Denver Landlords, choosing the right rent rate for your downtown Denver investment property plays a large role in determining your annual profits. Price it too low and you leave money on the table for the entire year. Price it too high and you may suffer added vacancy costs and you may even wind up reducing the rent rate just to find a tenant.
According to Zillow “National rent rates are expected to rise 1.7% through August 2017. Of the 35 largest metropolitan areas Denver is forecasted to see the third largest year over year rent increase with 5.9% rent increase.” That’s great news right? That’s the news that everyone around the country is hearing about our great city. The problem with their data is that all real estate is local. What Zillow doesn’t tell you is that they included many areas like the mountain town of Bailey in their metro area numbers. Bailey is 45 miles southwest on highway 285 and takes nearly an hour to get to and has an expected rent rate increase of nearly 11%.
So let’s dive into the numbers:
If you haven’t been to downtown Denver in a few years you really haven’t been to Downtown Denver, it’s changed that much. Since 2010, According to the Downtown Denver Partnership and DenverInfill.com, there have been 58 completed residential projects within a 1.5 mile radius of the D&F Clock Tower (located at the corner of 16th and Arapahoe Street). These 58 new projects added 8,175 new residential units. In addition to those new units already built, there are 5,577 new residential units under construction in 22 new projects.
Add to that the 14 proposed development projects that have yet to break ground in the same area that, if completed, will add an additional 3,143 residential units. What does all this mean? What this means is that when all of the projects that are under construction are completed there will be 13,752 new residential units in that 1.5 mile radius since 2010 and if all of the proposed projects were to be completed it would bring the total of new residential units to 16,895. That is a lot of new competition for landlords who currently own an investment property or two in downtown. The reason that this news impacts landlords so much is that nearly all of these units are rental units.
Now let’s look at how your property compares to this new competition:
The first thing to consider is the age of your property. Is it starting to look dated? Do the appliances, floors, and walls look like they are 10 years old or do they look clean and fresh? Since the majority of this new competition is less than 5 years old, with a very large portion of the units having never been lived in, the condition of your property is critical to not only maximizing your rent rate but simply competing in the marketplace.
The next thing to consider is the amenities your building has to offer to a tenant. It used to be good enough to rent your property in good condition at fair rent rate but tenant expectations have changed over the last few years and tenants, especially the younger generations, are looking for more than just a quality property, they are looking for an excellent experience.
Because of this, the majority of your new competition offer new luxurious buildings built around providing an excellent overall tenant experience. Case in point, here are a few of the amenities that can be found in these new buildings: laundry service, state of the art fitness facilities, yoga room, breakfast bar, bike maintenance, heated pool, wifi lounge, grilling area, fire pit, and sports lounge, among many others.
Another tenant perk that these new communities are offering is pet friendly properties, with some even offering onsite dog washing facilities. Approximately 78% of renters in Colorado have a pet and asking them to leave their pet behind is like asking them to leave their child behind, it’s not going to happen. You can still be a “no pet” property, just realize that you are eliminating a very large portion of the tenant pool or a tenant may hide the fact that they will have a pet living in your property.
The last consideration that I will address in this article (there are many others) is the extremely low security deposit that many of these communities require. During our research we were able to confirm that security deposits at many of the new communities were as low as $100 to $200 because they have an abundance of new never before lived in, vacant units that they need to fill. While I don’t think that deposit amount is reasonable for a private landlord I do think that a low security deposit plays into a tenant’s decision on where to lease when combined with the other factors mentioned above.
In 2015 and early 2016 we saw downtown Denver rental rates strong with nearly 10% increases year over year but the market has shifted in recent months due to the abundance in the local supply. I have no doubt that the market will adjust again as the new inventory is absorbed but to maximize your opportunity in the current market you are going to have to educate yourself on the current state of the market place, provide a high quality property at the right rent rate, and excellent tenant service, or hire a local property manager to do all of these things on your behalf.
Cliffdwellers Real Estate.