The Renting Option in Denver

by | Jul 17, 2024 | Income Property Investment, Renting

Rent or Buy in Denver
housing decision in Denver

Rent or Buy?

According to Zillow, the median sale price of homes in Denver is about $600,000. Zillow states that buyers must make over $160,000 annually to qualify, assuming they put twenty percent down using a 30-year fixed mortgage. Most people, particularly first-time home buyers, do not have $120,000 in cash on hand to make a home purchase. The median income currently for Denver households stands at $98,000 per year, falling short of the $160,000 needed to afford the average home price. The Common Sense Institute calls this the mortgage capacity gap. Denver has about 313,000 housing units, and about 50 percent of your residents choose the renting option.

According to the Institute’s Housing Competitiveness Index Denver has the 8th highest income-to-median-priced-home price gap across the nation. For example, buyers in 2011 had to work, on average, 44 hours per week to earn enough to afford a home. In 2024, buyers must now work 96 hours weekly to bridge that gap. The combination of high home values and seven percent mortgage rates means buying a home is outside the reach of many Coloradans.

Where Have All The Condos Gone? Long Time Passing

In most states, first-time residential real estate buyers usually purchase condominiums, but not in Colorado. Condo construction precipitously dropped in 2003 when Governor Ritter, with the help of the state’s trial lawyers, passed the Construction Defect Reform Act (CDARA). Like most legislation, the intent was noble, but the lawmakers and governor did not consider the consequences on housing availability. The law allows condo buyers to make defect claims six years after construction completion with the possibility of a two-year extension under some circumstances. CDARA drastically increased builders’ legal exposure and forced them to pay exorbitant fees for all-encompassing “wrap-up” insurance policies. Builders instead decided to construct rental apartments or single-family homes rather than condominiums to reduce risks and costs.

Regardless of party, almost any Colorado legislator knows that fixing CDARA can expand housing stock for first-time buyers and those wanting to downsize. This year, an effort to encourage condominium construction in Colorado by reducing lawsuits over building errors failed in the Colorado Legislature. Both main sponsors withdrew Senate Bill 106 because it would not pass in the House. The bill would limit lawsuits to only “verifiable danger” to occupants. The measure requires that homeowners associations get the approval of 60 percent of their members before filing a claim rather than a simple majority. The bill’s opponents — including the state’s trial lawyers and progressive Democrats in the legislature — feared it would leave homeowners more susceptible to inferior construction and killed the bill. Even Gov. Jared Polis expressed interest in changing the state’s construction defects laws to limit lawsuits against developers. So, maybe better luck next year.

Renting

The average rent in Denver is just over $2000 monthly for apartments, condos, or single-family home rentals. Home rentals in highly desirable neighborhoods such as Sloan Lake, Highlands, Cherry Creek North, Bonnie Brae, or Washington Park demand much more rent. DenCO Property Management (DenCO) manages properties in some of Denver’s most desirable neighborhoods. Please click here to view our current listings.

The Property Management Option

The good news for real estate rental investors is that Denver is a great place to invest, and Colorado is still considered a landlord-friendly state, but it has some caveats. Our progressive legislator has been busy passing laws expanding tenants’ rights over the last two years. Many of these laws have stiff penalties for non-compliance. DenCO retains legal counsel to help navigate all these new tenant regulations and ensure compliance. Below is a list of some of the laws. Click on the links for more details.

Ironically, all the additional legal and operational costs to ensure compliance will eventually lead to higher rents because landlords and owners usually pass additional costs to their tenants to maintain rental cash flow.

DenCO keeps owners up to speed on Colorado real estate laws and regulations. We have been in business since 1999 and manage 150 rentals in the DU, Washington Park, and other neighborhoods in the Denver area. Call us at 303-722-9688 or click here to complete a Contact Us form.