Author Topic: Should I enter this housing market?  (Read 831 times)

Expressed

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Should I enter this housing market?
« on: October 03, 2017, 09:01:55 PM »
Ok so here's some background. For years, I have been eyeballing rental properties in the city that I went to college at, in upstate NY. I'm interested in buying low cost housing to offer affordable prices to students. I know the neighborhoods and areas, I've lived in many apartments and understand what students are willing to pay for and live in. My weakness, I do not know much about how buying homes or renting, this would be my first. I also live on the west coast now and would have to delegate everything to prop managers and the like.

Here's the numbers I have crunched,
A 3br house for 60K can rent somewhere between $300-450 per room. I'll assume worst case, $300 per room for a 10month student rental (pretty common lease length in the area).
This pulls in $9k a year and satisfies the 1% rule. The biggest issue with this area is that housing is not growing, based on recent historical trends I could not reasonably expect this property to increase much in the next 10 years, I would be buying this purely for a cashflow business.

For a 60K home I could reasonably jumpstart this with 16K for a down + closing and setting up some basic furniture in the home.

My question, is this worth it? Anything else I haven't considered?

Thanks for reading!


StashthatCash

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Re: Should I enter this housing market?
« Reply #1 on: October 04, 2017, 07:43:25 AM »
posting to follow, I happen to have the same question just in WI instead of NY.

YoungGranny

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Re: Should I enter this housing market?
« Reply #2 on: October 04, 2017, 10:35:13 AM »
Putting this into a cashflow calculator using the following assumptions:

Purchase Price: 60k
Down Payment: 20%
Interest rate: 4.5%
Loan term: 30yr conventional
Full Rent Amount: 900
Yearly Property Tax: $2,000 ??? - total guess since I don't know what they look like for the city you're looking at.
Expected Vacancy: 16.7% (since it's only occupied 10 months of the year)
Management Fee: 10% (standard - could be more or less)
Insurance: 600 a year (just a quick estimate here, again could be more or less)
Cap X: $1,000 a year  (covers regular wear and tear on appliances, paint, carpet etc.)
Any extra amenities? (Lawn/Snow Removal/Water/Sewer/Gas/electric): ??? - not sure if you would include anything or not.

With the above scenario you would cash flow $1,372 a year (cash on cash return of 10.6%) but if you add lawn/snow removal that could quickly wipe out any profits. I recommend finding a cash flow calculator and playing around with the numbers yourself.

toganet

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Re: Should I enter this housing market?
« Reply #3 on: October 04, 2017, 11:17:07 AM »
I'm contemplating this as well, also in Upstate NY (Buffalo).  Posting to see what advice I can siphon off :)

Cwadda

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Re: Should I enter this housing market?
« Reply #4 on: October 04, 2017, 11:39:24 AM »
Do you have an established team of property managers, contractors, realtors, and handymen to make this all happen?  Are you willing to invest the time and effort to do so?  You're talking about purchasing a property you've never visited, which is very difficult to do as a first timer, but not impossible.

You could put that same capital into the market and get a ~7% return, without doing any of the above.

tralfamadorian

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Re: Should I enter this housing market?
« Reply #5 on: October 04, 2017, 12:51:53 PM »
...upstate NY...

NY property taxes are extremely high compared to other parts of the country, particularly in Ithaca if that's the college town you are referring to.  Did you include property taxes in your calculations?

GrayGhost

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Re: Should I enter this housing market?
« Reply #6 on: October 11, 2017, 10:37:05 PM »
Honestly, I would not bother. Folks on this website really like real estate because it is a good side gig, and if you are planning to settle down in an area and are semi or totally retired, it's a great way to bring in some cash.

However, I would not advocate this investment. You're taking on a lot of risk for flowing a whopping $100 a month. And that's before problems, stress, nonsense, drama, etc.

My advice is, save yourself the trouble. The juice doesn't seem to be worth the squeeze right now.
Student of Mustachianism since 2013

Dicey

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Re: Should I enter this housing market?
« Reply #7 on: October 11, 2017, 10:53:01 PM »
Honestly, I would not bother. Folks on this website really like real estate because it is a good side gig, and if you are planning to settle down in an area and are semi or totally retired, it's a great way to bring in some cash.

However, I would not advocate this investment. You're taking on a lot of risk for flowing a whopping $100 a month. And that's before problems, stress, nonsense, drama, etc.

My advice is, save yourself the trouble. The juice doesn't seem to be worth the squeeze right now.
Landlord here. That's how I got started. However, I'm completely in agreement with Cwadda and GG. I believe that makes three "No" votes.

Edited to fix wonky quote.
« Last Edit: October 11, 2017, 11:42:42 PM by Dicey »
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maizeman

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Re: Should I enter this housing market?
« Reply #8 on: October 11, 2017, 11:04:06 PM »
A lot of the outsized returns from real estate come from 1) unpaid labor of property management and maintenance and 2) the leverage provided by mortgages.

If you're on the far side of the country #1 isn't going to be feasible (and honestly sounds like it could be a little bit of a nightmare to manage remotely), and it sounds like you're planning to pay cash for the houses so #2 wouldn't come into play either.

P.S. I'm guessing not-Ithaca because both home prices and rents would be a lot higher there. Maybe Syracuse? (Or Rochester, or Cortland, or ... well upstate New York has no shortage of colleges in cities with shrinking population bases.)
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surfhb

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Re: Should I enter this housing market?
« Reply #9 on: October 13, 2017, 05:43:49 PM »
I had a investor tell me once that the 3rd or 4th rule to real estate investing is NOT to invest in student housing.    Kids tend not to care and it will cost you