Denver-Area Investor Sours
On Being a Landlord

By JANE HODGES
April 12, 2007

The Investor: Victor Rodriguez, 35 years old, a consultant with BEA Systems in Denver, has invested in local real estate for about four years. He says friends got him interested in buying rental properties.

The property: The 1,940-square-foot Victorian duplex, which was built in 1884, has a two-bedroom, one-bathroom unit downstairs and a one-bedroom, one-bath unit upstairs. The home is located south of downtown Denver in the Baker neighborhood, an ethnically diverse area with a popular retail and restaurant strip that draws visitors from other parts of town.

Purchase price: $202,000 in April 2003. Mr. Rodriguez bought the property with two out-of-town partners. Each put in an equal stake, and Mr. Rodriguez agreed to act as local landlord and manager. The trio put 20% down on an investor loan with an interest rate of about 6%, he says.

Additional investment: $8,000 to $10,000. Mr. Rodriguez had the home carpeted after purchase and painted throughout. As tenant wear-and-tear took its toll, additional new carpeting and repainting were necessary, he says.

The strategy: Until 2006, Mr. Rodriguez was a buy-and-hold investor. "The tipping point was an eviction that happened last year at one of my properties," he says. After working for months to get a tenant evicted and hiring collectors to get rent, Mr. Rodriguez began "unloading" his holdings. He has soured on being a landlord, he says. He has sold two properties in the past six months and is marketing another Denver rental in addition to this home. He'd invest in real estate in the future if he could avoid serving as a landlord, he says. He consistently broke even on this property, or made a small monthly cash flow (the profit from rent after mortgage costs, insurance and taxes are paid) of about $100, he says.

The pitfalls: In general, he's been happy with this home's performance, Mr. Rodriguez says. However, because the two-unit property has only one utility meter, he had to pay the heating and cooling bills since they couldn't be split at the meter level among tenants. The property's high winter utility costs ate up profits, though lower fees in the summer offset that and provided better cash flow, he says.

The transaction: For a few months last year, Mr. Rodriguez tried to market the property for $270,000, but got no takers. He says the house was overpriced. So in the hopes of spurring a quick sale, he's offering it for $249,900 -- about $25,000 below its appraised value of $275,000, but 23.7% above what he paid for the property. If he gets his asking price, the duplex will beat the 12% appreciation rate Denver homes have seen during his ownership period, according to Zillow.com. He expects the property to command a good price because the Baker area is an "up and coming" neighborhood. He and his partners bought the duplex for $8,000 to $13,000 below market price, he says. The property may attract investors since it already has tenants in place -- one occupant rents month-to-month and the other has a lease ending in June and wants to stay on as a month-to-month tenant, Mr. Rodriguez says.

Write to Jane Hodges at rjeditor@dowjones.com