Author Topic: College Town Rentals  (Read 4414 times)

MrsDinero

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College Town Rentals
« on: February 12, 2016, 11:31:39 AM »
Since moving to our area last year, Mr. D and I have been discussing buying a house in a nearby (small) university town.  The town is 15 minutes from where we live so we would manage it ourselves.  I have been watching 2 houses,  but 1 in particular, I like better than the other (the other doesn't seem well kept).

House:  $215,000 (4bed, 2ba, 1400 sqft)  In looking at other properties in the neighborhood this house looks overpriced by almost $20k
Downpayment:  We have 20% saved currently, but would prefer to put less down if possible.
2015 property taxes: $3100
By my calculations the mortgage would be $1200/month

The current owner typically rents to 4-5 college students a semester at $3200/semester/student and the property looks well kept:
new furnace, oil tank, hot water heater, electric wiring. Newer Windows.

In the summers they rent each room $125/week

If the house rents to 4 college students each semester at $3200/semester/student
That should bring in $25,600/year ($2133/month)
10% for vacancy: $213
10% for repairs: $213
That breaks out to $1707/month (Not counting summer weekly rentals)
Leaving us with a profit of $507/month after mortgage is paid.

Is the math right?  Do you think it makes sense to buy this property?  What are the pros and cons to this house but also renting to college students?

Thanks!
Mrs. D.



 
« Last Edit: February 12, 2016, 11:36:26 AM by MrsDinero »

GrowingTheGreen

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Re: College Town Rentals
« Reply #1 on: February 12, 2016, 01:06:48 PM »
That's a pretty decent cash flow after the mortgage. As you probably know though, there is more than just the mortgage to worry about. Repairs, vacancy, evictions, etc. The guys over at Bigger Pockets live by the 50/2 rules. Id go into detail here, but you'd be better off just Googling "50/2 rule Bigger Pockets"

Overall, it's looking promising to me. Good luck!

iamlindoro

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Re: College Town Rentals
« Reply #2 on: February 12, 2016, 01:55:57 PM »
If the house rents to 4 college students each semester at $3200/semester/student
That should bring in $25,600/year ($2133/month)
10% for vacancy: $213
10% for repairs: $213
That breaks out to $1707/month (Not counting summer weekly rentals)
Leaving us with a profit of $507/month after mortgage is paid.

Is the math right?  Do you think it makes sense to buy this property?  What are the pros and cons to this house but also renting to college students?

A grab-bag of thoughts:

Where are your insurance costs?  Any utility costs borne by the landlord in your market?  Does the property need any up-front repairs to be rent-ready?  How many years left on the roof?  Any expenses related to tenant placement or screening that you expect to bear?

Add in another 10% to have the property managed if you move away or become disabled/incapacitated, too.  Yes, you may manage yourself, but shit definitely happens.

I would worry that your vacancy numbers are too low if you plan to target students.  The summer vacancy and student unreliability could be a killer.  I'd want to see multiple years of Schedule Es from the seller.

Some people love student rentals, others hate them.  Students are very, very hard on properties in general.  Some feel that it's helpful because they expect to have parents cosign and have the parents to go after for additional damages.

To me, this is an ok deal (neither excellent nor terrible).  It's a decent deal if and only if you are the manager of the property for life.  You're looking at 20% down minimum on the investor mortgage (assuming Fannie Mae of Freddie Mac backed), so ~$43K if rehab costs are $0 plus some closing costs (let's call it $3-4K).  I would not try to get exotic financing to get your down payment below 20%.  If making the down payment on a rental is a stretch, you may well be undercapitalized (and would thus be overleveraged).
« Last Edit: February 12, 2016, 02:01:55 PM by iamlindoro »

thedayisbrave

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Re: College Town Rentals
« Reply #3 on: February 12, 2016, 08:21:45 PM »
It could work, but iamlindoro brings up some great points.  Any HOA fees? Also make sure whichever mortgage calculator you are using is factoring in taxes + insurance... not all of them do.

This one is right around 1% (the 1% rule, gross monthly rent should be 1% of the purchase price) which isn't terrible but I usually aim for a little higher (1.3-1.5% is what I can find in my area).  However, mine are condos/townhomes... if I were looking for a single family, I'd consider a little lower.  The downside of SFHs is needing to set aside more for capex... well the roof is the biggest thing really.

Have you ever rented to students before?

I have 3 rentals in student areas, and yes they come with their own set of issues but I was "crazy" enough to buy 2 more after the 1st one, so it's been working out pretty well for me.  Just make sure you screen your tenants properly (credit/background/eviction report) and get deposits.

SwordGuy

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Re: College Town Rentals
« Reply #4 on: February 12, 2016, 09:31:22 PM »
Get this book.  Read it.  Do the math in it.  Then you will know. :)

http://www.amazon.com/Estate-Investor-Financial-Measures-Updated/dp/1259586189/ref=sr_1_1?s=books&ie=UTF8&qid=1455337817&sr=1-1&keywords=real+estate+cash+flow


Don't want to read a book like this and do the math to find out if it's a good investment?

Then don't get into real estate investing. :)

rothwem

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Re: College Town Rentals
« Reply #5 on: February 15, 2016, 07:54:57 AM »
I would suggest looking at actual prices for things that break easily in college apartments.  See how much it is to replace the carpet after the tenants move out, to repair the drywall that gets a hole punched in it during a rowdy beer pong game, how much to repair the door and door frame that a drunk 250 pound college kid broke after falling into it after that rowdy beer pong game, etc. 

My point is that I think that trying to estimate the maintenance with a percentage is not really going to give you an idea of what its going to cost. 

clarkfan1979

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Re: College Town Rentals
« Reply #6 on: February 15, 2016, 09:11:56 AM »
I love college rentals. I think it's an inefficient market because there are many myths associated with college rentals. However, I am a college prof and have dealt with college students my whole life. There might be a few mistakes in the beginning learning how to deal with college students. However, after a while, it gets easier. No deal is perfect. Especially not the first one. If your numbers are reliable and valid, then do it. If someone is lying about the rental income to dump the property then that is different.

MrsDinero

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Re: College Town Rentals
« Reply #7 on: February 16, 2016, 05:29:07 AM »
Thanks everyone for the responses. We've looked into the  rental history and it is pretty solid (I'm guessing because it is 1 block from campus and 2 blocks from University police), except summertime it is rented 25% of the summer.  We are still considering the house but will most likely pass.  With me being pregnant and a 5 month old,  work and travel we realized we have too much on our plate right now.  Maybe next year when I'm no longer pregnant.

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MrsDinero

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Re: College Town Rentals
« Reply #8 on: February 16, 2016, 05:35:46 AM »
I also mean to add we don't mind renting to college kids.  The school has a pretty low rate of stupid stuff happening (small town everyone talks). 

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QueenAlice

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Re: College Town Rentals
« Reply #9 on: February 16, 2016, 05:51:36 AM »
Posting to follow suggestions, I'm looking to get into the college rental game in a year or two.

srob

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Re: College Town Rentals
« Reply #10 on: February 16, 2016, 09:43:45 AM »
Most of my rentals are in a college town. I prefer to rent to families rather than a bunch of single students. I have rented to singles in the past and it is fine, you just have to take the hassle factor into consideration. You have a lot more turnover with 4-5 individual contracts that only last during the school year, and then the hassle of finding summer students. I like to have one contract for each apartment that last 12 months. You can make more with singles, but if you are managing it yourself, you have to decide if it is worth it to you.

It is not that I refuse to house singles in my apartments, but I just set it up so that the apartment requires a single 12 month contract. In my town it just happens that those types of contracts appeal more to families, although some singles will go for such a contract on occasion.

clarkfan1979

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Re: College Town Rentals
« Reply #11 on: February 20, 2016, 05:38:12 PM »
Most of my rentals are in a college town. I prefer to rent to families rather than a bunch of single students. I have rented to singles in the past and it is fine, you just have to take the hassle factor into consideration. You have a lot more turnover with 4-5 individual contracts that only last during the school year, and then the hassle of finding summer students. I like to have one contract for each apartment that last 12 months. You can make more with singles, but if you are managing it yourself, you have to decide if it is worth it to you.

It is not that I refuse to house singles in my apartments, but I just set it up so that the apartment requires a single 12 month contract. In my town it just happens that those types of contracts appeal more to families, although some singles will go for such a contract on occasion.

I have two college rental houses. Both are a 1 year lease with 3 different students on the contract. I have never considered multiple individual leases. Both leases also have at least one parent co-signer. If shit was to hit the fan, I can go after 4 different people for the entire rent. However, I am pretty good with screening and haven't had anything close to that happen. I ask for first month's rent, last month's rent and deposit at lease signing. This reduces that likelihood that the students will try to leave after 9 months and skip out just before summer.

PAstash

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Re: College Town Rentals
« Reply #12 on: February 22, 2016, 01:55:41 AM »
hey "sounds" great.

I used to be a property manger for a apartment building in a small college town. I did this for a lower rental rate. Cleaned floors dealt with tenants picked up money showed apartments.

I am also a landlord of a single family.

If you haven't dealt with college students before you may want to reconsider. There was constant fights verbal and other wise. lots of excessive underage drinking in the building. other substance abuse. I am just saying these are C-class tenants and lower.

srob

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Re: College Town Rentals
« Reply #13 on: February 23, 2016, 09:25:40 AM »
clarkfan brings up some good points...if you end up doing this it would be better to get one leaseholder and parental cosigning. In my area, the norm is individual contracts and separate lease terms for fall/winter and spring/summer for singles college housing, so that is what people expect. You might want to check what the norm is in your area.

clarkfan1979

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Re: College Town Rentals
« Reply #14 on: February 26, 2016, 11:53:35 PM »
hey "sounds" great.

I used to be a property manger for a apartment building in a small college town. I did this for a lower rental rate. Cleaned floors dealt with tenants picked up money showed apartments.

I am also a landlord of a single family.

If you haven't dealt with college students before you may want to reconsider. There was constant fights verbal and other wise. lots of excessive underage drinking in the building. other substance abuse. I am just saying these are C-class tenants and lower.

I would be hesitant to buy an apartment complex in a college town. I agree that college students who live in apartments tend to be C renters. I do not have any skills in dealing with C renters. Single family homes close to campus are usually a prized catch for college students and I always seem to get A renters.