Location over Cash Flow in Downtown Colorado Springs

In this deal analysis, we’re looking at a rental property I recently purchased in downtown Colorado Springs.  This deal is all about that classic real estate mantra: location, location, location. 

Investor Profile

This is the 10^th property I’ve purchased.  I consider myself a pretty disciplined investor who tends to buy really solid properties that aren’t hedged.  While I wouldn’t recommend buying a home like this for a first-time investor who doesn’t have a cushion of other properties, I see this one as a little treat to myself of having a property in a fun location.

Investment Property Details

About the Property

This is a single family house that was built in 1997.  It’s a fairly small 2 bedroom/1 bathroom 1000sqft home with a postage stamp sized backyard.  

This is by far the best-located property I’ve ever bought in my life.  It’s right in the center of downtown Colorado Springs, close to Denver Biscuit Company, and right across the street from the new soccer stadium.  Within 100 meters, there’s an apartment building that just opened and another that’s under construction. 

Location is the one thing you can’t change in real estate, and I’m expecting this appreciate with the development of the area.  As prices and interest rates keep going up, cash on cash returns and cap rates keep going down.  Putting money in a good location to hedge against inflation is a great long term investment.

How Was the Deal Sourced?

I found this deal on the MLS.

Property Contract Details

Contract

The property was listed at $350K, and I was able to get it at $360K with an appraisal gap of $10K.  What helped me most in this transaction was simply calling the listing agent and finding out what the seller needed.  It turned out she was an older woman who no longer wanted to live downtown and needed time to find a new home.  I gave her a free 2 month rent back, and she accepted my offer.

Inspection Issues

My only inspection objection pertained to the roof and vinyl siding being nearly destroyed.  While vinyl siding is typical on the east coast where I’m from, it’s rare in Colorado because of its susceptibility to hail damage.  The seller filed an insurance claim, and I threw in a small portion of my commission as an agent to help cover the deductible. 

The rest of the house was in pretty good shape, but it needed considerable updating.  The repairs cost a lot more than I anticipated, which is a common refrain regular listeners hear from me.  One day I’ll learn my lesson not to underestimate repairs, but not for this property!

The renovation consisted of entirely redoing the bathroom, and painting the walls and cabinets. 

Property Financing Details

Property Analysis

The numbers are a little complicated here.  I put in a $10K appraisal gap with the assumption the appraisal would come in low, which it did at $353K.  There are seller credits because I rebated my commission to myself. 

I closed on the property in November, which is why I was lucky to get a 3.375% interest rate.  If I were purchasing the property today, it would probably be about 4.5%. 

While an $1800 per month rent is aggressive for a smaller 2-bedroom home, the location makes up for it.  Nearby luxury apartments rent for $2200-2300 per month, and this home is a great option for someone who wants their own space and private yard downtown.

Property Operating Expenses

Although I’ve long been a proponent of self-managing, I’m getting to a point in my life where I’m starting to pay for property management.  This is one of the first properties I’m hiring a PM to manage for me.

The taxes on the property are surprisingly low at $450 a year, and I expect they’ll go up when the property is reassessed.  In all likelihood, the property has a senior exemption keeping the taxes low for now.

First Year Returns

The annual cash flow for this property is about $1K and the cap rate is 3.9%.  We don’t often talk about returns in this range as being particularly good, but this goes back to the location and how it will appreciate.  I’m not buying this property with the hope of cash flowing now, and on paper, this is the worst performing property in my portfolio by far.  However, if I can sell it for a good chunk of money in the next couple of years, it could easily be my best property yet. 

Even with these lower returns, I’m still getting a 20% return on my investment, which is a very good return overall. 

Conclusion

I bought this property in November 2021, and since then, I bought another single-family home and a fourplex.  Now that I’m up to 15 doors, I am exhausted and want to sit back and enjoy the returns my portfolio is generating. 

Connect with Us

If you want to get started on or add to your portfolio, reach out to me.  As an investor and an agent, I keep my finger on the pulse of the Colorado Springs and Pueblo markets.  I’m happy to help you find the right property to match your strategy and goals.

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Location over Cash Flow in Downtown Colorado Springs