Why Tear-Downs Are Hotter Than House Flips in Denver's Top Neighborhoods

In recent years, house flipping has practically been the official sport of Denver, with the 80219 zip code boasting 32 of them during the first quarter of 2018 alone. But Fresco Real Estate's Veronica Collin, a house flipper herself, recently told us that more and more national firms are abandoning Denver because of competition from buyers who want to live in properties for a couple of years before turning them over.

That doesn't mean big-money operators are getting out of the real estate game in metro Denver, however. According to one expert, a rising number of entrepreneurs targeting hot neighborhoods have moved beyond house flips to tear-downs, an increasingly lucrative practice that entails purchasing a home, destroying it and building a new, higher-priced structure in its place.

Daren Blomquist, senior vice president of ATTOM Data Solutions and our source for a recent post about Denver's worrisome national ranking for home affordability, says transplants appear to be fueling the trend, with folks from one state in particular standing out.

According to Blomquist, a local developer told him that of the seven tear-down/new builds he's sold recently, "five have been to California buyers."

Tear-downs, also known as scrapes, aren't new to the Denver market; they've been happening to one degree or another for years. But many of them have tended to involve houses that are in bad shape. In May, we highlighted a series of metro-area homes listed for prices of $250,000 or less, and several of the sellers emphasized the value of the land beneath them rather than the appeal of the structures themselves. The online blurb for a property at 4940 West Tennessee read in part: "Investor special! Already demoed, needs everything. Huge lot. Room for scrape and build or fix and flip with an addition. Sold As Is."

Increasingly, though, otherwise viable properties in fast-growing areas are being demolished, too — and a prime example is only steps away from Westword's Golden Triangle offices.

For years, a lot on Tenth Avenue just west of Broadway, and across an alley from Westword's north parking lot, has been occupied by a bustling daycare center based in a former residence. But in recent months, it was crushed into dust, and now a luxury townhomes project is under way.

That this effort and so many others in metro Denver are targeting well-heeled buyers is no surprise to Blomquist.

"For someone building a home, the high end is where they make more profits," he points out. "In Denver right now, you have that combination of those projects being more profitable and there being more demand from outside buyers. So that's the inventory you're going to build." As a result, he adds, "the lower end of the market is going to be a bit tighter."

The Denver developer with whom Blomquist spoke recently "had been flipping houses and rehabbing them," he says. "But now he's adjusted his strategy. He still buys homes, but he doesn't just fix them up and rehab them. He tears them down and builds a new, much more expensive home on the same lot."

His price point for the properties is $1.1 million, Blomquist goes on — and while that may seem mega-expensive to most of us, lots of transplants feel otherwise.

"Manhattan is the most expensive market right now, and the median price there is $1.5 million," he says. "In San Francisco county, it's $1.4 million. In Santa Clara County, which is where San Jose is, it's $1.2 million."

The developer "is working on a smaller scale than a larger builder," Blomquist allows. "But that's the kind of trend we're seeing."