Key Points:
Property holding costs including mortgage, property insurance, HOA dues, property taxes and repair costs are increasing significantly, impacting investment profitability.
The property type and age have a major impact on average holding costs
Rising expenses are outpacing rent increases
As 2025 begins, many real estate investors in Denver are considering whether investing in real estate is still a good investment. While owning rental property in Colorado can still be a profitable venture, it's vital to understand the true costs associated with property ownership in the Denver rental market. The following five expense categories are critical to account for and are often overlooked for their impact on the financial return of the rental investment.
Fixed Costs
1. Mortgage Payment
With interest rates increasing in the last few years, mortgage costs are rising for property owners. Adjustable-rate mortgage (ARM) holders should consider locking in a fixed rate to ensure predictable payments in the future. This will help avoid unexpected increases that could impact the overall profitability of an investment.
2. Property Insurance
In Colorado, property insurance premiums increased on average by 30% in 2024, with some areas experiencing even higher increases. This marks the continuation of several years of rising property insurance costs. While it may be possible to shop around for different insurance providers, switching policies may not always result in savings; in many cases, new policies could cost even more than what was previously paid. Property insurance is a fixed expense that every property owner must account for. Regardless of these increases, maintaining comprehensive property insurance is essential to protect against liabilities and potential risks.
3. HOA Dues & Special Assessments
Homeowners Association (HOA) dues have increased substantially in recent years. For the properties we manage, we have seen some increases range from a few dollars to as much as 300%. In addition to regular monthly dues, one-time special assessments are becoming more common, particularly when building and property expenses rise unexpectedly. These one-time fees can add significant costs that may not be predictable in advance. Real estate investors may want to consider purchasing single family homes over condos or townhomes to avoid ongoing HOA dues.
4. Property Taxes
Property taxes are projected to rise in Colorado by 36% in 2025. This increase varies depending on the location of the property, but it’s clear that property taxes are becoming a heavier burden for owners. When assessing profitability, it’s essential to factor in the likelihood of increased tax bills in the near future and for years to come.
5. Capital Improvements and Repairs
Property improvements and repairs, such as replacing carpets, installing new appliances, painting, or making plumbing and HVAC repairs, have also seen dramatic increases over the past few years. Third party vendor costs including labor, supplies and parts are rising due to inflation, and it’s no longer as affordable to maintain properties as compared to years past. Repair and improvement costs can add up quickly and should be planned for in advance. One way to minimize these costs is to minimize tenant turnover. We recommend property owners strongly focus on tenant retention in 2025.
Unfortunately for Denver real estate investors, these costs are often not able to be passed onto renters through rent increases. For Denver rents – the opposite is true as rental rates are flat to declining in many property types in Colorado.
Risk Assessment Analysis
Given these increasing holding costs, it is more important than ever for real estate investors and landlords to approach property investment strategically. Conducting an annual property risk assessment is essential to determine if the investment will remain profitable in the face of rising expenses.
There are three key factors to consider when performing a property risk assessment
Property Type: Single-family homes tend to have stronger financial performance in the long term as compared to condos. This is due to lower tenant turnover compared to condos or townhomes. Families are more likely to stay in a home for longer periods, reducing costs associated with tenant turnover. Additionally, single-family homes don’t have the added burden of HOA dues, which are common with condos and townhomes.
Property Location: The best financially performing properties are often located in suburban areas. Properties in these regions tend to attract stable and longer-term tenant demand.
Property Age: Investing in newer properties or new construction will reduce the need for capital improvements and repairs. Older properties, while sometimes priced lower upfront, often require more frequent maintenance and repair, which can erode profitability.
Rising costs are an undeniable reality for real estate investors in Denver and throughout Colorado. Understanding these expenses and adjusting investment strategies accordingly is essential to ensuring the continued success of investing in rental properties. For assistance in evaluating investment properties or conducting a risk assessment, feel free to reach out to us.
At Grace Property Management we believe that when property management is performed with integrity and transparency, both tenants and landlords benefit. Property Management is not just our business - it is a relationship between us, our owner-clients, and our tenant-residents.
If these are important to you, we may be a good fit to provide you, your property, and your tenant-resident with our full-service property management services. Feel free to reach out to us for assistance.
Grace Property Management & Real Estate
Serving real estate investors and residents since 1978.
303-255-1990
