BrickOp converting multi-family units into investment opportunities
By Aldo Svaldi The Denver Post
May 26, 2019 at 6:00 am
First-time homebuyers have different programs to help them scrape together the down payment to get into a property, but that isn’t the case for first-time landlords, who typically need 20 percent or more down to get a loan.
A Chilean company has picked Denver to introduce a concept it says can overcome that hurdle.
Over the past five years, Capitalizarme has sold more than 5,400 condos throughout Chile and more recently Lima, Peru. It has launched a Denver-based subsidiary called BrickOp to replicate that model in the United States, where there are a lot more potential investors and capital.
“We are looking for affordable multi-family,” said Gabriel Cid, CEO of BrickOp. “We are looking for good buildings with good tenants.”
He acknowledges that has been a struggle in Denver, where real estate prices have skyrocketed since 2012. Developers have largely focused on luxury apartments and the few condos built, because of the state’s construction defects law, have also been high-end.
High prices make it harder for the math to pencil out, but after two years of looking, the company purchased a small 10-unit condo building called Pecos Flats near 70th Avenue and Pecos Street for its U.S. debut.
“In Chile, they have targeted millennials with higher incomes,” said Alfonso Silva, a partner in Silva-Markham, a Denver-based property manager. “This is mostly for the younger investor who wants to start investing in real estate and has disposable income, but who struggles to get the down payment.”
Breaking into real estate investing can be a challenge for those without deep pockets, especially in expensive markets like metro Denver, where the median price of a home sold in April was $460,000 and the median price of a condo was $305,000.
While lenders have loosened up standards for first-time homebuyers, including reviving zero down mortgages, buying a rental property still requires a good chunk of money down.
Silva, a Chilean immigrant who has invested in BrickOp, said the concept is different than crowdsourcing, where a bunch of investors put up smaller amounts of money to get a fractional share of a property. Owners receive full title.
Cid said his company is offering another alternative for those who haven’t built up savings but have extra cash flow and don’t necessarily want to invest the time and energy into mastering real estate investing.
“This is for the average person,” he said.
How it works
To acquire a unit, an investor commits 5 percent of the price, locking in a value. He or she then covers the rest of the down payment across the next 30 months or a time frame they can manage. Once the 20 percent is covered, the investor takes out a mortgage.
While the down payment is being made, BrickOp collects the rents and is responsible for repairs, including a refurbishment once the tenant moves out. The investor is provided with a freshened up unit, a tenant and a property manager who collects the rents and handles maintenance issue.
Monthly rents are enough to cover all the normal expenses, although Cid recommends the extra amount be kept in reserve to handle repairs and vacancies.
Pecos Flats condos cost $210,000 to $240,000 for a two-story, two-bedroom unit with mountain views. Reserving that unit requires $12,000, followed by another 30 monthly payments of $1,200. When the 20 percent down is reached, the buyer takes out a mortgage, either through BrickOp’s local lending partner, FirstBank Colorado, or through a different lender.
Silva-Markham is managing the units for a 4 percent fee, below the typical cut of 8 to 12 percent that property managers take.
Cid estimates that after insurance, taxes, mortgage payments, and HOA fees, the investor should clear between $100 or $200 a month. As with any investment, there are no guarantees. Rents could go down, vacancies could shoot up, tenants could damage the unit.
Based on recent rates of appreciation, an investor could double their initial investment in about eight years, Silva said. Using more conservative assumptions, the cash-on-cash return will beat most alternatives out there.
“We want to make sure we are buying something where the finances and expenses will be covered by the rent. We need to be very sure of that possibility,” he said.
For a young investor willing to hold for the long haul, that initial capital investment could provide a nice stream of income into retirement after the mortgage is paid off.
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