Posted: September 01, 2012
Front Range real estate: Prices, competition on the riseBy Stephen Titus
Whether you’re a real estate investor looking for inventory or a home buyer looking for a dream home, you’ve probably noticed that prices around the Front Range are on the rise and competition is emerging for good properties.
Representatives at the Denver County Public Trustee mentioned at a recent auction that there are about 1,600 properties in their foreclosure pipeline, a 48 percent drop over this time last year. This is good news for everyone. Stabilizing inventory and modestly rising prices makes banks feel more comfortable about lending money to home buyers who feel better about buying a house that isn’t going to lose value. Even investors are able to make an honest return without chasing rapidly rising – or falling prices. The bad news is there are still areas waiting for all this good news to come to them.
But where do you get the most bang for your buck? Are there still bargains? And where are prices on the rise? This study looks at single-family homes, in some of the best, worst and in-between areas around Denver and Boulder.
Along with Boulder, central Denver is the big winner in the real estate market. This area never experienced the sharp drop in pricing that many parts of Colorado and much of the country suffered. While there were plenty of foreclosures, neighborhoods like Lower Highlands, which goes by the loveable oxymoron, "LoHi," has seen prices rise beyond the peak 2008 levels. LoHi is located directly west of downtown on the west side of I-25. The landscape from about Tejon, east to the highway is steeply sloping so that houses on the west side of the street maintain a beautiful view of downtown from the front, while houses on the east side look over their neighbors to the rear of the property. This phenomenon creates an entire neighborhood of homes with equally great views and excellent access to I-25 and downtown.
"One of the major differences is there are more builders in the area," said Jim Rodriquez, a well-regarded broker in the area. "Now there are competing builders, and they’re competing for the acquisition of land."
Some streets in the neighborhood, like Shoshone, are getting top dollar for both junk homes on prime land, and rebuilt homes ready for move-in. Rodriquez says that many buyers of ruined homes are not investors, per se, but the homeowner who will hire a contractor to scrape the existing structure and build a high-end house.
"A house at the corner of 34th and Shoshone, it’s a crappy little house on a 4,500-square-foot lot, is selling for probably $400,000 as a tear-down." said Rodriguez. "It’s going to mirror what happened in Cherry Creek … people just want to be in LoHi."
EAST DENVER, SOUTH OF DIA AND ROCKY MOUNTAIN ARSENAL
This is the area waiting for some good news. Montbello and Green Valley Ranch are the red-headed step-children of our area’s real estate market. A look at the weekly foreclosure list shows how bad things can get with banks taking a G.I. style haircut on their loans to get anyone to take the properties off their books. Even at heavily discounted prices, they rarely go to new owners, so banks are getting these distressed properties back. Look for them in the coming years as banks release them onto the market.
Of course, if you like these areas, you’re willing to wait out the slump, with $377,000 you can land a 5,237 square foot McMansion in the Green Valley Ranch neighborhood. With a lot less, you can pick up a tidy three-bedroom, two-bath place for well below $200,000. These are relatively new properties, built since 2000 with functional, modern floor plans and modest but workable finishes. For homeowners looking for a deal who are willing to stay for a few years while the neighborhood recovers, this area could be a great investment. Professional investors looking for a bargain will certainly find them here, but they will also find few buyers willing to pay top dollar, no matter how nice the place is remodeled.
This is a wildly diverse market. The city of Boulder has some of the highest prices per square foot along the Front Range. It takes nearly $375,000 to get a move-in ready home with more than two bedrooms. Even nearby Louisville is no bargain with similar prices for homes without a laundry list of projects. But travel just a few minutes to towns like Gunbarrel, Erie and Lafayette, and you can find a great place in the mid-$200,000 range that’s fully remodeled and ready to move it. Investors can find properties for less than $200,000 in need of $25,000 to $30,000 in improvements that still produce a good return in a very popular market.
For example, 975 Vetch Circle in Lafayette is currently on the market for $260,000 with three bedrooms, two bathrooms, on an 8,100 square-foot lot. It’s fully remodeled into an IKEA showroom and ready to move in. Investors looking for a fix-up version of this home can find similar properties in the neighborhood for around $175,000. On the other hand, 4691 Ingram Court, with three bedrooms and two baths in the Martin Acres neighborhood of Boulder, a popular middle-class area, is listed at $449,900 and underwent a similar remodel .
The investment side is very competitive. While the city of Boulder generally has few foreclosures, when they come up they can be pricey, but the potential for profit is excellent. A great example is 1160 Cascade St. near Chautaqua Park. In February the property was foreclosed and auctioned for $840,000 to Boulder-area investors RMI and Cascade Investment Group. In 2005 it sold for $1.73 million, and the property is still in very good condition. So far this property has not been marketed by the investors so it remains to be seen what the real return will be, but it’s a clear winner. Even fixers are getting top dollar because of the perpetually strong rental market where the going rate is $600 per bedroom, per month for a down-at-the-thresholds college rental. The university continues to build new dorms, but high prices bolster the private market. If owning rental property is your thing, Boulder is the market where you can rent out a modest property for top dollar, then when it’s time to stop being a landlord, complete a full remodel and sell it for a profit.
Arvada is the little town that could. With a trendy downtown and soon-to-be access to light rail, properties in the Old Town area are selling briskly. In 2012, marketing time is running an average of just 40 days and prices for 2,000-plus square feet of move-in-ready American dream are still available for around $200,000 – less than you could build it today. Once the light rail is completed through this area, expect prices to rise sharply. Neighborhoods in Denver in walking distance to train service saw a 20 percent to 40 percent rise in prices, and commercial investment in the areas added even more to the value of properties. Stretch outside Old Town and you’ll find everything from cookie-cutter tract homes for around $100,000, to 11,000-square-foot palaces on sprawling horse properties listed at $2 million.
For investors, the picture is a little different. Bargains in the Old Town area are few and they get snapped up quickly. Some have taken to submitting unsolicited offers on properties in hopes of scoring a deal with someone who hadn’t decided to list their property on the open market. Foreclosures in Jefferson County are still plentiful with 38 properties scheduled to go under the gavel at the Aug. 8 event - 11 of them in Arvada. However, the bank’s asking price often seems pointed toward the retail buyer as opposed to investors looking for a profit. For example, 8348 Quay St. adjacent to the Lake Arbor Fairways golf course went to auction for almost $253,000, but the current owners (past owners by the time this is published), paid slightly more than $238,000 at the peak of the market in 2009. Of course, auction deals still materialize but Arvada seems to be hovering in a zero-gravity pricing environment.
Needless to say, the Front Range is an incredibly diverse market and each area, even each street in a given neighborhood, can have very different prices for similar properties. But whether you are an investor or a home buyer, it is a balanced market with fair prices, low interest rates and a strong local economy to back them up.