As stock markets experienced significant turbulence in early April, many investors found themselves reconsidering their portfolios and investment strategies. The ripple effects of this volatility extend beyond Wall Street, creating both challenges and opportunities in real estate markets across the country. Understanding how Denver’s unique real estate market responds to these broader economic shifts can help investors make informed decisions during uncertain times.

Episode Overview

In this Fire on FIRE episode, I sat down with fellow firefighters and real estate investors Paul and Jamin to discuss current market conditions and investment strategies. Our conversation explores how recent stock market drops and economic uncertainty are affecting different segments of the Denver real estate market, revealing stark contrasts between property types and locations. We also delve into alternative investment strategies, including self-directed IRAs and how investors are pivoting away from traditional 1031 exchanges toward other tax-advantaged options.

https://youtu.be/42yytK_YmCE

Timestamps

(00:10) Introduction
(04:55) Contrasting Condo and Single Family Markets
(11:47) Migration Trends Affecting Colorado Real Estate
(16:20) Buyer Sentiment and Purchasing Power
(21:03) Investor Exit Strategies Beyond 1031 Exchanges
(28:13) Bourbon Market Commentary and Diversification
(32:59) Self Directed IRAs for Real Estate Investing
(40:48) Final Thoughts

Denver Real Estate Market: A Tale of Two Asset Classes

The Denver real estate market is currently demonstrating a clear divergence between different property types and locations, with single-family homes in desirable neighborhoods maintaining strength while condominiums face significant headwinds.

“Single family homes are still appreciating. Condos have knocked off, depending on the market, five to 15% since the peak a couple years ago,” I noted during our discussion, highlighting the stark contrast between asset classes.

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• Location remains paramount—properties in premier areas like Cherry Knolls are still receiving multiple offers within 24 hours of listing, while listings in less desirable areas linger with minimal showings
  
• HOA issues, particularly inadequate reserve funding, are creating major obstacles for condo sales, with some complexes becoming effectively “cash only” due to Fannie Mae and Freddie Mac financing restrictions
  

Paul shared an example that perfectly illustrates this divergence: “I listed a house in Cherry Knolls and it went under contract in a day—multiple offers, about 15 to 20 showings in that first 24 hours,” while his condo listing in Meridian had only “five or six showings” in the same timeframe despite price reductions.

Investor Strategies: Moving Beyond 1031 Exchanges

Our podcast revealed a significant shift in how real estate investors are handling property dispositions, with traditional 1031 exchanges falling out of favor due to challenging market conditions and changing priorities.

“None of your investors are doing 1031s right now?” I asked during our conversation. “No,” Paul confirmed, explaining that, “That was the way things went before…You sold something and went to the next thing and kept going up and up, but that’s still not making sense right now.”

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• Investors are increasingly cashing out of properties and redirecting capital to alternative investments like syndications, development funds, and debt funds rather than acquiring more direct rental properties
  
• New legislation affecting landlords is contributing to investor concerns, prompting many to reevaluate their long-term strategies and exit plans
  

Paul noted that investors are increasingly prioritizing cash flow over continued tax deferral, explaining his own situation: “I’m selling a triple net and I’m done with my 1031s. I can’t, I’m not going to do a 1031. It just doesn’t make sense. I need the cashflow. I’m in retirement.”

Self-Directed IRAs: Diversifying Retirement Portfolios

With stock market volatility creating anxiety among investors nearing retirement, our conversation turned to self-directed retirement accounts as a vehicle for accessing real estate and other alternative investments.

“A lot of people just don’t know about what else is out there—debt funds and all these development funds. There’s a lot of opportunities out there that will give you a great return,” explains Paul, highlighting the knowledge gap that prevents many investors from diversifying.

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• Self-directed IRAs and 401(k)s allow investment in alternative assets like real estate while maintaining the tax advantages of traditional retirement accounts
  
• These vehicles can provide better insulation from market volatility, as private market investments don’t experience the same real-time pricing fluctuations as publicly traded securities
  

I shared my personal experience: “I moved over about $300,000 from the stock market towards real estate, I spend a hundred hours a week doing real estate. I have a competitive advantage in real estate with deals I see, people I know, and knowing market trends, where I had no competitive advantage in the stock market.”

Navigating Economic Uncertainty: Action Steps for Investors

Despite market challenges, we identified several practical steps investors can take during periods of economic uncertainty to potentially strengthen their positions.

“Now is the time to start putting in more money into your 457s, max out everything, match and exceed that,” advises Paul, advocating for dollar-cost averaging during market downturns.

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• For those concerned about retirement timelines, diversification across uncorrelated asset classes can help reduce portfolio volatility
  
• Real estate investments, particularly in strong submarkets with proven demand, can provide stability during stock market turbulence
  

Jamin noted that firefighters close to retirement are particularly stressed by market volatility: “I think we see that at the firehouse table with firefighters that are real close to retirement… They’re going to change their plans. Inevitably, I’ve seen it before.” This highlights the importance of having stabilizing assets like real estate in a pre-retirement portfolio.

Conclusion

The current economic environment presents both challenges and opportunities for real estate investors. While certain segments of the Denver market—particularly condominiums and less desirable locations—face headwinds, single-family homes in prime locations continue to perform well. Meanwhile, traditional investor strategies like 1031 exchanges are giving way to alternative approaches including self-directed retirement accounts and investments in syndications and funds.

As Paul succinctly puts it: “Everything I’ve read and everything I learned was like, once you’re in the stock market, don’t pull out of the stock market. Stay in the stock market, stay in real estate, wherever it is, don’t move around… But right now, looking back, especially today, looking at the market, boy, I’m sure glad I did that because I took some money off the table and I put it in an asset where I’m still making a healthy return right now instead of losing money.”

For investors seeking to navigate these complex markets, our Fire on Fire team offers free educational resources and one-on-one portfolio reviews. To learn more about our upcoming classes or to access personalized guidance, check out the resources below or reach out directly to our team.

Links from Podcast

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• Property Llama – Software for analyzing and optimizing rental portfolios
  
• Self-Directed IRA Custodians:
  
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  • Sense Financial – Offers checkbook control options
    
  • Equity Trust – Full-service custodian for self-directed accounts
    
  • New Direction IRA – Colorado-based custodian