Author Topic: Nice family town vs. College Town  (Read 1501 times)

StarBright

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Nice family town vs. College Town
« on: April 18, 2018, 10:57:38 AM »
We're getting our ducks in a row to purchase a rental property or two once our youngest is out of daycare next year(hello cash flow!).

We're looking at two specific types of options:

Option 1: College Town with low property taxes and obviously tons of college renters. My DH works in this town and is there every day. Pluses: cheaper taxes, cheaper houses, don't have to put as much into upkeep since renters are primarily college students. Downsides - College Students!

Option 2: The town where we live, nice family homes, people are always looking for rentals. Plus: UMC families who want good schools, opportunities for multi-year rentals, renters likely to keep homes in better condition, what seems to be pretty high rents vs, purchase prices. Downsides - high taxes (property, separate school tax, and income tax), expectations of higher end finishes, higher purchase prices.

Both towns have relatively flat real estate markets so we're not looking at one option have significantly more appreciation or anything.

My FIL has multiple rental properties in SoCal (so very high end) and seems to think we're nuts for considering college town. But college town would allow us to get into the market faster with smaller downpayment, etc.

I'd appreciate any thoughts.

kanga1622

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Re: Nice family town vs. College Town
« Reply #1 on: April 18, 2018, 11:35:26 AM »
I live in a college town. My advice would be to talk to other landlords in both areas. The rentals we see in our area with college kids are either well kept or trashed with not a lot of middle ground. When we were looking to purchase a home, we looked at several that were former rentals. Some students had obviously decided to decrease their rental cost by making fake walls out of wood paneling in the basement to section off more "bedrooms." We also saw a TON of beat up walls, holes in doors, horribly stained carpets, burnt counters, etc. Keep in mind we were looking at a lower price range because we didn't want to be house poor.

If you go with the college town option, you will probably just have to vet your tenants a little more. We have noticed here if you are in a certain part of town as a landlord, you get the faculty/staff with families renting your homes. If you are in the town closest to businesses and the campus, it is a lot of 4-5 roommates renting the house.

Also, check rental regulations in the college town. Some have laws about how many unrelated people can rent at one address otherwise it would have to be rezoned and considered a "boarding house."

calimom

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Re: Nice family town vs. College Town
« Reply #2 on: April 19, 2018, 08:24:36 PM »
Congrats to you for ending daycare payments and wanting to put the money into an investment property! Having rentals is a nice leg on my three legged financial stool. In just viewing the situation with a broad brush, I'd lean toward the family town, unless the tax situation is untenable. Think long term, stable (hopefully) tenants. Are you thinking SFH or something like a duplex?

thepuglife

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Re: Nice family town vs. College Town
« Reply #3 on: April 20, 2018, 09:34:57 AM »
I would have to second Calimom on this one. I have two multi units in areas that are popular with both college students and recent graduates. Units occupied by students have given me the most trouble, by far. Some examples: tenant smoking on a wooden deck (in a non-smoking unit) put out his cigarette on the stairs and started a fire that caused thousands in damage, tenant put large amount of rice down garbage disposal causing back up, drunk tenant got into a shower at 2 a.m. and fell down, shattering the shower door, which was, thank god, made of safety glass. Tenant then began texting me at about 2:30 a.m. to report that my shower door had attacked her. If I had some more time and a margarita I could give you more examples. Now, all of my tenants are post college and I can sleep at night.
« Last Edit: April 20, 2018, 09:41:07 AM by thepuglife »

srad

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Re: Nice family town vs. College Town
« Reply #4 on: April 20, 2018, 09:55:22 AM »
No real wrong choice here. 

But for your first rental, i'd suggest you buy closest to you.  I think you'd want to learn the LL ropes with a more stable tenant base and a place that is close to your home.

Another option for the college town would be to buy a few miles off of campus.  That way you could pull more of the town's working class. 

fyi - i have units in both of these markets.  The ones in the town i live in are very easy to manage and pull in long term tenants.  My college town units are just far enough off of campus that i don't get many students.  I pull in more recent grads or people working in the town.  They do move much more frequently so taking care of all those turns requires more of my time.  But I put up with the extra work of the college town due to the greater cash flow.  I've been a LL for over 10 years and i'm still not sure if i'd want to do actual college student rentals.  I was a college student once, i know what happens to those units.



StarBright

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Re: Nice family town vs. College Town
« Reply #5 on: April 20, 2018, 12:33:06 PM »
Congrats to you for ending daycare payments and wanting to put the money into an investment property! Having rentals is a nice leg on my three legged financial stool. In just viewing the situation with a broad brush, I'd lean toward the family town, unless the tax situation is untenable. Think long term, stable (hopefully) tenants. Are you thinking SFH or something like a duplex?

Thanks! We've been socking a bunch into our 401k, 401a, 457 and Roths for the last couple of years and it seemed like it might be time to diversify a bit. The daycare money should help that a bunch.

We'd be looking at a single family in our town, and either a SFH or Duplex in the college town.

I'm more drawn towards our town, to be honest, but I also see how the smaller more affordable houses get snapped up and turned into rentals here very quickly. There has been a ton of turnover this year and I feel like all the rentable stock might be snapped up by summer 2019 (which is when we'd plan to start looking).

I won't jump in before we are ready, but the houses being bought up so quickly here are what made me start looking at the college town.

waltworks

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Re: Nice family town vs. College Town
« Reply #6 on: April 20, 2018, 01:41:46 PM »
How do the numbers compare, setting aside the type of town for a moment?

-W

StarBright

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Re: Nice family town vs. College Town
« Reply #7 on: April 23, 2018, 09:06:39 AM »
That is a great question!

College town - Purchase price would be around 100k, property taxes would run approximately $1,200 a year. Rents on a two or three bed seem to be about $800 per month. This seems pretty standardized throughout the whole down. So this basically fails the 1% rule.

Family town - Purchase price would be between $80k (on a foreclosure) to $125k on something a bit nicer. (the foreclosures would need work so lets assume 120k is a good number. Property taxes would run about 3k, and an additional .5% school tax on 40% of the assessed value of the home (weird). Rents run between $1200 and $1800 depending on how close you are to the walk-able main street. A three bed one bath half of a duplex on our street (One of only 10 or so duplexes in town) is currently renting at $1400 a month. A two bed, one bath a few streets over is up for rent at $1,100 a month).


waltworks

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Re: Nice family town vs. College Town
« Reply #8 on: April 23, 2018, 12:10:37 PM »
Well, that pretty neatly eliminates the college town, then.

Those triple property taxes @$250/mo (plus $300/year for the school thing?) are going to be a serious hit on making money in your family town, though. 

Remember that the 1% rule is only a blunt instrument - there are 1% places where you'll immediately lose your shirt (high property taxes is usually the reason - some places in the mid-Atlantic often are nearly worthless/impossible to sell because nobody wants to pay the taxes to own them) and there are <1% rule places that will be great. You need to run the numbers for each property.

Assuming you are financing the purchase and putting down 25%, for example:
P&I on $90k loan @4.5% (no sure if you can get that for non-occupied right now, though): $456
Taxes: $300/month
Insurance: $100/month (this varies a TON depending on where you live)
Management: at least $100/mo, and even if you're doing it yourself you should include this.
Vacancy: $100/mo
Capex/Maintenance: depends on the property but I'd budget $200-300/mo.

We're already at over $1200 (using conservative numbers) which sounds like it's the median rent for the kind of property you're looking at. You'll save a little tax money from depreciation but not enough to really get you to profitability.

You can obviously do whatever you want, but I'd avoid either place and invest elsewhere (if you're comfortable with being an offsite landlord) or else just plug money into equities and bonds and REITs if you want some RE exposure.

-W

StarBright

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Re: Nice family town vs. College Town
« Reply #9 on: May 25, 2018, 08:47:22 AM »
All right folks! I have actual numbers on a property and I'm thinking it works in our favor. It was recently reassessed so taxes were lower than anticipated.

Purchase Price:
3 bed, 1 bath in nice family town
85k
needs new AC - my real estate agent friend told me they got a quote for 7k
property otherwise in decent rentable condition - not fancy, but not gross.

Monthly:
Mortgage: $340
taxes: $150.00
school levy: $17
Insurance quote: $65
probably would want to get an umbrella policy?
Would I want to set up an LLC?

I'll estimate on the safe side and say 1k a month rent, but other places of similar size in the neighborhood have definitely rented for more. Average time on the market for an appropriately priced house is about 15 days. The area is pretty up and coming and the smaller, cheaper houses are getting snapped up to be rentals. I'm not sure if this is a good thing or a bad thing :)

StarBright

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Re: Nice family town vs. College Town
« Reply #10 on: May 25, 2018, 08:51:55 AM »
This would also have us jumping sooner than we had anticipated (DD still has one more year of daycare) but my in-laws recently offered us some money in case we wanted to invest in real estate.

I'm sort of excited about this - but also wary of jumping in ahead of schedule.

waltworks

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Re: Nice family town vs. College Town
« Reply #11 on: May 25, 2018, 10:19:56 AM »
All right folks! I have actual numbers on a property and I'm thinking it works in our favor. It was recently reassessed so taxes were lower than anticipated.

Purchase Price:
3 bed, 1 bath in nice family town
85k
needs new AC - my real estate agent friend told me they got a quote for 7k
property otherwise in decent rentable condition - not fancy, but not gross.

Monthly:
Mortgage: $340
taxes: $150.00
school levy: $17
Insurance quote: $65

Add in maintenance/capex of $150-200/mo, vacancy costs of $50-100/mo, and management costs in the ballpark of $100/mo (yes, even if you'll manage yourselves).

You're at ballpark $900 in expenses per month and $1000 coming in (before accounting for potential tax advantages from depreciation and such) so while *I* probably wouldn't jump on it, I think it's a decent low-risk way to get your feet wet and see if you like doing RE stuff. You won't lose your shirt. You might not make much money, and you might spend a lot of time dealing with it, but you'll learn a lot.

Do not borrow money from your family. Just a bad idea every time unless it's an emergency.

-W

StarBright

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Re: Nice family town vs. College Town
« Reply #12 on: May 25, 2018, 11:44:36 AM »
Thanks @waltworks  - the money wouldn't be a loan.

They've been offering it as a gift but they want it to only be used for real estate - so we hadn't thought too much about it.

My in-laws really want us to get into rental properties and managing (I suspect this is because they have several rental properties and neither of my husband's siblings have shown any interest in helping them manage it and my in-laws are approaching their 70s.)


waltworks

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Re: Nice family town vs. College Town
« Reply #13 on: May 25, 2018, 12:41:02 PM »
A gift with strings attached sounds even worse, to be honest. Money and family are not something to mix without being very, very careful. If you accept, will they expect you to step into managing their properties for them? It sounds like that is their goal.

-W

clarkfan1979

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Re: Nice family town vs. College Town
« Reply #14 on: May 31, 2018, 10:11:25 PM »
I can typically get more rent from college students than a family. College students will pay extra to be a few blocks closer to campus.

I have two college rentals (single family) that are each in a separate college town. Good fit for me.

StarBright

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Re: Nice family town vs. College Town
« Reply #15 on: June 01, 2018, 05:26:38 AM »
Thanks guys. I did a second walk through of the place with an inspector and we're going to pass. He said there were foundation and moisture problems in the basement. Best $150.00 spent so far this year!

We're just going to keep building up our cash so that when the right place comes along we can grab it (and not even need to consider taking in-laws up on their offer because we'll have more than enough in cash, ready to throw at the house).

calimom

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Re: Nice family town vs. College Town
« Reply #16 on: June 01, 2018, 06:35:18 PM »
Sorry to hear, StarBright, and the inspection and passing were absolutely the right things. Something in good shape that ticks all the boxes for a quality cash flowing property will show up. I own 2 rentals that cash flow and appreciate (albeit slowly) and have found it's a nice way to add to my bottom line and long term security.

Good luck with your search!

waltworks

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Re: Nice family town vs. College Town
« Reply #17 on: June 01, 2018, 06:48:12 PM »
I think that in the <$100k price range, basically anywhere in the US, you are going to only find houses with *some kind* of issue.

I'm not trying to second guess your decision to pass on this particular place, but I'd urge you to remember that you're buying a cheap rental, and adjust your expectations accordingly.

-W

StarBright

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Re: Nice family town vs. College Town
« Reply #18 on: June 01, 2018, 08:13:17 PM »
@waltworks  - oh for sure! We expect to put work and money in. For instance, we know that almost anything we find will need central AC added as this whole area is historical and as the older houses turn over appliances and AC are basically a given.

But I'm just not ready to deal with major foundation issues or standing water/mold problems or replacing knob and tube at this point in my life :)

Maybe in a few years I'll be ready to tackle something that major! I'm certainly learning a lot just from looking.

thanks @calimom  I feel good about the decision. I'm just a little sad that it didn't work because it is a darling little house (on the outside) and it is the only house on our immediate block that isn't kept up well. I was hoping to make it lovely and make our neighborhood a little bit nicer.