Investing in real estate has been a proven strategy for many years. Whether renting short-term or long-term, the income can not only cover mortgage costs, but may also generate a profit over time. However, there are pros and cons to consider when renting homes, townhomes, or apartments in Durango and the Southwest Colorado area.
Pros of Residential Real Estate Investing
Rentals are a hot commodity in the Durango/Southwest Colorado area and generally have a low vacancy rate. Factors such as a smaller community, Fort Lewis College, and local workforce housing needs all contribute to demand. Owning and renting a single-family home, townhome, condo, or apartment can help fill a housing need while generating additional income.
Additional Income
With Durango’s increased need for housing, rental costs have trended upwards in the last few years. Monthly rent can sometimes completely cover your monthly mortgage payments, which makes for a worthwhile investment as we cover below.
Long Term Investment
By applying rental income towards mortgage payments to cover the purchase of an investment property, you can simultaneously maintain the property, pay down the mortgage, and let it appreciate over time. Given that 15- and 30-year mortgages are common, this return is typically realized over a decade or two, rather than a quick resale in three to five years.
It’s important to anticipate potential income disruptions from vacancies or unexpected repairs and factor these into your financial planning before purchasing an investment property. Striking the right balance between routine maintenance and larger upgrades is key. While a clean, comfortable space can attract reliable, long-term tenants and boost resale value, remember that it’s still an investment property and doesn’t need luxury finishes or the latest appliances.
Cons of Residential Real Estate Investing
Owning rental property comes with added responsibility and costs. As with purchasing any investment, it’s important to do research and fully understand the potential outcomes of the purchase.
Vacancies
Although Durango and the surrounding area typically have strong rental markets, vacancies will happen, which will impact your bottom line. Short term rentals usually have higher turnover, which can be both a benefit and a risk. On the positive side, they command a higher nightly rate. On the downside, they require more frequent cleaning, booking management, and operating costs. Long term tenants typically have a set contract so the income remains consistent.
Homeowner Associations, City, and State Rules & Regulations
Some homeowner associations (HOAs), cities, and states have different rules and regulations on how you can use your property. In-town Durango, it’s common for HOAs to prohibit short term rentals altogether. Even if an HOA does allow them, the City of Durango has its own set of guidelines and requires a permit to operate a vacation rental. One reason short-term rentals are restricted is to help increase the availability of housing for local residents and employees. HOAs may also have pet restrictions or assign specific parking for each unit, so it is important to understand these rules to ensure your tenants remain in compliance.
Property Manager Fees
If you live locally and manage your own rental(s), you are acting as your own property manager. If not, or if you want to simplify, hiring a property manager can be extremely helpful. They assist with applications, background checks, leases, emergency calls, maintenance, showings, rent collection, and more of the nitty gritty tasks. Fortunately, we have several local companies that provide these services.
Landlord Requirements
In addition to property-specific rules, landlords in Colorado must follow certain legal and financial guidelines. For example, they are responsible for maintaining habitability standards, making reasonable accommodations for tenants with disabilities, and following specific legal procedures to terminate a lease. Security deposits must be handled in compliance with state laws, and in most cases, landlords are required to keep rental income in a separate bank account. Income from rentals must also be reported on your taxes—owning a rental property functions much like owning a small business. It's smart to consult a CPA or real estate attorney before diving in.
Although we do not handle property management, we’re happy to recommend trusted property management companies, attorneys, and other local resources to support you in owning rental properties in Durango and the surrounding area. If you’re considering buying or selling an investment property, we would love the opportunity to discuss your options. Please don’t hesitate to contact The Durango Team at The Wells Group for more real estate information or resources.
Learn about renting vs. buying here and the similarities and differences with commercial real estate investing here.
