Tuesday, December 13, 2016

Fresh Baked Cookies and Other Hidden Investment Returns in Boulder

by Osman Parvez
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A couple of weeks ago, Leah and I bought another house in Boulder. In the long-run, it should be a well-timed execution of an investment thesis, but we don't have to wait for the long run. We're already discovering hidden returns.



The Investment Thesis
It's no surprise.  Houses in Martin Acres are in high demand: The ranch-style works well for a variety of tenants and buyers: Young professionals appreciate the easy commuting to downtown Boulder, to job centers along US 36, and into Denver. Older folks looking to downsize love the main floor bedrooms and easy walkability. The neighborhood is also well situated between two excellent retail centers and a quick stroll to CU's campus. 
Historically, Martin Acres has been the most liquid neighborhood in Boulder. Most houses are on adequate size lots and offer reasonable 
expansion and remodeling potential, even under the city's complex web of development restrictions. Prices in Martin Acres are just above the entry-level for Boulder. Mid-Century Modern houses are not considered worthy of historic preservation (yet). 

For proof of concept, see the many other "Pop Tops" already in the neighborhood, most valued in the high $800's or even low $900's.  One renovation this year exceeded $1MM.  


In the past, unimproved ranches in Martin Acres had the lowest downside risk of any neighborhood in Boulder. During the last cyclical downturn ('06 to '09), for example, many homes at the higher-end of the Boulder market lost about +20% of value from the peak. A few notable examples lost 40%. Meanwhile, the entry level lost only about 5%. The downturn for the entry level was also much shorter, lasting only about 3 months (versus 3 years for the high-end). This is important as we potentially near the end of a real estate cycle.  

Note: A lot of local real estate professionals would have you believe that Boulder real estate never goes down. Don't believe that nonsense. Find yourself a better Realtor and make real estate decisions based on market facts, not happy talk. Remember, intelligent real estate decisions are based on a deep understanding of market conditions. 

Investment Execution
As one of my b-school professors liked to say, "Great ideas are cheap. It's all about execution." 


Our plan is to live in the home for a period of 1 to 3 years. While occupying it, we will make upgrades so the property passes Smart Regs (Boulder's energy efficiency standards for rental property). We'll also make other improvements so the property is a nicer home in which to live and one that will attractive higher quality future tenants.

Since closing, we've already refinished the floors and installed a new high-efficiency furnace, air conditioner, and water heater.  Air sealing and insulation are planned for early January. We're also installing new egress windows to make basement living areas safer. 

After a year or so, we'll find another interesting investment property to acquire at which time we'll add this house into our rental portfolio.  

Note: I represent all types of buyers and sellers, but when it comes to my personal investment philosophy, I'm a value investor.  My goal is to buy, improve, and hold for the long-term. 

Hidden Returns
As has been the case with my other real estate investments, unexpected returns have already started to make themselves apparent. Often, these intangible returns are the frosting on the cake of the investment.  

At the closing table, we expressed our condolences to the sellers as the home had been occupied by a recently deceased family member. We were surprised to learn they were relieved that he had passed. Out of respect for the family, I won't go into further depth. It's enough to know that this person had imposed challenges over many years on the rest of the family. We're glad that we helped close a difficult chapter of the sellers' lives. 

The sellers also told us they were going to use the proceeds to pay off the mortgage on their primary home. It was going to allow them to retire one year earlier than planned. They were looking forward to it. Our investment allows them to have an extra year of retirement.

Other hidden returns come from having an opportunity to invest back into a community that we love. Boulder is a wonderful city, racking up awards, year after year.  Martin Acres is one of its most vibrant neighborhoods.  It's also turning over, with young folks moving in, renovating houses, and creating a more diverse mix of ages and lifestyles.  

The largest benefit comes from the realization that we are not just revitalizing a house. We're employing local carpenters, HVAC contractors, and other construction professionals. Money spent on labor stays local. It helps our neighbors support their families. 

A video posted by Osman Parvez (@osmanparvez) on

The sweetest hidden benefit?  
A few weeks after closing, our new neighbor Claudia brought over a plate of fresh baked cookies. This unexpected gesture of neighborhood friendliness brought back memories of when my parents had done the same for new neighbors. The cookies didn't just bring sweetness to our mouths, it brought smiles to our faces.  

We're glad to be back in the 'hood. 
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The ideas and strategies described in this blog are the opinion of the writer and subject to business, economic, and competitive uncertainties.   We strongly recommend conducting rigorous due diligence and obtaining professional advice before buying or selling real estate. 

image credit:  Abel Maestro Garcia, Jason Tester

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