Cash is king, Aspen is better than Steamboat, but Steamboat is better than Breckenridge.

by | Mar 24, 2019 | CO hard money, Colorado Hard Money, Colorado Living, Colorado Private Lending, Colorado Real Estate values, Colorado Ski real estate, Colorado Ski towns


We all know cash is king, but in real estate this is even more important.  What can the amount of cash tell us about a particular Colorado ski resort market (I took the pic above between Vail and Steamboat)?  How can we use this information to guide our investing decisions?  Is one ski resort more at risk than others?  Where should you invest today with the changing economic winds?

Before talking about which ski resort is riskier, it is important to discuss the concept of leverage.  In real estate, many people get loans to purchase real estate since it is such a large amount.  The amount of loan on a property to its value is the best determinant of success or failure in real estate.

The amount of leverage is the number on indicator of a loss

Being a private lender and riding through the last mortgage crisis with no bailout from the government, we learned real quick what happens in a market downturn. The number one factor on whether a lender will take a loss is Loan to Value/ the amount of leverage a borrower utilizes.  As a private lender in the last crisis we had a unique perspective to see how our lending practices performed under stress.  We lend our own funds, look at every property, and service our loans.  We get to see the whole loan cycle as opposed to many banks that pool their loans and securitize them offloading the risk to other parties.   As the crisis unfolded we spread out the portfolio based on credit, income, loan to value, etc… the primary indicator of whether we would take a loss or not was the amount of leverage the borrower utilized.  The lower the loan to value, the higher probability of a positive resolution.

 What happens in a downturn?

A cascading effect occurs; the market falls, dampens consumer confidence, decreases consumer spending and businesses in turn cut back to accommodate the lower spending level (layoffs, fewer purchases, etc…).  Borrowers that have equity in their commercial or residential property are considerably more likely to make a payment.  In the last crisis, there were a considerable number of “strategic defaults” where the borrower could make a payment but chose not to since the house was underwater.   The theory goes “why throw good money away when I can go rent or buy another house for less than what I currently owe?”.   This is a simplistic explanation of what happened in the last crisis and what will happen again.  The depth of how this plays out in the next crisis is the question.

Ski town leverage:

Colorado ski towns are highly desirable and therefore more expensive than many other markets.  Ski town markets are like many other markets where the higher the leverage, the higher the risk.  What sets many ski markets apart is that many transactions use zero leverage meaning that the property is bought with 100% cash.

Zero leverage is the safest

If you pay with 100% cash, the risk of a default is also zero since you don’t have a mortgage.  Furthermore, someone who has the liquidity to pay with cash is less likely to “panic” sell in a downturn since they are holding the property with only nominal overhead.  The only expenses are taxes, maintenance and insurance as opposed to a borrower with a mortgage that also has a large monthly payment to make.  Zero leverage transactions bring stability to a market

Which markets have the most “zero leverage” transactions?

Land Title, the largest title company in the resort communities, puts out market reports for the various ski towns.  I looked at three large ski resort markets in Colorado to see the amount of leverage utilized: Aspen, Steamboat, and Breckenridge (Summit county).  Which of the three markets had the least leverage?

I analyzed December of 2018 for each of the three markets.  Breckenridge had 33% of all transactions in cash, Steamboat had 45% in cash, and Aspen had 68% cash.  The percentage in cash transactions correlates into the “riskiness of the market.  In this case Aspen is “safer” than Steamboat and Breckenridge.  Steamboat is “safer” than Breckenridge.

The relative “safeness” of a market is meaningless when every market is increasing which has occurred the last 10 years in all the ski markets in Colorado.  As the economy transitions to another phase, relative “safeness” of a market will be critical.  Markets like Aspen and Steamboat will outperform Breckenridge in the next downturn due to the large quantity of all cash transactions.



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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending.  Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in the Colorado Real Estate Journal, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.

Fairview is the recognized leader in Colorado Hard Money and Colorado private lending focusing on residential investment properties and commercial properties  both in Denver and throughout the state. We are the Colorado experts having closed thousands of loans throughout the state.

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