How are high interest rates affecting returns? Our deal analysis today looks at a single family home in Pueblo recently purchased as a long term rental. The buyers were able to get a loan of 5.625%, so I ran the analysis using the current interest rate at the time of recording–6.5%.
Rates have gone up since, but this is a great example of the opportunities Pueblo has to offer.
- Listen to the podcast “#107: Where Can I Cash Flow in Colorado? Hint: It’s Pueblo” on the Colorado Springs Real Estate Investing Podcast
- Watch the YouTube video (at the bottom.)
- Read the blog post. Note, the blog is an executive summary. Get the in-depth breakdown from the podcast or video.
These clients are a young couple who currently live in the Denver area. They house hack their primary residence and wanted to expand their rental portfolio while saving up for their next home. Their plan is to replicate this strategy every one to two years while acquiring supplemental rental properties.
They worked with investor friendly agent Leah Keeling, our residential Pueblo expert.
Investment Property Details
This is a 2 bedroom/1 bathroom single family home located in the southwest part of the city. Although it was built in 1900, it’s been recently remodeled.
Property Contract Details
The clients started looking at properties last spring, when the market was very hot. They had to be competitive with their offer in order to land the property.
The home was listed at $149K, and they came in at $155K with limited inspection objection. That meant they would only object to items that cost $1500 or more.
The inspection went well, and they didn’t end up objecting to anything. Because the home was remodeled, they only found minor items they would fix on their own.
Property Financing Details
I used the Rental Property Spreadsheet to run the numbers on this property.
You may notice the initial repair cost of $3K, even though the inspection didn’t find anything major. Unfortunately, after the clients closed on the property, they found a leak between the meter and the house that cost $2500 to fix. These things happen sometimes, which is why reserves are so important.
The extra $500 is to repair railings on the front and back porches.
Property Operating Expenses
The clients are using a property manager since they live in Denver and wanted a property they could set and forget.
First Year Returns
They are getting an annual cash flow of $1246 with a cap rate of almost 6%. This fits the bill for many investors who aim to get $100 per month in cash flow.
If we run the numbers with today’s 6.5% interest rate, we can see that it’s still a good deal. The cap rate stays the same, though the cash flow drops to $459. Having a cash flow positive property with such a high interest rate is impressive.
This is a great long term investment and shows that Pueblo has solid opportunities even in today’s economy. There’s a good chance rents will rise in this area, and there’s always an option to refinance into a lower rate down the road.
Connect with Us
If you’re interested in investing in Pueblo or Colorado Springs, reach out to me for a free investment consultation.
High Interest Rates Don’t Mean Giving Up on Cash Flow
Podcast (colorado-springs-real-estate-investing-podcast): Play in new window | Download (Duration: 6:40 — 7.6MB)
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