You hear it from your friends, family, clients and colleagues; invest in real estate! Is this a sound decision and a profitable sector to place your money? With the proper due diligence and comprehensive analysis, I believe it is an excellent decision! History has proven that real estate has significantly outperformed most other investment markets. However, you must be aware and conscious of both the risks and benefits of owning investment property. When I say "investment" real estate, that is precisely how you should be viewing the asset - as an investment - and will this provide a desirable return on your money?
In the majority of investments (stocks, art, jewelry, bitcoin, etc.), you are hoping to buy something that will appreciate in value, then sell it later for a profit. In some forms of investing (buying a poorly run business, for example), you may be buying something that produces income and hoping to improve that asset's performance in order to increase its value. For most, this involves too much work and is undesirable. What we are left with is the subconscious understanding that to "invest" is to buy something you believe will be worth more later. If this is based on sound principles, it can work. If it's not, its really more like gambling.
Those buying properties solely because prices were climbing and for no other reason have one exit strategy: sell later. They also only have one way to be successful: hope the property continues to appreciate. Any outcome other than these two is virtually guaranteed to lose money. Wise investors don't bet on appreciation. Instead, they purchase properties on a sound judgement that the property will generate more income than it costs to own. For these folks, who "cash flow" positively, they don't care what the market does. If prices drop, they are safe. If prices rise, they have more options.
Like other sizable investments, you must evaluate your decision using a comprehensive analysis encompassing all of the elements beyond cash flow and appreciation, like equity paid by the tenants, interest tax deductions, potential property depreciation, and the fact that it is a tangible asset. This is not an easy task, but with the right skills and knowledge, you can generate this type of analysis facilitating the decision to invest.
So what are the benefits specific to investing in real estate? The biggest advantages are competitive risk-adjusted returns, high tangible asset value, attractive and stable income return, portfolio diversification, and inflation hedging. Average 20-year returns in commercial real estate slightly outperform the S&P 500 Index (20-year return approx. 8.6%), running at around 9.5%. Residential and diversified real estate investments do a bit better, averaging 10.6%. This performance is achieved with low volatility relative to equities and bonds, for highly competitive risk-adjusted returns. The "Flash Crash" of May 2010, when $1 trillion in stock market value was erased in just 15 minutes, illustrates an environment where market volatility is an issue and the dynamics of algorithmic trading are murky. making the more stable pricing of real estate much more attractive. A key feature of real estate investment is the significant proportion of total return accruing from rental income over the long term. Over a 30-year period from 1977 to 2007, close to 80% of total U.S. real estate return was derived from income flows. This helps reduce volatility as investments rely more on income return tend to be less volatile than those that rely more on capital value return. Diversification is one key element you always hear investors talking about, and they're not wrong. Real estate has a low, and sometimes negative, correlation with other major asset classes. This allows for less volatility and higher return per unit of risk.
Real estate is a distinct asset class that is simple to understand and can enhance the risk and return profile of an investor's portfolio. On its own, real estate offers competitive risk-adjusted returns and attractive income streams. Whether it's generating an annuity stream, creating a college fund or preparing for retirement, real estate investments are an excellent choice. If you would like to meet and expand on the information above, I would welcome an opportunity to visit with you!
For the average Colorado priced at $380,000, the commission paid to real estate agents is $22,800. Now, just looking at this number without understanding what all comes with it (i.e. negotiations, knowledge, experience, advice, network, personality, etc.), seems very overwhelming. So naturally, the seller automatically thinks of alternatives to try and save a couple dollars, and that's where iBuyers have entered the market. But turns out, with iBuyers, you end up paying a lot more, for a lot less. To illustrate this, I'm going to walk you through a real OfferPad and OpenDoor offers I got from National Real Estate Post.
See the offers here and my explanation below.
In these offers, I highlighted the areas of focus. On the first offer from OpenDoor, they credit the seller a sales price of $323,900. An agent charging the typical 6% would then cost $19,434 to be split between that agent's broker as well as the buying agent and his or her broker. For the sake of comparison, we're going to assume that OpenDoor gave a fair, full price offer, which it probably isn't, but that isn't the main area of concern for these offers. If you look towards the bottom of the page, there's an "experience charge" for $19,434. Sounds like a commission to me, and coincidentally, it's the same 6% the traditional broker would charge. Then OpenDoor tacked on another $6,210 for repairs and $4,858.50 for "market risk". They also let the seller pay for all escrow and title costs, which, without an agent, are non-negotiable. Even if we don't include the title and escrow costs, which, again, a traditional agent could negotiate on your behalf, the iBuyer costs the seller $11,068.50 more than the traditional broker. Yikes!
Now let's look at OfferPad on the second and third pages. OfferPad credits the seller a sales price of $191,310, probably a little below fair market price. There's then a huge 7.5% commission. Well, they call it a "credit to buyer", but remember, the buyer is OfferPad themselves, so it's a commission. The seller then also owes a $5,750 repair credit to the buyer (OfferPad) in addition to $3,000 "Funds Held: Post Possession" for who knows what. Again, OfferPad, like OpenDoor, lets the Seller pay for all title and escrow costs, but even without those calculated in, OfferPad costs the seller $23,098.25. That's more than double the $11,478.60 a traditional broker would charge you with the typical 6% commission. Again I'll say, yikes!!
Contrary to the current viewpoints, selling with an iBuyer costs the seller much more than a traditional broker, and offers much less in terms of service. iBuyers completely throw the idea of checks and balances out the window.
In short, if you sell with an iBuyer, you could be spending thousands more, with less representation, as you will not have an agent personally responsible to work on your behalf.
If you have more questions about the iBuyer industry, or are looking to sell (or know someone who is), I invite you to reach out to me here to discuss everything Velocity has to offer while maximizing your profit and convenience.
REALTORS Optimistic Spring Markets Will Bloom
An historic mid-March “bomb cyclone” weather event, coupled with epic Colorado snow totals, tempered the typical fast start to the spring housing market in Denver and across the state, according to the latest monthly market trends data from the Colorado Association of REALTORS®.
Despite the March moguls, median prices continued to rise across the state and REALTORS® remain optimistic that warmer weather will help markets fully bloom in the weeks ahead. Looking at the seven-county Denver metro region and statewide market, here are a few high-lights from the month of March:
Denver Metro Region Overview
• New listings for single-family homes, as well as condo/townhomes, rose 23 percent from February to March; however, the new single-family listings are down more than 2 percent from March 2018. New condo/town-home listings are up nearly 11 percent year-over-year.
• Total active listings dipped for both single-family homes and condo/townhomes over the past month, 6 percent and 7.2 percent, respectively. However, there were nearly 21 percent more condo/townhomes on the market in March 2019 over the prior year.
• Year-over-year sold listings were also down in March,
- 3.4 percent for single family and 4 percent for condo/townhomes.
• Despite weather and other seasonal factors, the me-dian sales price of a single-family home in the Denver metro area rose 3.5 percent from February to March and is nearly 2 percent higher than this time last year. The median price of a Denver-metro area condo/townhome rose about a half a percent over the past month and is 1.7 percent higher than this time last year at $299,900.
• Sellers of single-family homes and condo/townhomes continue to receive more than 99 percent of the list price while days on market has once again begun to fall – 36 days for single-family, 32 days for condo/townhomes.
• New listings for single-family homes rose more than 22 percent from February to March but remain down nearly 11 percent from March 2018. Condo/town-home new listings also rose 23 percent for the month and are 3.4 percent above where we stood at this time last year.
• The overall statewide inventory of active listings fell 6.5 percent from February to March with just shy of 13,200 single-family homes and more than 4,500 townhome/condos. Those numbers reflect a nearly 7 percent decline for single-family homes compared to this time last year while the condo/townhome inventory is up nearly the same 7 percent.
• Single family home sales were down nearly 6 per-cent from March 2018, while condo/townhome sales slipped almost 3 percent from a year prior.
• Pending/Under Contract properties were up for both single-family homes and condo/townhomes, 2.4 percent and 13.7 percent, respectively.
• The median price of a home ticked up 2.1 percent from February to March 2019 to $393,088 and is up 3.2 percent over last year. For condo/townhomes, the median price remained flat month-over-month but is up 1.8 percent from March 2018 at just over $275,000.
• Single-family homes did start to move a little faster in March across the state remaining on the market an average of just 52 days. Condo/townhomes came in at 47 days on market for March, a more than 20 percent improvement over this time last year.
"Finally, it is looking like the spring selling season is here. Looking across most Aurora zip codes, inventory is down slightly, and prices are up about 4 percent over March 2018. Interestingly, the sold listings are down about 7 percent from this time last year. Our median home price is $380,000 for single-family residential. Taking a look at the condo/townhome market, inventory is up over March 2018 and pricing is up 8.7 percent as well while the number of sold properties dipped slightly from last year. Our snowy March did not help with spring sales for condos or single-family homes and our current conditions provide a few more choices for buyers and the need for sellers to be priced appropriately.
“Taking a look at Centennial, the month of March saw inventory rise 47 percent for single-family homes with prices up about 1 percent to a median home price of $483,500. Sold listings are lagging behind the March 2018 numbers. Again, this could be due to the crazy March weather. The condo/townhome inventory in Centennial was also up 63 percent with prices ticking up slightly. Despite those figures, the number of sold condos in Centennial was up 117 percent over last year. Our market continues to be strong. Buyers are getting more choices and more opportunities to take advantage of the great interest rates,” said Aurora-area REALTOR® Sunny Banka.
“From a boots-on-the-ground perspective, the spring market has heated up and the action has started. However, the sales statistics show a sluggish - even boring - market. In Boulder county, new listings are slightly up but prices are about even with what they were at this time last year, or even a bit lower. For sellers who expected appreciation over the past year, education on the real numbers is imperative for those homeowners who need to sell this year. Even the more affordable townhome market is showing losses in appreciation from this time last year. Inventory is still low and days on the market remain under 55 days, indicating a strong market, but only for those properties that are priced properly.
“Broomfield County homes show a bit more activity with new listings up 35 percent and prices holding just at, or a little above what they were last year. The townhome/condo market remains the shining star with more sales and actual appreciation of about 6 percent since last year. Quick sales – under 41 days for houses and 21 days for townhomes – are in line with a more typical spring market. Proper pricing and position in the market is key for those homeowners who are hoping to sell this year,” said Boulder-area REALTOR® Kelly Moye.
Brighton and the I-76 Corridor
“It looks like the Spring market has finally decided to take off. It was a slow start at the beginning of the 2019 season for Brighton and the I-76 corridor, but the March market shows promise with the average price up 4.6 percent from the beginning of the year. Brighton and the surrounding areas are still showing prices lower than the rest of the metro area. If Spring fever has hit and you have an itch to move, our area may be one that you want to check out with inventory up 21.8 percent from a year ago,” said Brighton-area REALTOR® Jody Malone.
Colorado Springs/Pikes Peak Area
“The Colorado Springs area housing market is still remarkably strong. The month of March 2019 had the highest year-to-date single-family/patio home sales volume, the second highest number of year-to-date sales, the third highest number of monthly sales, and the highest monthly average and median sales prices compared to any month of March, ever. Month-over-month, single-family/patio home sales were up 33 percent, new listings were up 26 percent, and we saw a 34 percent increase in the sales of homes priced between $200,000 and $600,000.
“In the month of March, the days on the market were 36 days, the sales price to list price ratio was 99.6 percent, and the average sales price was $351,000 with a median sales price of $315,000. Last month, 75 percent of the single-family/patio homes sold were priced under $400,000, 14 percent between $400,000 and $500,000, 10 percent between $500,000 and $800,000, and under 2 percent were priced over $800,000. Pathetically low inventory – just 1.2 months’ supply – and ever-soaring prices continue to be the most challenging aspect of our housing market,” said Colorado Springs-area REALTOR® Jay Gupta.
“The Pikes Peak Region continues to be a strong seller’s market in the early part of 2019 as we experienced a decrease in new listings in both the single family and townhome/condo markets this past month. This scenario led to prices pushing up as inventory remains tight throughout the first quarter. Buyers will continue to feel a pinch on their pocket books as higher prices and the challenge of competing offers can wear you down.
“Keeping an eye on the national economy, we watched auto sales drop for the ‘Big 3’ and Tesla. Worldwide freight has also experienced a drop and several countries approach recession type numbers. These factors have stalled any potential interest rate hikes that the Fed had been discussing for the remainder of 2019. All of this is an added bonus for the housing markets, as well as the large amount of consumer debt that is out there. At this moment in time, housing appears to be on a strong path for at least the next quarter. But there are many global economic indicators that have people nervous. It’s going to be an interesting year,” said Colorado Springs-area REALTOR® Patrick Muldoon.
“Spring is here and neither like a lion or a lamb, evidence mounts that we have experienced our peak already. Denver’s median price remains in a statistical tie to that of last March with less than a half of a percent difference and a significantly higher amount of days on market. With 50 percent more days on market than March 2018, according to new data by the Colorado Association of REALTORS®, homes are beginning to rest on the market a little longer, giving the long-bewildered buyer an opportunity to shop around. It’s not time to call in the panic patrol just yet though as the median price remains 16 percent higher than March 2016,” said Denver-area REALTOR® Matthew Leprino.
“The housing market data for the state and Denver-metro region would suggest that our market was a bit sluggish to start 2019. Inventory is seeing some increases and days on market are up. The metro region shows new listings up 8.8 percent compared to last year and total active listings up 6.6 percent. Statewide, we’re experiencing a slightly different environment with new listings up just a half of a percent (0.5) and active listings are down 3.8 percent. Days on market increased to 51 days compared to 46 days last March for the Denver-metro region. The most exciting number might just be the pending/under contract, both for the metro area and state, up 10.8 percent and 5.1 percent, respectively compared to last March. I believe that this scenario suggests that sold listings will recover in the next couple of months, after being down in March, both for the state and metro Denver.
The bright star in the market is for that first-time homebuyer or investor who has wanted to get into the condo/townhome marketplace. Active listings are up across the state giving homebuyers and investors more choices and, with appreciation slowing down, helping with affordability. The months’ supply of inventory and days on market have both increased, contributing to the appreciation slowdown. Sellers beware when pricing your properties, don't get too greedy. Being too aggressive in your initial pricing you’ll likely find yourself still owning that property 30 to 60 days later but, if you take a more conservative approach and enter at the current market value or slightly below, you should experience a quick sale at or over your list price,” said Denver-area REALTOR® Karen Levine.
“March was very similar to our first two months of the year with lots of snow and reduced activity. Listings continue to be down over 25 percent from the previous year, again due to the adverse weather conditions when compared to the year before. March closings for single-family homes were down about 13 percent, which is about what we expected. Prices remain stable with the median price sitting up about 4 percent compared to last year. The townhome/condo market experienced about the same as single family with a decrease in overall March activity, new listings were down 13 percent from last year. The 8 percent increase in median price can be attributed to a few high-end sales on the river and at Purgatory Resort.
“Spring is beginning to show itself, and with warming temperatures, real estate activity is increasing daily. We’ve had 87 new listings hit the market in the last seven days. Durango has a lot of pent-up demand both on the buyer and seller sides due to the 416 Fire last summer and the epic winter we experienced. April is off to a great start with increased inventory and a good amount of buyer activity. Durango had a very active spring break - our epic snow has consequentially brought high tourist counts to town, which we are hoping will result in second home purchases later this year. With the reservoirs filling and our mountains greening, we are gearing up for a very busy tourist and selling season this summer,” said Durango-area REALTOR® Jarrod Nixon.
“The Estes Park single-family market is hoping for a defrost from our long, frozen winter. New listings are at a frigid 27.6 percent below this time last year. Closed sales have slowed, and the average sale price has followed suit with a 6.3 percent dip compared to March 2018. Days on the market have reduced slightly (-4.4 percent) indicating a warm up is on the horizon with less inventory aiding a desirable market.
“The townhome/condo market seems to be capitalizing on the low inventory of single-family residences with higher prices coming in. Townhome/condo new listings are up 21.6 percent from March 2018. Closed sales are on the rise (15.8 percent) over last year and the average sales price climbed 17.4 percent. Days on the market remains competitive at 79 versus 109 for single-family residences. Drake is also seeing a dip in new listings, and closed sales dropped 25 percent over last year.
“Being a small community with just 4 total listings in March 2018 and 3 in March 2019, the percentages are easily changed. Average sales price is on the rise to $302,500, an 18 percent increase from last year. Days on the market was comparable to Estes Park at 108. Glen Haven is generating heat with an increase in new listings, closed sales going up and days on the market nearly unchanged over 2018. Average sales prices are impressive with the average single-family home fetching $535,000, a 17.6 percent boost over last year. While the Estes Valley is awaiting ‘the thaw,’ the market is buzzing with anticipation and energy,” said Estes Park-area REALTOR® Abbey Pontius.
“The Opening Day of Major League Baseball season along with shouts of ‘Play ball!’ conjure up all sorts of emotions; senses of optimism, renewal, hope, and anticipation of the coming spring and subsequent summer. For the last decade, Opening Day in this sense has also marked the beginning of the peak selling season in real estate. Buyers and sellers wake from the sleepy hibernation of winter and find themselves in need of a change and often it is a change in housing.
“The numbers for March are certainly edging toward what may be another robust spring selling season across the Front Range. In Fort Collins, active inventory continues to increase providing greater choice for buyers. Demand for housing remains strong and with the recent drop in 30-year fixed rate mortgage rates, buyers are seeing an increase in their buying power. With the announcement by the Federal Reserve that there won’t be any further increases in 2019, we may see mortgage rates stabilize as a result. A renewed optimism can be felt in the market that lagged a bit during the winter months.
“That being said, demand is still high and median prices continue to climb. Fort Collins has seen the median price climb to $425,000 (up 3.7 percent from this time last year). Even with a double-digit decline in the number of sales year-over-year (-11.1 percent), we are seeing substantial increases in the number of units sold in the $500,000-and-up price points – as much as 18 percent increase in sales year-over-year between $500,000-$700,000! Fluctuations in interest rates have a less drastic effect on buyers in these price points and so we’ve seen gains all across this sector as move up buyers trade-in the equity in their homes to address that need for a change in housing.
“In the sub-median price market, sellers are going to need to exercise prudence in their pricing strategies to entice owner occupants to make the leap to owning their own home. Competitive offers are still common in homes that have been nicely maintained and prepared for sale in combination with aggressive list prices. In many cases, we are seeing list prices flat to just slightly above the initial list prices of comparable homes from last spring,” said Fort Collins-area REALTOR® Chris Hardy.
“The Jefferson County market flattened a bit with new listings down by 9.2 percent and the number of sold properties down 13.6 percent. While the median sales price increased 3 percent in March to $529,059, we’re starting to see buyers be just a little more cautious over the past two weeks and that could drive our numbers down for the month of April. As always, updated homes in a good location are the ones that are selling, as other inventory is having to come down in price and staying on the market a bit longer. Looking at the townhome/condo market, new listings have increased by nearly 13 percent, with days on market up just shy of 16 percent. The median sales price rose to $292,500 and these properties are staying on the market three days longer than a month ago.
“As for Golden, prices are coming down as well, and for most townhome/condos, they are sitting longer on the market unless they are priced to move,” said Jefferson County/Golden-area REALTOR® Barb Ecker.
“The first signs of spring for Pagosa Springs are here - melting snow replaced by greening grass. The 32 homes sold in March brought signs of green and totaled nearly the same number of home sales in January and February combined. Most of those contracts were written in February and outside of the March Spring Break traffic. Sellers who kept on top of snow removal reaped the benefits of an under-contract home, and helped achieve a 14 percent increase in March sales, year-over-year.
“For buyers, inventory is still a challenge, down 12.5 percent. Over half of sales closed in March were between the $200,000 - $300,000 range, a typical price point for the high number of second home purchases in Pagosa Springs. New inventory of homes under $500,000 were nearly even with February listings, while inventory increased in homes priced above $500,000. Currently, over half of the 200-home inventory of is priced at $500,000 and higher, leaving a huge void in affordable housing for first-time buyers and retirees. Those sellers in the higher range home prices are finding the importance of competitive pricing to get their homes sold. Typical high listing months are yet to come in May and June. The expectation is more homes will enter the market price well beyond the historical average median price of $310,000. As more and more people discover Pagosa Springs and its beauty, both buyers and sellers (local or otherwise) will need a savvy pricing education and strategy to achieve their selling and buying desires,” said Pagosa Springs-area REALTOR® Wen Saunders.
“The first quarter of the Pueblo market is still on the down side. Listings are down 8.2 percent from 2018 YTD. Buyers are having trouble finding homes they want. Pending sales are up 5 percent March 2018 to March 2019, but down Q1 2019 from Q1 2018. All of this is affecting sales, down 16.9 percent from the first quarter of 2018. Prices are going up by 11.1 percent YTD. Percent of list price received still at 98.1 percent. Median price is at $200,000 and average at $207,278. Days-on-market is just short of three months. Buyers need to act fast if they see a home they want or risk being in a bidding situation,” said Pueblo-West REALTOR® David Anderson.
Royal Gorge Area - Fremont and Custer Counties
“It’s springtime in the Sangre de Cristo mountains; temperatures are rising, the grass is turning green and new residential home sales popped up to a four-month high. While new listings remained stable over the past month, the median sale price increased from February to March to $247,500. Current inventory is 12 percent less than last year at this same time and year-to-date sales are down slightly from last year as well. As the temperatures rise, inventory and sales will soon follow as sales typically double from May through August.
“Fremont County’s median sale price for March is at a seven-month high and shows an increase of nearly 30 percent over March 2018. New listings were down nearly 20 percent in March compared to a year prior and -5.6 percent year-to-date, but sales were up 1.5 percent for March and just over 4 percent year-to-date. We’re showing 2.7 months of inventory which has remained stable over the last two months and the community is prepared to usher in the strengths of the spring season,” said Royal Gorge-area REALTOR® David Madone.
“It was a fantastic month for snowfall that resulted in some of the best powder skiing in years! The real estate market, however, was a bit less exuberant. Closed sales, compared to March 2018, for single family/duplex units were down 21.4 percent and condo/townhomes declined just over 2 percent. The year-to-date numbers on single family/duplex units were a little less dramatic, down 12.8 percent and -2.1 percent for condo/townhomes. March dollar volume for all product types versus 2018 is negative 7 percent and year-to-date all products are negative by 2 percent. The combination of product mix and appreciation kept the decline in dollars to a lower level than transactions.
“Our overall property inventory is down 10 percent versus a year ago, which brings the months supply of all product types to approximately 6.25 months – a low level going into the off season. We should see an historic increase in inventory beginning in late May and building for the summer sales season.
“In summary, the market has been trending this way for the past year and we would project the current drop in interest rates should be a stimulus for activity in the coming months. Some of the golf courses in the valley are opening and we’re beginning to get out to enjoy the non-snow activities the valley offers,” said Vail-area REALTOR® Mike Budd.
The Northern Colorado office market has grown to greater than 17 million square feet of space and 2018 ended with an overall vacancy of 3.6 percent. The Northern Colorado statistics cover Larimer and Weld counties being considered as one market. With two back-to-back years of the strongest absorption in the last decade, totaling 427,973 sf in 2017 and 339,179 sf in 2018, and very few new deliveries, occupancy rates are at historical highs. The greatest availability of office space is in the Class A office market, where new construction in 2017 and relocations into new build-to-suit deliveries drove the vacancy rate up to 8 percent. The largest share of absorption was in the Class B and C office space, which resulted in a year-end vacancy rate of 3 percent in these categories. With no speculative new construction, further economic expansion is poised to benefit Class A properties. It is anticipated that rents in Class A properties will remain relatively flat in 2019 where current triple-net rental rates are in the $18.50 to $19.95 per sf range.
Larimer County, led by Fort Collins and Loveland, ranked as the ninth-highest area in the nation for job growth in 2018, at 4.4 percent. Weld County also recorded strong job growth with a 2.6 percent increase. Nonfarm jobs in Northern Colorado grew from 274,000 to 284,100. There is a challenge of underemployment with 45 percent of the residents having a college degree and only 25 percent of the jobs requiring one. This creates opportunities for businesses considering a relocation to Northern Colorado as there are job holders in the market with the excess skill capacity ready to move up into new positions.
Despite in-migration and population growth of over 14,000 new residents in 2018, the year ended with a historically low unemployment rate of 2.3 percent. Larimer and Weld counties grew by more than 5,000 and 9,000 residents, respectively. The influx of new people is equivalent to the size of a small city, which has put upward pressure on housing prices. All four commercial sectors – retail, multifamily, industrial and office – will benefit from this job and population growth.
Since coming out of the Great Recession, developer restraint on adding new office product has led to a very healthy balance of supply with only a couple new speculative buildings coming on line in the last three years, and approximately 80 percent of this speculative space is leased. The achievable rents for new Class A office construction do not support new speculative building based upon the current high construction costs, and no new speculative office buildings have been announced to start construction in 2019. These dynamics will result in few options for expanding tenants and clearly favors landlords and sellers.
There has been a recent redevelopment trend of older office properties in Fort Collins, Loveland and Greeley that allows tenants to grow into quality Class B buildings at gross rents that are 20 percent lower than existing Class A buildings. Upgrading and redevelopment of existing structures will continue to replace new construction in 2019. With supply and demand in equilibrium, only a 3 percent vacancy and no new deliveries, Class A space will continue to be absorbed and rental rates will slowly increase in 2019.
The Centerra submarket continues to command the highest rents in Northern Colorado, and it has some of the best spaces and locations in the market for businesses seeking 5,000 to 15,000 sf. In the first two months of 2019, demand picked up with new tenants entering the market and existing businesses expanding.
With the office market in favor of landlords, tenants need to begin their search earlier and must be willing to commit quickly when they find the right space to satisfy their requirements. Tenants have been increasing their employee population density with requirements of 175 to 200 sf per employee, which puts pressure on building systems and parking. Tenants will require a minimum parking ratio of four spaces per 1,000 sf and seek locations that can provide up to six spaces per 1,000 sf. Developers should not be building or redeveloping properties that do not have at least five spaces per 1,000 square feet.
Those tenants willing to commit to lease terms without termination options of at least five years will receive the best terms from landlords. Tenants demanding shorter-term leases will have a difficult time finding acceptable space. Although many newer buildings are LEED certified, in Northern Colorado we have not found this to be a requirement and tenants are not willing to pay higher rent for LEED certified buildings.
Another trend that has not gained traction in Northern Colorado, and could be a great opportunity, is coworking space. Traditional executive suites are successful and Northern Colorado downtowns are ripe for a seasoned coworking operator.
Population and employment growth, equilibrium in supply and demand, historically low unemployment, vacancies and construction starts all clearly point to continued prosperity for the office space industry in Northern Colorado.
Source: Northern Colorado's Real Estate Journal
Managing Broker & Partner, Realtec Loveland
Older homes often come with plenty of character and possibly even a lower price. But buying a home that has been around for a while can also mean dealing with age-related problems.
RISMedia’s HouseCall has tips during the home inspection process for home shoppers to watch for before purchasing an older home, including:
Watch for electrical issues.
Older homes could have dated wiring and electrical panels that may not be able to keep up with today’s needs, so be sure to check that that the house is up to code. Also, insulation on old wiring can pose a safety hazard, RISMedia’s HouseCall warns. Have an electrician look over the home to be sure everything is in order.
Carefully inspect the roof.
In general, roofs often need to be replaced every 10 to 20 years. Learn the last time the roof was replaced and how it was done. Some homeowners may just add new shingles on top of the old roof, which is not viewed by housing experts as the best way to replace an entire roof. Also, check for loose shingles, leaks, and the type of materials used on the roof. “A composite shingle roof will cost less to replace than a clay tile or slate roof,” RISMedia notes. “The pitch of the roof can also drive up costs—a roof that is particularly steep may be challenging to replace and repair.”
Check the foundation.
Address any potential foundation issues immediately. Older homes could have foundations that are cracked, sunken, uneven, or otherwise in need of repair. A structural engineer can closely inspect a foundation and alert you to potentially costly problems.
Check for lead paint.
Older homes may have lead paint, which can lead to serious health problems. It was banned in the U.S. in 1978, but homes built before then may still have it. In fact, about 87 percent of homes built before 1940 contain lead-based paint, according to RISMedia. Make sure that it is professionally removed.
Read about more potential issues to watch for in an older home at RISMedia.
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Last Tuesday, October 2nd, I got the opportunity to attend my first real estate conference here in Fort Collins. I met many remarkable members of the industry and community and learned so much about every aspect of real estate. The two speakers below shared an immeasurable amount of knowledge that I thought would also be very beneficial to the general public and my clients.
John Covert, Senior Director of MetroStudy's West Region
John Covert spoke about the overall Northern Colorado economy and its effects on the real estate market and developers. He showed us how purchase power is declining, labor shortages are ongoing, and material and development costs continue to rise. He also showed us that Northern Colorado is currently growing faster, with a 4.2% job growth rate, then the entire Denver Metro Area. Unemployment is a 2.6%, its lowest ever, which is great for housing development and demand for housing. Along with vacancy rates below 3%, Northern Colorado is a prime real estate market. It currently has about 2 months of supply, meaning if there was no more building, at the current absorption rate, we would sell out in 2 months. Net migration to Northern Colorado will continue to grow, correlating to increases in single family building permits (Colorado is the #1 state in permit activity). 63% and 30% of Denver and Northern Colorado building permits respectively are held by publicly traded home builders. Weld County saw a 2% increase in new home starts while Larimer County saw a 19% decrease. Berthoud and Windsor are the current up and coming communities with the highest growth rates and housing starts in Northern Colorado. The majority of housing starts have shifted to the $400,000 to $500,000 range with a dramatic decrease in the number of housing starts in the $300,000 range. Given all this information, we see that affordability and supply is the issue, not demand. Therefore, Colorado, in its entirety, is in no danger of overbuilding as things currently stand.
In conclusion, Northern Colorado starts for 2018 will likely be flat , falling short of the initial forecast made last year. However, demand remains high for housing in the region, particularly with steady in-migration fueled by such a strong local economy. The cost of housing continues to exceed household incomes in many areas, which will cap the amount of growth for more expensive products. Several factors are pushing starts down in Larimer County, including cost of housing relative to incomes, projects closing out that have not been replaced, and constraints in certain sub-markets. Single Family homes priced under $300k in Larimer County represent only 3% of annual starts, down from 10% last year. Condos are up in Larimer County, helping to fill the widening affordability gap. Weld County has yet to see much condo activity. It also remains more price sensitive than Larimer, but has seen a dramatic decline for single family starts under $300k; from a 33% share in 2Q17 to 10% in 2Q18. After growing substantially following the recession, 'public builder' market share has remained relatively steady the last couple of years, around 30% compared to 63% in the Denver Metro Area.
Patrick Phillips, Former CEO of the Urban Land Institute
Patrick Phillips, former CEO of the Urban Land Institute, then gave a fantastic national perspective that I will touch on here and elaborate in a blog on my website found below. He started with the top current real estate sub-markets being industrial, apartments, and hotels. Also, the emerging real estate markets are no longer Washington D.C., San Francisco, or Boston, but instead have shifted to Nashville, Salt Lake City, and Raleigh. He then shifted to talk about generational slices. He started with Generation Z, who is just starting to graduate college and enter the professional world. He mentions this generation is fully digital, but not nearly as overwhelmed with it as past generations. He describes this generation as serious, diligent, and hardworking. He theorizes that early traumatic experiences like 9/11 and The Global Financial Crisis of 2008 have made this generation committed to financial security and a constant drive for stability. In addition, Baby Boomers are supposed to be heading into the sunset, but instead are staying in the workforce. And Millennials are supposed to be forever urban, but housing affordability is driving them out. Believe it or not, on the national level, we are not building enough apartments and have created a "missing middle". This "middle" is housing that is affordable but not subsidized and there is a big push for Natural Occurring Affordable Housing (NOAH). In terms, of regulations, there's been a bigger push towards YIMBY (Yes In My Backyard) rather than the traditional NIMBYs. Technology in Real Estate is on the verge of a quantum leap. There is a huge focus on wireless, and 5G. The Internet of Things is continuously growing and becoming more connected. We are also seeing an emergence of a sharing economy. In forecasting demand for real estate, we are seeing a "need for less". There is a disruption in occupant normality. For example, in retail, short term rentals are becoming very popular for a showroom for a greater online presence. Sidewalk Labs, a subsidiary of Alphabet, is building a community in Toronto "from the internet up". One great quote that was shared in terms of technology was, "There are two types of technology, obsolete, and not yet introduced". Real estate has forever been behind in technology but we are beginning to see the end of obsolete real estate tech.
A July market update from the Fort Collins Board of Realtors shows the supply of homes on the market is dwindling, even as the median sales price through June hit $415,000, up 4% from the first six months of 2017. The shrinking inventory will continue to send prices higher, but the rapid escalation price is beginning to slow, according to Realtors. Only so many people can afford these high prices. We are now seeing that overpriced and poorly staged homes are sitting on the market because there aren't enough people to buy. However, if you put in the work on any listing and take time to put the property in market-ready condition, you will find multiple buyers.
Although these prices are historically high, the shift back to equilibrium in the market is a relief for soon-to-be buyers and a call to action for potential sellers who want to get the most resale value as possible. However, although there are signs of a slowing market, beware that timing the market is always extremely difficult and often, impossible. If you are thinking of buying a home, buy now, and if you are thinking of selling, sell now. Now is always the best time to participate in real estate transactions, simply due to the risk of trying to time the market. Sure, if you buy your dream home now, maybe you could've waited a month and paid $5,000 less, but you also could've waited, and the price could continue to rise, or even worse, the home could sell to someone else, and you are left searching again.
Source: The Coloradoan
Shelbee Wallace was born & raised in Colorado and graduated from Colorado State University in 2018 with a BS in Finance with concentrations in Real Estate Finance and Investment Analysis.