Out of State Investing vs Colorado Springs

This blog post chronicles the personal performance of two similar properties: one in a popular Midwest cashflow market, one in Colorado Springs. Both were ‘turnkey’/rent-ready and were held for ~2 years and then sold.

The purpose is to show why I transitioned from out of state investing to entirely in Colorado Springs. The is a self-reflection based on personal experience as a new real estate investor, and what works best for our personal investment strategy.

Background

My out of state properties were in Indianapolis and Chicago in early 2016. My first Colorado Springs investment was in September 2016.

In mid-2017, I observed that my out of state properties had lower returns than the ones in Colorado Springs. By early 2018, I decided to sell our entire out of state portfolio and reinvest solely in Colorado Springs.

Indianapolis Pro Forma: Single Family Home (March 2016)

Key Takeaways:

• High vacancy rate (8%)
• Capex and Maintenance are higher than average (13%)
• Appreciation not taken into consideration (0%)

A cash on cash return of 14.2% AND a cap rate of 8.6% are extremely positive and strong

Colorado Springs Pro Forma: Single Family Home (March 2017)

Key Takeaways:

• Used 3% vacancy rate, standard for the area.
• Budgeted for property management, even though I self managed
• Price to rent ratio not at the 1% rule

A cash on cash return of 4.6% AND a cap rate of 6.2% are closer to average investments.

Indianapolis – 2 years of Operating Data

Retrospective thought: I should not have relied so heavily on numbers prepared by others, and should have performed my own analysis.  However, you don’t know what you don’t know.

Colorado Springs – 2 years of Operating Data

Retrospective thought: I should have used higher capex and maintenance figure, this property was previously flipped but there was some deferred maintenance.  Another aspect of me being fairly new to investing- I know more what to look out for now.

2 Years Comparative Data: Indianapolis vs. Colorado Springs

Sales Data:

Return on Investment Quadrant (ROIQ): 2 years of data:

Final Thoughts

Vacancy kills cash flow!

• The Colorado Springs property had essentially a 0% vacancy rate over the last 2 years, whereas the Indy property was vacant for 3 months in less than 2 years.  This is likely due to demand of rentals and lack of supply of reasonably priced rental properties in Colorado Springs and vice versa elsewhere.

Personal introspective look: I realized I like control!

• By being able to be close to the property, even though I outsourced the majority of the work involved, there was a sense of control in that I could drive over to it, if need be which helped me to sleep better at night.

Strong economy = Strong performance!

• The stronger growth economy of Colorado Springs helped significantly with the total return.  Even so, my cash on cash was still better than the property in a ‘cash flow market’.

YouTube Video: Out of State Investing vs Colorado Springs Investing