan because banks just aren't giving away money like they used to.

While this can be true of people with marginal credit, scores below 620, there are loan opportunities out there for people with decent credit. I just talked to the in-house lender at Your Castle Real Estate and he told me that he is routinely able to lend to people with credit scores of 620 and above. 70% of the U.S. population has a credit score of 620 or above. Also, I just read an article in REALTOR® magazine that Wells Fargo, one of the biggest lenders in the country, has recently started a program where they can lend to people with credit scores of 500, as long as they can make a down payment of 10% of the home's value! A 500 credit score is akin to spelling your name correctly on the college board exams.



-Perhaps people aren't buying homes because they don't feel like they have enough money for a down payment because most conventional loans are requiring up to 20% of purchase price.

Again, there are programs, most notably through institutions that deal in FHA loans, where the required down payment can be as low as 3.5%. Additionally, VA loans, for military personnel and veterans can finance up to 100% of a home's value. And if a veteran has just returned from overseas and missed the first-time homebuyer tax credit, they can still get it if they are under contract by the 30th of April. That's $8,000 in free money to military home buyers!

 -Mostly, however, it is my opinion, that folks are just plain scared of the real estate market. The media often reports of the horrible losses in home value that have occurred all around the country. Recently, the news has been referring to the Case-Schiller index of home prices and that those analysts are predicting even lower home prices in major metropolitan areas in the year to come. Scary stuff. The stuff of self-fullfulling prophecies.

This index is based on a 10-City or 20-City study area. When one examines which 20-City cities are cited, one finds Phoenix, AZ and Las Vegas, NV and Los Angeles, CA and Portland, OR and Detroit, MI. If these are the cities that Case-Schiller is basing their studies on, well of course things look like hell out there. If one examines the whys of these value drops in these cities, one will see huge industry declines over decades (Detroit); rampant, unsustainable growth (Las Vegas and Phoenix); widespread over-valuing of property (LA, Las Vegas, Phoenix); and continual unemployment, stretching back from before the recession (Portland, Detroit, Cleveland).

While there have been enormous losses in some cities and states, Denver and Colorado, as a whole is not one of those markets. One of the reasons why the Denver market hasn't suffered as badly as others is that there wasn't a huge amount of speculation in this market driving prices up to unsustainable levels. This isn't to say there was no speculation here, but there are many working-class neighborhoods in the metro area whose residents bought homes to live in, not to make a quick buck from.

Another contributing factor to Denver's stability is our lower unemployment rate, as compared to other states. Our industries tend to be more stable and self-stustaining, agriculture, technology and services. Plus we have seen the inflow of new businesses and residents. While other cities saw declines in population, Denver saw increases.

So, if you are paying $750 per month in rent, have a stable income stream, and a credit score of 620 or above, get in the game!

Here are a few more reasons why.

- The rental market in Denver has the lowest vacancy rate, between 2% and 5%, now than it has in over a decade. The whys of this are complicated, but to simplify, more people are moving here, there is a segment of the population that has had to give up their homes to the bank (likely these folks won't be able to buy again for seven years), and many other people are scared to buy. This means it will be more difficult to find good rentals and rents will be increasing. If you buy with a fixed-rate mortgage, your "rent" will not increase over the life of your mortgage term.

-Mortgage rates are at or near the lowest they have been in 30 years. There are very few experts that believe mortgage rates will decrease more than they have, and almost all believe that rates will increase within the next year. If you are able to buy now, you will save yourself tens of thousands of dollars in interest over the life of your loan and qualify for tax deductions that you would not have if you were renting.

-Property values are lower than they have been in ten years. This will not likely change dramatically in the next year, but if you were looking for a home during the initial first-time buyer tax credit, you would have paid 10%-20% more for a piece of property than you would have in the three months after the buyer credit expired. Wait to follow the herd and pay more, or buy while everyone else waits and save yourself thousands.

If you wait and see what will happen with the market, you will pay more for a piece of property, you will have wasted more money on renting, and you will pay more in interest over the life of your mortgage as rates go up, and they will likely go up. 

This is my educated opinion, but it's also what I do, all day, every day. My goal is to help everyone I meet purchase a home, now, and by doing so, save themselves money, over renting, now. This same knowledge can be used by investors to make themselves money, both in the long-term and immediate through cash-flowing a property. 

Denver Neighborhoods to Watch, and Why...

There are many Denver neighborhoods in the midst of transition. I'd like to take some time and highlight a few of these that I find interesting, and different, and full of opportunity. These neighborhoods are changing for various reasons, some are seeing populations shifting from well-established families to working singles and two-income up-and-coming couples. Others are coming out of dormancy as small businesses re-open vacant storefronts and create pedestrian-friendly shopping within residential enclaves. Whatever the reasons behind the changes, the home values in these neighborhoods is increasing or poised to increase in the coming years.   

Skyland 

Skyland is a relatively small neighborhood bordered by Martin Luther King Boulevard to the north and East 23rd Avenue to the south. Colorado Boulevard creates its eastern border and York Street its western. Recently, Skyland has enjoyed a renewed popularity among young professionals and upwardly mobile families. This change in population is increasing home values as these modest, mid-century, brick homes are being purchased and renovated with the amenities that Generations X and Y demand in their living spaces.

One draw for many homeowners new to the area is the proximity of a vast public open space to the south. With the combination of City Park, the Denver Zoo complex, and the City Park Golf Course, new residents can enjoy jogging around the golf course and into City Park proper, taking the kids for a stroll around the fountains in the park, riding almost three miles of paved and satisfyingly uncrowded bicycle routes in the park, and the various events (including Jazz in the Park) that go on in City Park throughout the summer months.

As Skyland, and neighborhoods like it, see changes in population and improvements to existing homes, there exists the possibilities of pocketing generous sums of money for savvy real estate investors and those homeowners motivated and in a position to sell. But at the same time there is the very real risk of becoming overextended by showy, but owner-specific renovations in the pursuit of higher profit at the time of sale, only to find out that not everyone wants a basement master suite or a garage to home theater conversion. The best advice I could give is to buy a home that you would want to live in for the forseeable future because, chances are, if you would want to live there, in a comfortable space, so would potential buyers. The other advantage to a buy-and-hold strategy is that you will be able to ride out temporary market fluctuations, no matter their length, and wait for the optimal time to sell.

  There is research that shows that mixed-income communities are stronger, more stable and less likely to suffer from wide swings in home valuation. Additionally, businesses often balk at investing in strictly low-income areas because of real or perceived lack of purchasing power. Similarly, wealthy neighborhoods tend to shy away from the expansion of businesses and services in their neighborhood because of the change it may bring to the flavor of their exclusive community and this can result in a stagnation of the neighborhood. One could argue that something like this has been occurring in the Cherry Creek neighborhood over the past decade as younger professionals have avoided this neighborhood in favor of the more diverse Highlands and Baker neighborhoods.

Buying property in Skyland could pay off in the long term. This is because there exists a fundamental difference between what makes a smart real estate investment in the short term and what makes the kind of community where people want to live. Over the long term however, the differences in home values can make up for any short term profiteering. Buying a property as a cash-flow investment requires a different set of rules and standards than buying a home to live in for a period of years. A cash-flow investment might generate a few hundred dollars per month, but will likely not appreciate significantly in value over time while a home purchased in a desirable neighborhood will likely produce a fine sum, which may be exempt from income tax, upon the sale of the property.

There are many reasons why Skyland is a good neighborhood in which to purchase a home; the proximity to open space, popular restaurants, eclectic cafés, and neighborhood bars, a variety of unique shops; the nearness of downtown; the closeness of museums and cultural activities; ease of access to public transportation, Denver International Airport and the interstate highway system; and the solidity of the housing options offered in the neighborhood. All of these reasons make Skyland a neighborhood to give a closer look if you are in the market for a home in Denver.

Welcome to DIY Denver!!

Sure the exclamation marks are overkill, but this blog will reflect my roots and how the tenets of Do It Yourself are ingrained in how I do what I do, and why.

DIY has been around since the dawn of time, but my version was adopted/adapted in the 1970s. Grown out of the "handyman" ethic, independent musicians of the 70s and 80s took that concept of fixing your own stuff and applied it to making music and making money in a time of over-produced, over-financed corporate schlock-rock. But, this blog isn't about music, it's about real estate, mostly, and sometimes about bicycles, motorcycles, old BMWs, home improvement, and making money. But, the genesis of the blog is how to create solid investments in real estate for yourself.

How do you do this? Well, it's simple, in theory...

The reality, however, is a little more complicated than merely buying a piece of property you like and waiting for it to go up in value. One could, theoretically, purchase property and wait, and in a "normal" market, real estate values would outpace inflation and the stock market average (approx. a 5% gain in value per year).  However, with a bit of research, some data specific to your market, and the patience to wait for a really "good deal," one could see returns above 10% per year (collected after the sale, of course).

One very important detail to remember, all investments are risky, and while real estate in general is a relatively low-risk venture, it is not a liquid investment. If you think you can buy a piece of property and five months down the road, you will cash in with a 10% return so you can buy a new Porsche, you're delusional. To borrow a line from the movie "Layer Cake," "It doesn't work that way."

One of your greatest tools as an investor in real estate, is your friendly, neighborhood Real Estate Broker. All Real Estate Brokers are tools... um, I mean... as a Real estate professional, I can be a great resource for information, data, market knowledge, market trends, etc. We, the Real Estate Professionals of the world, are perhaps the best value resource for real estate investors in the world. Why? Because, in Colorado, the buyer (you, Mr./Ms Investor) pays no money directly to the Real Estate Broker with whom they work. The broker is paid by the seller's proceeds on the sale of their home. I am your professional advocate, resource, and man Friday at no cost to you! Use me, if you don't, you might miss out on a better investment opportunity.