Breckenridge Real Estate Blog

So, you’ve listed “financially independent” as a New Year’s Resolution.  How are you going to get there?  Diversifying your portfolio by adding some Summit County or Park County investment real estate is one option.  Before heading into the investment property arena, be sure you know exactly what you are getting into.  Within these two counties, several types of properties come available within Breckenridge and Keystone resort real estate, in the towns of Frisco, Dillon, and Silverthorne, Wildernest, and then in the rural areas of Colorado real estate.

The first step to take is to decide what is most important to you along the journey to financial freedom.  Most folks list After Tax Cash Flow (ATCF) and Return On Investment (ROI) at the top of the list.  However, there are other facets of investment to sort out.
How much do you want to be involved, day to day, in your investment properties?  Do you want tenants calling you about little things every week?  Do you care what your property looks like, whether it is a bit old and run down or must it be in a newer development right on Peak 7?  What about the properties which seemly eat up your cash flow?  Each investment property will bring different results on various timetables.

Which five of these common objectives are most important to you?  Strong appreciation, positive cash flow, low investment required, low-cost financing, low maintenance, low turnover or specific type of tenants, large tax write-offs, no deferred maintenance, high after-tax returns, ability to be your own handyman, effect on investor’s ratios, ease of management, quick turnover potential, particular neighborhood, pride of ownership, improvement potential, space to add on, owner occupation, or passive income.  If you are not familiar with these terms, find out how they will affect your investment.

After you have determined your priorities, work with your realtor to use a Gross Rent Multiplier (GRM) to sift through the available properties to find a number to pursue further.  You can divide the gross income by the price or the price by the gross income but be consistent and find the GRM figures for each.

Buyers look for high Capitalization Rates (CAP) rates.  The CAP rate is the relationship between the Net Operating Income (NOI) and the property value.  (CAP rate = NOI divided by Price)  To come up with accurate figures, all of the expenses must be included in the NOI.  If figures are accurate, then the CAP rate will reflect true market rents (may differ from current rents) and all of the expenses that should be incurred (may differ from what current owner is spending).

Although you may want a high CAP rate, if you can find low-down or no-down property, you may settle for a property with a lower CAP rate.  Because you as the buyer may not need to use much of your cash flow for the deal, your ROI may turn out to be much better than you anticipate.

That ROI is a symbol of what it costs you to make money on this investment.  Alas, you may not know that real ROI until you eventually sell the property!  The bottom-line ROI considers sales price and costs, tax consequences of ownership, positive or negative cash flows, effects of financing—the whole kit and caboodle.   With your realtor, you will make some assumptions, weigh the risks and rewards, and decide according to your priorities.