Low Vacancy + Increasing Rents = Buying Opportunity

The University of Denver's Gordon Van Stroh recently released his 3rd Qtr report on Denver Metro's 1-4 Unit Residential Income Properties. Below is some very interesting data that I wanted to share with the Trulia community and prospective real estate investors in Denver.

For the 3rd Quarter 2010, Average Vacancy for the metro Denver area fell to an incredibly low 2.9%. A healthy market is considered to fall in the realm of 5-10%. That is down from 3.8% in the 2nd Quarter of 2010 and down from 4.6% in the 3rd Quarter of 2009.

Not surprisingly due to the demand in the market creating the low vacancy, average rents responded and increased to $1,041.05 per unit in the 3rd Quarter 2010. That is up from $1,027.78 in the 2nd Quarter of 2010.

What does this mean? It means now is the time to buy residential income property in Denver. Couple that with the low interest rates in today's market place and you have a golden opportunity to lock in low expenses for a 5-10 year hold. AND if you believe inflation is just around the corner, this is even a greater opportunity. Lock in a low rate and fixed cost now, and ride the inflation wave to come with increaing rents that will even more greatly impact your rental property profits.

Here are some detailed statistics by Country for the 3rd Quarter 2010 for 1-4 Unit Residential Income Properties:


3rd Quarter 2010 Average Vacancy by County:
Adams - 3.4%
Arapahoe - 3.1%
Boulder/Broomfield - 1.4%
Denver - 3.2%
Douglas - 5.2%
Jefferson - 1.8%

3rd Quarter 2010 Average Rental Rate by County:
Adams - $1,121.34
Arapahoe - $1,015.71
Boulder/Broomfield - $1,635.90
Denver - $969.37
Douglas - $1,404.44
Jefferson - $981.09

South Broadway... Denver's Hidden Gem

Locals know the spot, but for those unfamiliar with area, the South Broadway commercial corridor just outside of downtown Denver offers a plethora of fun & unique entertainment and food options. And the neighborhood is about to gain another one: The Punch Bowl.

The Punch Bowl is taking over the vacated Big Lots store at the intersection of S. Broadway & 1st Ave. That corner already has the recently opened "El Diablo" which offers 'rustic' Mexcian fare and exquisite tequila selection. I have been a couple of times and will be looking forward to a visit back. Sketch Wine Bar next door is another recent addition. I have never been, but friends who live in the neighborhood tell me it's great and it looks that way from the outside.

Then there are the mainstays of South Broadway...
- The Mayan Theater. Great place to catch an Indie film.
- The Hornet. Neighborhood bar that has been there as long as I have been in Denver. Heads up: bring your Mayan Ticket stub in for a FREE beer!
- Hi Dive. Great little live music venue. Keep an eye out here for up & coming bands.
- Skylark Lounge. Changed locations a few years ago, but is the Rock-a-billy bar of Denver.

And the in-between's... these places don't have the history of Mayan etc, but aren't brand spanking new either. However, I did save the best for last and highly recommend checking these out:

- Deluxe. Without question one of the Top 5 Restaurants in Denver. Don't believe me, go check it out yourself. Recommend a reservation. It's not big.
- Beatrice & Woodsley. The interior design is worth the visit alone. Great for a pre or post dinner or movie drink and an awesome date spot. Beware, this is a tapas place and you will not get a lot of bang for the buck in food. It's good, but not a lot of it and a bit pricey.

And don't forget the Real Estate!!! The Historic Baker & West Wash Park neighborhoods flanking this dynamic commercial area is a fantastic place to live, buy and invest in. Feel free to contact me for more details.

Making Sense of the New Denver Zoning Code

The New Denver Zoning Code was recently signed by City Council and is now in effect. There is a 6 month transition period where the old & new Denver Zoning code could be applied based on your preference. So let's take a look at what they multi-year project has given us Denver Real Estate professionals to work with as we move forward.

The New Denver Zoning Code is BOTH Form & Context Based. Here is a clip from the Code itself distinguishing what that is and how it will be used:

CONTEXT BASED APPROACH
The Code is organized by Neighborhood Contexts derived from existing and desired characteristics of Denver's neighborhoods. The Neighborhood Contexts are distinguished from one another by their overall physical and functional characteristics including but not limited to: street, alley, and block patterns; building placement and height; diversity, distribution, and intensity of land uses; and diversity of mobility options. This context-based approach provides a range of zone districts that set standards for compatible development.

FORM BASED APPROACH
The Code also uses a form-based approach to explain how buildings and structures relate to their lots, surrounding buildings and structures, and street and alley rights-of-way. Each zone district includes a menu of illustrated building forms. The building form standards that control height, setbacks, parking location, building configuration and ground story activation, as applicable to the Neighborhood Context, zone district and type of building form. The illustrated building forms are not intended to limit the shape, forms, roof styles or architectural styles. The illustrations are intended solely to illustrate typical volumes that building forms may occupy in order to maintain a consistent context for the neighborhood.

Now that we have an understanding of the purpose & intent of the New Denver Zoning Code, I am going to introduce the basic code definitions here and follow up with subsequent posts detailing each individual component.

Every parcel of Land in the New Denver Zoning Code will be assigned a basic 3 Code Designator. For Example: U-SU-A.

The First Letter Designator is "Neighborhood Context". It could be one of the following five designations:
S = Suburban
E = Urban Edge
U = Urban
G = General Urban
C = Urban Center

The Second Letter Designator is "Building Form" (note this and the first designator using the foundation of the code... Form & Context). There are ten different Form Designators:
SU = Single Unit
TU = Two Unit
TH = Town House
RH = Row House
MU = Multi Unit
RO = Residential Offi ce
CC = Commercial Corridor
RX = Residential Mixed Use
MX = Mixed Use
MS = Main Street

The Third Letter Designator refers to Lot Size or Building Height:
Minimum Zone Lot Size
A = 3,000
B = 4,500
C = 5,500
D =6,000
E = 7,000
F = 8,500
G = 9,000
H = 10,000
I = 12,000

Heights
2 = 2 stories
2.5 = 2.5 stories
3 = 3 stories
5 = 5 stories
8 = 8 stories
12 = 12 stories
16 = 16 stories
20 = 20 stories

So to use the original example: U-SU-A. That parcel of land is zoned for Urban Context, a Single Unit with a minimum Lot Size of 3,000 SF. Pretty easy.

Look for subsequent posts detailing the different contexts and forms. And FYI, there is sometimes a special last letter designator. I'll cover those later as well.

Tax Credit Hangover

I attended my company's quarterly Denver Real Estate Market Trends meeting yesterday. I joined Your Castle Real Estate becuase of their extensive market research and statistics. Some very interesting statistics to report in regards to the recent Tax Credit and the resulting "Hangover".

No question the Tax Credit did what was intended: increase real estate purchase transactions.

3,900 Contracts in APR 2009 (no Tax Credit)
5,600 Contracts in APR 2010 (Tax Credit)
... a 44% INCREASE

Year over Year Price Appreciation from APR 2009 to APR 2010 was appoximately 16.7%!

Roll forward to JUL 2010, post the great $8,000 Tax Credit and lets see what we have:

4,500 Contracts in JUL 2009
3,400 Contracts in JUL 2010
... a 32% DECREASE year over year and a 64% Decrease since the Tax Credit expired. Ouch.

Sales Price #'s were not in for JUL. They may not be too bad becuase those closing will still have some Tax Credit transactions in them. The Tax Credit was extended for CLOSINGS to the end of September 2010.

Denver 2nd Quarter 2010 Residential Real Estate Statistics

• Available inventory was at 17,784* units, up 6% compared with month ago figures
o Inventory was up 13% compared with same month, year ago
*Includes Active and Pending listings for historical trending purposes. See Market Intel reports for Pending count.
• Under contract listings are even with prior month at 3,162 units
o Down 29% compared to Jun 09
• Sales were down 6% from month ago to 3,227 units sold
o Compared with Jun 09, units sold decreased 3%
• YTD sales volume was at 16,506 units, up 7% compared with YTD 2009 sales of 15,432 units
• Average sales price was $299,375
o Up 10% with May 10, $273,285 avg price
o Up 6% versus Jun 09, $283,312 avg price
• Median sales price was $244,000, up 5% compared with prior month, and up 3% from Jun 09
• Average Days on Market (DOM) was at 81 days, a 20% decline from year ago

What's going on with the high-end Denver market?

The top 10% of the homes, pricewise, as those that sell for over $460K.
- The top 5% starts at $600K+.
- The top 1% of the most expensive homes sold are those over $1.125MM

I took a look at 1/1/2008 to 6/30/2010, for all of the solds that were reports in the MLS for the Denver metro area. So that doesn’t include Boulder, Ft Collins, Colorado Springs, or the mountain resort areas. Here’s what’s going on:
- Sales were up in 2Q 2010 vs. 2Q 2009 (+13%).
- The number of REO sales peaked in 1Q 2009, and has declined since then.
- The number of Short Sales has been climbing steadily since their 3Q 2008.
- For the first time, there were more luxury home S/S than REO sales in 2Q 2010.
If you look at the number of distress sales (S/S + REO) relative to the total number of sales, you see that the distress ratio is pretty consistently between 10 – 15% of the market.

Prices for luxury homes fell from $250 per square foot (2008) to $230 per square foot (most of 2009). They did recently increase +3% in 2Q 2010.
- While “regular” sales are around $239 / sq ft; distress sales sell at about a 20% discount. REO homes sold for $196 / sq ft and short sales sold for $201 / sq ft

Get Your First-Time Home Buyer Tax Credit - NOW!!

You've decided to purchase a home and take advantage of the 2009 First-Time Home Buyer Tax Credit. Here's what you have to do to get your benefit:

1.Close on your home purchase by November 30, 2009,
2.Ensure that you are a qualified first-time buyer under IRS guidelines,
3.Decide which year to file under, 2008 or 2009,
4.File an amended 2008 return or choose to apply the credit to your 2009 tax return.

That last step is important: Deciding When to Apply the Credit

If you want the benefits of your credit as soon as possible you might choose to file under your 2008 tax year. Since April 15 has already passed, you would have to file an amendment to your return. However, if you've already filed for an extension of your 2008 return, then you can simply claim the credit when you submit your return.