There are a few people I’m working with right now who want to buy investment property in Colorado Springs. Here is how that’s possible, even though interest rates are at 7%.
For general anywhere real estate investing purposes, you want to get a return for your money. In real estate, there are many ways to do that. So how do investors figure out the ROI?
ROI can mean a few things. For some it means the annual cash flow, or cash on cash return. In other words, how much annual income will you receive relative to your down payment and out of pocket costs?
ROI for some is another word for the cap rate, which is the percentage of your annual return based on its Net Operating Income (NOI) relative to its purchase price.
ROI can also mean the total long-term return you get, which includes cash flow, appreciation, and loan paydown, divided by your initial cash investment. This is the most comprehensive way to calculate your true profit.
For general real estate investing purposes, an 8%-12% ROI per year is ideal. That may look like a 5%-8% cap rate with financing.
In Colorado Springs, the cap rate is usually 4%-6% a year. A 4-6% cap rate is common in strong, stable markets with good appreciation potential. Colorado Springs has both moderate cap rates and long-term growth.
The ROI for Colorado Springs investment properties can certainly be 8%-12% or higher, provided you are accounting for cash flow, appreciation, tax depreciation, and debt paydown.
Over the past several years our housing market became saturated with investors, flippers, and wholesalers. This helped push home prices up in Colorado Springs.
Now, people who buy investment property here typically are more interested in long-term appreciation over monthly cash flow. However as rents and home prices rise together, this can improve the cash flow over time.
Now why are some real estate investors buying investment properties in Colorado Springs? Here’s why:
Long-Term Appreciation Potential
- Home Value Growth: Colorado Springs has experienced consistent home price appreciation over the years. Even with a moderate cap rate, the potential for long-term property value increases makes it attractive to investors.
- Supply Constraints: Limited housing inventory and zoning regulations in the city can drive up prices over time, benefiting investors looking for appreciation.
- Population Growth: Colorado Springs has seen steady population growth due to its high quality of life, job opportunities, and natural beauty, which drives housing demand.
- Economic Stability: The city benefits from a diverse economy with military bases (e.g., Fort Carson and the Air Force Academy), technology, healthcare, and tourism sectors, ensuring both jobs and consistent demand for housing.
- Desirable Location: With proximity to the mountains, outdoor recreation, and a mild climate, Colorado Springs is consistently ranked as one of the best places to live in the U.S. This attracts renters and buyers alike.
Strong Rental Demand
- Military Presence: The large military population, including Fort Carson and the Air Force Academy, creates consistent demand for rental properties.
- High-Income Renters: With increasing housing costs, many high-income professionals rent instead of buying, ensuring stable cash flow for landlords.
- Vacancy Rates: Colorado Springs often boasts low vacancy rates, reducing the risk of extended vacancies and supporting steady rental income.
Tax and Business-Friendly Environment
- No Rent Control: Colorado Springs does not have rent control, allowing investors to adjust rents in line with market trends and inflation.
- Low Property Taxes: Compared to many other states, Colorado has relatively low property taxes, improving net operating income.
If this kind of real estate investing stuff interests you, I’ve also written a free real estate investing guide for Colorado Springs that you can access here. It’s meant as an introduction to how investing in residential real estate property works, how buying property in general works, and what to expect when buying investment properties in Colorado Springs.
You’ll get the basics, steps, and some terminology. This will give you several jumping off points where you can further research the housing market you’re interested in, preparing your finances, and how to calculate the ROI of a property before you purchase it.
If you have any questions, comment or message me. I’m happy to explain real estate investing in more detail, and discuss possible investment strategies.
To search for investment properties in the Colorado Springs area, use this live feed Colorado Springs property listing search.