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"apartment association metro denver" Discussed on Denver Real Estate Investing Podcast
"A couple seconds. Because you'll see oh well this place three walks over here and for this. This police rinse for this and between that and the rent estimate again the page. You'll build a ballpark. Rent's pretty quickly. So Oh I use that. I generally don't use commoner. I don't WanNa pay for that I just liked quick estimates now again this is just for me to do that. Quick overview here second plug properties operatives into now wanNA walk the property or go walk properly the client we like it great. We can double check for the property manager and we get into more detailed written analysis assist but spending that time every property. It's not worth it right. So that's how I pull. Rental income use these zillow properties Pacific Rim estimate estimate. And then go to that map view. Click out that link and see. I'm run the the rental filter and see what similar properties are. Click through photos gets them or conditions. Now I stay doesn't work well for Maltese. Because they don't give you good rent estimates on the multi because I think it was a hard time duplex four plex but what she's still doing. Ignore that but go the map area. Run a rental in a run the rental filter and it's my I four plex. His two bedrooms one point five bass will then I would just go go around it and I would select you know two bedrooms one bath and see what pops up around there to give me an idea for rents all right. So vacancy factor a lot. Times are spreadsheet you'll see three percent so most investors are using between three to five percent currently in the Denver market. That's the range I fallen. I usually put three percent in there but the vacancy factor is gonNA depend on you and how you're managing the properties couple things to think about are you self. Managing is the property already coming with a ten included in there because if the property is ten in there. It's rented from day zero when you buy the property. If you have to get in there it's GonNa take a few weeks after closing typically to get the tenant in there and right off the bat you're going to have some vacancy. So that's going to impact that year one return on the vacancy and something you want to keep. Keep in mind as you run those numbers now. I stayed self-managed because I know a lot of investors that self manage and I know some that literally have zero percent they can see and they've been managing properties for the last three or four years was because they hustle and they are on top of it. That's because great my property starting to it's you know it's it's coming doing doing ninety days. I'm GonNa Talk to Tennessee if they WANNA stay if they don't grandma start marketing it and since we're in a very landlord friendly time right now A lot of times they actually have have a new tenant moving in the same day or the next day when the other ten. Lose out if you want this place locked up you need to go and just rented this day. I'll be he cleaned in between. You're moving. I'll take care of that. But they zero percent vacancy and all of other people at self manage. And there're blow about a one percent vacancy last couple of years. But they are hustling and they are doing a lot of work. I don't self manage and frankly I don't care if my vacancies. One percent versus three percent that two percent difference field you difference in spread. It's not gonNA make a difference into my income retirement one day so what I really don't care about like really working my butt off to have like a one percent vacancy but that's me you may be different but this is where it it gets. Hey how do you want to underwrite the property now for my stuff I put in there three to five percent. They can see because I have a property manager and I can. I don't really care if it's okay. Let's vacant for week longer than if I self manage and spent three hours doing it. I just don't care because that money's not impact my retirement ultimately so if there's no ten in there I'll probably put five percent of their because we're GONNA have to place the tenant initially and hope that ten days are a long time if there's times ends already in there I'd put three percent so the recommended range I use is three to five percent. You might want to do a bit lower now and you'll but higher but that's the very common range seen Denver now getting accurate vacancy data in Denver for smaller landlords and single family homes. I I found that data. You know harder to get so the best that I can get is from the apartment association of Metro Denver. And this is I could trade group or lobbying arm of big apartment buildings around Denver so these are the bigger buildings and bigger investors. These aren't the buildings that were buying. These aren't and you're probably not one of those investors who Jones a higher unit building downtown listings. podcasts were the mom and pop investors. So right now I think in quarter three of two thousand nineteen. They're at four point seven percent. Actually look it up real fast and I'm telling you this Yeah they were four point seven percent. This quarter. Last quarter is five percent quarter. Three twenty. Eighteen eighteen was five point five quarter. Three twenty seventeen was five point four now looking at other another chart and it's when that your castle real estate publishers. Using data from the Metro The Apartment Association Metro Denver. The last you know five or six years we've been in the boom time. The average vacancies ABC's Banat four point. Eight percent now the prior period from my two thousand three to two thousand twelve. We were right around. A nine percent vacancy going going back to the mid nineties. When we had our sellers market four point seven percent vacancy then going back to the eighties? It was about a nine point. Nine percent vacancy so depending on the cycle year in were definitely some higher vacancy rates in there. So I when I'm looking at that initial property analysis. I'm really looking in that year. One return is way measuring things. So I'm not. I'M GONNA use my best gas for what variables using the current timeframe when I can expect for that one year. I'm not modeling. This the spreadsheet modelling for thirty years. Because it's too hard as one year return so I'm GONNA use data that we're seeing right now. My current Denver market which is right around four to five percent from the bigger apartment buildings. Downtown and from people. I've talked to you. That's usually skewed a little bit higher higher than when I say the mom and pop. Investors are so if you're self managing you can figure out the number you WANNA put in there. If you're with a property manager I would definitely talk to your property manager. Hey for this type of property. What's your average vacancy? Or what your average days market of course if you're my client who some help with that specific to bar park us three to five percent. Oh I generally do get. I'm not one hundred percent consistent on here but ideal world Three percent if it's already occupied five percent of it's not just because that year one return turn can take it's GonNa take a couple of weeks to get some tenants in there but here's another curveball. Through I've had clients I've had like how sat clients They close on the property on whatever on the fifteenth month lease term. Some place with the least signed on the nineteenth a month while. Because they're already out there getting people interested and they're hustling before you're so they can have a very low vacancy. So I think it's dependent on the market. It's also dependent on who is managing the property. How you're doing it all right? So annual rinse increase so the last forty some years Denver. Remain right around four percent renting crease and but then rent increases and vacancy. They have a relationship relationship because a lower the vacancy the higher the rent increase. 'cause that's just basic supply and demand but the higher the vacancy lower the rent increase. And so they have have that inverse relationship going back to this historical data from the Denver Metro Apartment Association the last whatever since two thousand twelve two thousand thirteen this is low vacancy timeframe of about sub five percent. We've seen about a ten percent average rent increase over that timeframe now we're GONNA see it every year forever. No we're not going back. That previous peer we had higher vacancy of about eight or nine percent. The average rent increase was about point nine percent and we had similar numbers between between other other timeframes there as well. So if you WANNA use curate numbers me optimistic you can put four percent in there. I usually put three percent sending their because my goal and hope is to keep pace with inflation. If I'm happy with keeping pace with inflation great I'm happy with the investment now. I think there's a good chance. LONG-TERM WE'LL SEE rent increases in price increases above that three percent inflation number. But that's what I use feel more conservative underwriting so I would put in there three to four percent for an annual rent increase. Whichever number you use that's up to you? But those are the common numbers at ICI industrials US three to four percent percent annual appreciation rate. We talked a lot about this and the previous episodes. I won't rehash it too much here but in Denver been right around just a little bit above six percent annual appreciation last forty five years for detached properties and like mid the high five percent for condos and townhomes over similar timeframe. So you could tell. Yeah well it's a Condo I can expect this renting or this price increase or this you know whatever but then if you look at the historical national data from case Schiller's over long time it's just over it's right around. Three percent long-term nationwide annual appreciation rate so I usually see other investors and agents and people using between a three to five percent annual appreciation rate. What's the number you should use both depends on how how you and underwrite the property? How detailed you WanNa again so I usually my own stuff? I put three percent of their again because I'm happy with my property. Appreciating at the rate of inflation nations. And I'm happy with her turn. Great I will take that because Jerry Springer thing that's kind of lower end and I honestly think we'll see a four or five percent annual appreciation over the next ten twenty ears annualized so I'm kind of optimistic but under a little more concerned on happy with my total return great. I'm good with that so I usually use it. Three percents my own properties on undermining under running it but as we're basketball clients will use anywhere from three to five percent so effective tax rate. I'm not here to make sure you talk to your CPA. But for myself and for my journal Clients I use a twenty five percent effective tax bracket and that's just taking in federal and taking the four point six or four point where I think four point point six percent here in Colorado so I think a lot of myself I'm right around the twenty five percent bracket between those two and you can have the bathing. Here's some people say use your effective tax bracket back in which is really like your average tax bracket over all the income you paid or you can use your marginal tax bracket because what that is like this. I whatever ten thousand dollars income me pay zero percent federal tax bracket between ten thousand. Thirty thousand you pay twelve percent and then between thirty thousand seventy thousand you pay X. percent and I I'm just saying I'm totally butchering those bracket numbers. I don't know off top of my head but that's the way you know the tax system works except the Colorado the flat tax but from the federal standpoint. And that's usually the bigger income tax that we all have to pay federal income tax bracket. So I look at it usually. Hey what's that tops tax bracket back. Because if I can the lower that income in that tax bracket I want my marginal number because the high of the taxpayer you are the higher rate it goes whichever one you WANNA. The US kind depends on what you want to underwrite. I would definitely recommend talking to your account and I'm nonexempt my number but for me. I'm right around twenty five percents and that's close enough good enough enough to me and that's usually why stick in there for my clients When I send spreadsheets over and I also don't know their income another tax history so it's really hard for me to say that's something that you as the individual investor or you as my client can figure out and we can plug in a more accurate number but probably expect to see twenty-five percent stuck in there an sometimes do climb much higher income earners great we're going to be in that forty percent tax bracket then because they are very very high income earners so depending on where? Oh you're at you WANNA stick in what you feel is appropriate number so and if you need help on that talk to your CPA or if you google it their websites out there like smart art asset dot Com. That's I've used a lot where you can you know. Tell what county and what state you're in put your income in it'll tell you the tax brackets on their not an exact length but if you go to smart asset dot com or Google. It'll pop up it's a pretty slick page so if you need some help you know. Google's usually a good resource. Do but that's one. That's a resource. Listen I like okay. So looking at property management Joe And now has an option that says yes or no so if you say yes another feel pops up and putting the percentage of your gross rents for property management so it defaults to ten percent I believe with a spreadsheet is and then depending on through self managing you may not want include it. I know some people in the argument. They're half you self manage. You should still count for because it's still an expensive offensive your time but while investors say I don't care about my time right now especially if their house hackers matters okay..