Colorado offers many advantages for real estate investors. Home values and rental prices in the state are higher than average, with strong growth indicators in several Colorado cities. Although there are challenges in the market that investors need to be aware of, the opportunities could be worth it for both residential and commercial real estate investors.
This post introduces the potential benefits and difficulties of investing in real estate in Colorado.
Opportunities in Real Estate Investment, Colorado
The Colorado real estate market has many highly appealing aspects, making it an excellent place for investors. Although the market is considered cool statewide, there are hot spots and strong markets in certain areas that make it worth a second look.
Let’s examine three unique features of the Colorado real estate market that make it attractive for investors.
Attractive Rental Market
Rental prices in Colorado are 7% higher than national averages, with a median price of $2,299 per month. Popular areas within the state have very hot rental markets that consistently grow in value.
Colorado attracts permanent residents looking for work in booming local economies, students attending major universities, and short-term residents or tourists exploring the vastly diverse natural attractions.
In terms of price, the top 5 fastest growing rental markets in Colorado are:
- Denver
- Colorado Springs
- Boulder
- Aurora
- Fort Collins
These trends refer to long-term rentals rather than short-term rentals like Airbnb. Short-term rentals are an important part of many Colorado real estate markets, although there are restrictions on their usage in some cities with tight housing inventory.
Outdoor Recreation and Amenities
Colorado has a wealth of outdoor attractions that draw people to the state. From soaring mountain peaks to incredible ski resorts, raging rapids, and towering boulders, Colorado has a rugged, beautiful charm that draws in both permanent residents and tourists alike.
With four major national parks, 28 ski resorts, Native American historical sites, and the second tallest mountain peak in the continental US, there’s no shortage of places to experience.
Populations are consistently growing around these special land features and in large metro areas. Investors can benefit from appreciating home values and rental prices driven up in these areas by high housing demand and short-term rental demands through tourism.
Diversified Investment Options
You have your pick of investment properties in Colorado. Many types of investment property are viable in the state, including:
- Residential properties
- Vacation homes & short-term rentals
- Commercial real estate
- Land development
- New home construction
- Industrial real estate
Because of the variety of industries around the state, investors can reduce risks by investing in diverse types of real estate.
Challenges for Real Estate Investors in Colorado
While Colorado presents investors with many opportunities, there are challenges with market competition, high property prices, and difficulties managing properties in the state. Let’s take a closer look at these specific challenges.
High Property Prices
Property values in Colorado have been steadily increasing for more than a decade. In 2024, the average home value in the state was $551,281, a 1.8% increase year over year. As home values increase, rental prices also increase. While demand is still strong in many rental markets, affordability issues can create problems for investors when the economy shifts.
Economic shifts impact less affordable housing markets because tenants may not be able to pay market rates comfortably. While value appreciation is beneficial for investors in the long term, it can also lead to short-term profitability issues.
Competition
Real estate markets in the more desirable areas of Colorado are hot. There’s a lot of competition for attractive investment properties, especially in the residential sector, where short-term rental properties are popular.
Competition can drive prices even higher, impacting a property’s profitability. Market rates for rentals do not increase at the same rate as property values, decreasing the rate of return (ROR) on attractive investment properties.
Property Management
Managing an investment property takes a lot of time and attention, especially if your property hosts short-term tenants. You can choose to manage the property yourself, taking on the tasks and costs of:
- Maintenance
- Insurance plans
- Utility payments
- Groundskeeping
- Advertising
- Tenant acquisition & management
These responsibilities can also be delegated to a property manager with experience in the type of real estate you’ve acquired. Property managers handle all the operational aspects of the property, including screening new tenants in long-term rentals or managing bookings for short-term rentals.
Seasonality
If you’re investing in properties that rely on seasonal customers, such as tourists or university students, it’s challenging to prepare for and manage the income fluctuations throughout the year. Colorado’s vacation real estate and student rentals offer good deals for investors, but they involve an element of risk when income drops dramatically in the off-season.
Not every real estate market or property type has a problem with seasonality. This challenge comes up most often in areas like Colorado Springs, Denver, Breckenridge, and Aspen, where tourism is such a huge part of the economy, or college towns like Boulder, which have a large student population.
Natural Disasters and Environmental Factors
Colorado faces some risks of natural disasters. The main disasters that could impact your investment property are floods, droughts, wildfires, and tornadoes. If you’re investing in property in Colorado, assess the property’s risks and take appropriate actions to mitigate them.
The other challenge you need to be aware of before you buy investment properties in Colorado is water shortages. Many areas in eastern Colorado have issues with water supply. Check the availability of water to the property and be ready to manage any excess costs or difficulties caused by water shortages.
Hotspots for Colorado Real Estate Investing
Metro Denver Area
Denver is the largest residential area in Colorado. It’s a busy marketplace that’s been growing steadily for years. People are drawn to Denver by the strong economy, good job market, and diverse neighborhoods that offer something different for everyone.
Denver offers many opportunities in residential, commercial, and vacation real estate. This is an established market with a wide variety of rental income options.
Mountain Resort Towns
Towns and cities around the state featuring outdoor resorts have strong seasonal economies, offering investors many opportunities. Colorado real estate investors who want to earn short-term rental income can take advantage of properties around ski resorts, national parks, hiking trails, and popular mountaineering spots.
Mountain towns tend to be smaller areas with lower populations and unique cultural features. An investment property will likely perform better if it’s tailored to the market’s ups and downs and the town’s local culture.
Up-and-Coming Areas
As more people move to Colorado and demand for housing continues to grow, many are moving out to cooler real estate markets to find affordable housing. These areas can potentially become new hotspots in the state, benefitting investors who see the trends and get in early.
Areas like Centennial, Highlands Ranch, River North, and Colorado Springs have strong growth indicators and show signs of healthy future development.
Colorado Real Estate Investment Property Strategies
If you’re looking to enter the Colorado real estate market, here are some strategies to help you find the rental properties that best suit your needs and investing preferences.
Thorough Market Research
Never buy an investment property without doing your due diligence on the market beforehand. You need to have a good feel for the market before purchasing.
Look at these aspects of the market:
- Local real estate trends: Property values can be heavily impacted by local, state, and national market trends. Analyze the trends in the property market you’re looking to buy into and larger trends at the state and national levels that might impact your investment.
- Comparable property interactions: When you know what type of property you want to invest in, keep tabs on similar properties on the market. This can indicate how long you have to make a deal, how much you should offer, and what you can expect from the buying process.
- Rental demand: The Colorado housing market varies widely based on the area’s main industries and the stability of the local economy. Look for rental income demand trends, especially seasonal swings and dips.
Market research should be done early on. Get a foundational understanding of the market you’re investing in, then refresh that knowledge by observing ongoing market trends.
Define Your Investment Goals
What you want to get out of an investment will affect the properties you can purchase and manage. Define your goals and let them inform your decision-making. There are two general goals you can have when investing in the real estate market:
- Cash flow: income earned from the operation of the property (i.e., rental income);
- Long-term appreciation: income earned through increasing property value.
Realistically, most investors are seeking a mix of cash flow and appreciation. Still, it’s important to define your priorities so you can accurately judge whether a prospective property might meet them.
Be as specific as possible. If you’re looking for cash flow, what’s your ideal monthly rental income? If you want to focus on long-term appreciation, how long will you hold a property before reselling it? What margins are you hoping to make from the investment?
Take the time to define your goals properly so you can accurately assess how good of a fit a property will be for you.
Work with Experienced Professionals
Success in real estate investing relies heavily on purchasing the right property. Lean on the experience of others to find a good deal that checks all the right boxes and puts you in a good position throughout the lifetime of the investment.
Leverage the real estate expertise around you by:
- Working with an experienced real estate agent;
- Partnering with a reputable property manager;
- Consulting financial advisors for market research.
The right team of experts can help you purchase a Colorado investment property with the right characteristics to meet your investment goals.
Consider a Variety of Investment Strategies
Avoid getting stuck on a specific investment strategy. Instead, consider your options and make a choice that works well for what you want. Instead of sticking with a traditional real estate purchase, consider alternatives like:
- Fix-and-flips
- Long-term commercial/industrial rentals
- Short-term vacation rentals
- Real estate syndication
- Sale-leaseback
Every option has its pros and cons. Consider how involved you want to be in the process and go for an investment you feel good about.
Summary
Colorado is an exciting market for real estate investment. With so much diversity in property types and market conditions, there are opportunities for every investor. Are you ready to dive in? Call Arnaiz Mortgage at (623) 806-4645 or schedule your free, no-obligation consultation with one of our mortgage agents today!