Plenty of house flipping is going on in Denver thanks to the Mile High City's seemingly unstoppable housing market.
But according to one local expert, demand for properties is so overwhelming that large out-of-state investment firms that once dominated the house-flipping game are being pushed out by individual buyers planning to live in newly purchased spaces for extended stretches before reselling.
"I do have straight flippers," notes Veronica Collin, who's a house flipper herself. "But a lot of the big companies have moved away from Denver because it's so competitive — and because they're competing with homebuyers who can pay more than they can.
"Here's the problem in Denver," she begins. "During the recession, there was no building going on — not just in Colorado, but anywhere. So we got behind on new builds and people weren't able to sell or move. Then, when we came out of the recession, they pulled their money out of the stock market and put it into real estate, where they felt safer. So there was a lot of cash, and people started buying."
Under this scenario, "homeowners weren't underwater anymore," Collin continues, "but there were so few houses on the market that people were afraid that if they sold their home, they couldn't find another one to buy. That left them asking, 'Where am I going to go?,' especially when the prices really jumped."
Indeed, a recent study rated Denver's home affordability the second worst in the entire country.
There's obviously building going on all over Denver. But a lot of what's being built are apartment buildings. New homes are being built, too, but builders just can't keep up with so many people moving into Denver
2018 House Flipping Guide
High costs add to the allure of fixer-uppers, but Collin notes that in west metro, "it's almost impossible to find anything under $250,000, and there's not a lot under $300,000. And when there are properties in that range, it's very competitive, because that's the amount of loans that a lot of people, particularly first-time buyers, qualify for. That means flippers are competing with first-time buyers, who, whether they want to or not, are looking for houses that need some work or a really tiny house — something like 600 square feet."
Increasingly, first-timers aren't looking to flip a purchase instantly, for reasons that they can see on the bottom line. "If you flip a house in under two years, as most flippers do, you have to pay a 15 percent capital gains tax in addition to your federal and state taxes," Collin points out. "But if you're in it for at least two years, you don't have to pay capital gains, and that's a big difference in taxes. If you can put that in, it's a good way to go, because you're going to make more money when you do sell."
What type of home is ideal for buyers who want to make some money a couple of years down the line? Collin advises folks to look for "a house that's dated. It's been well maintained, but it's got carpet over the hard wood and ’70s gold appliances. It's something that's livable now but can be fixed up over time and doesn't involve new electrical or a new furnace."
With homes of this description being snapped up so quickly, Collin maintains, institutional flippers are left with "places in a very good neighborhood that are dumps. A place that's never been updated. Maybe one where a hoarder lived or that has foundation problems a homeowner can't take on, but that a flipper might be able to repair. I've seen that kind of thing myself — homes that needed everything and that might be livable for someone who could live on a mountaintop by themselves, but that most people wouldn't consider livable until a lot of work is done."
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