Author Topic: College rental deal analysis  (Read 1368 times)

Archipelago

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College rental deal analysis
« on: August 01, 2019, 09:47:47 PM »
I live 23 minutes away from a potential college rental property. It's a single family house with 5 bedrooms/2 bathrooms.

Purchase price: $219,000
20% downpayment: $44,000
Closing costs: $5000
Repairs: $3000

Rent: $2800-$3000/month
Mortgage: $891/mo
Taxes: $341/mo
Insurance: $125/mo
Management: $280/mo
Lawn/snow removal: $100/mo
Vacancy: $232/mo
Trash: $25/mo
Totals: $2392/mo

Cashflow: $595-$759/month
Annual ROI: 13.2%-16.9%

Other variables:
1. The house is located 3 miles/9 minutes away from a major university in my state. $700 per bedroom is the going rate per bedroom for places closer to campus. I believe 5 roommates at $600/each would be very attractive given the location and features of the house. Also, the house has solar panels which largely negates the electric bill.
2. I accounted for 1 month vacancy in a year. Does anyone have experience with lease management for student rentals? Some people do 9 month leases for school year only. I'd push for a year lease for obvious reasons.
3. I would self-manage, and "pay myself" that extra $280/month.
4. I would consider offering a pet friendly house for an additional $100/month. Allowing pets accesses a competitive corner of the market.

It seems to be a decent deal, but I'm still not convinced. Anyone want to spitball?

Archipelago

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Re: College rental deal analysis
« Reply #1 on: August 01, 2019, 09:48:19 PM »

monarda

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Re: College rental deal analysis
« Reply #2 on: August 01, 2019, 10:32:13 PM »
Check with zoning. A house with 5 unrelated people may not be allowed.

Is there a graduate program at this school? Science grad students usually stay around in the summers.

matchewed

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Re: College rental deal analysis
« Reply #3 on: August 02, 2019, 07:11:03 AM »
I don't see maintenance costs in your monthly amounts. College students can be a bit more rough on a property than a family.

cchrissyy

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Re: College rental deal analysis
« Reply #4 on: August 02, 2019, 08:17:24 AM »
3 miles from campus sounds too far.
In the college towns I've lived in, the shared houses like you describe are in neighborhoods within a mile of campus.

Car Jack

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Re: College rental deal analysis
« Reply #5 on: August 02, 2019, 09:16:03 AM »
When I was in college, paying my own way, I always took summer classes (reduced tuition) or was doing co-op (ran out of money) and would sub-let from friends away for the summer.  Also rented both campus apartments and private houses with room mates.  3 miles....I would never have even looked at these.  Anything more than about half a mile was beyond easy walking distance.  3 miles means I need to drive, in which case, if it's cheaper to be 10 miles away, what's the difference?

Archipelago

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Re: College rental deal analysis
« Reply #6 on: August 02, 2019, 10:00:05 AM »
Check with zoning. A house with 5 unrelated people may not be allowed.

Is there a graduate program at this school? Science grad students usually stay around in the summers.

Yes there is.

3 miles from campus sounds too far.
In the college towns I've lived in, the shared houses like you describe are in neighborhoods within a mile of campus.
Yes, but there is a student housing complex on the same street as this SFR. From what I've read about it, it does fine. This university is in a fairly rural setting.

I don't see maintenance costs in your monthly amounts. College students can be a bit more rough on a property than a family.
I have $210/month for CapX. Perhaps factoring in another $100/month would be worthwhile.

Check with zoning. A house with 5 unrelated people may not be allowed.

Is there a graduate program at this school? Science grad students usually stay around in the summers.
I looked into this already; it's fine.

bearman

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Re: College rental deal analysis
« Reply #7 on: August 02, 2019, 01:54:56 PM »
I have 5 student rentals about the size you're describing. Answers to your questions depend on local market, but I can tell you that I have all 1-yr leases, vacancy is basically 1 week at yearly turnover. Most damages can be billed and paid by tenants or their parents. Wear and tear is heavier than other rental types. Start by assuming 10% for that. All mine are 3-5 miles from campus but are about half the cost of walkable rentals. If there are many rentals like these, be aware the cost of labor is very high during turnover months. If everything checks out in your research, I'd say go for it. 10%+ returns are hard to find in today's market.

Papa bear

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Re: College rental deal analysis
« Reply #8 on: August 02, 2019, 08:12:31 PM »
You need to know your market on this.  The college rentals I have are .3 and .5 miles from campus and are clearly in the university district area.  3 miles out seems far, but everywhere is different. 

You need to know what the college rental “season” is.  I list properties in October for the next August move in.  These places lease 10 months in advance.  You also need to know what the typical lease terms are for your competition.  Are they 1 year leases? Do they rent by the semester with summers off? I’ve seen it many different ways.  If it’s a big university, they probably have an off campus housing department for students.  It might be worthwhile giving them a call.

5 bedroom places will attract younger college groups.  By the time they hit JR/SR or grad school, they look for 2-3 br places. 

Your vacancy estimate seem high.  I typically only have 1 month vacancies if I “pay” to get the kids out for major capital expenditures (I’m in the middle of 2 of them now like that). Normal years, I may prorate 4-5 days off of a month. 

Maintenance costs are higher with college rentals.  find a good local handyman type that can handle minor fixes, like a garbage disposal or clogged toilet. 

If your estimated numbers are accurate for rent rates and deferred maintenance, then this looks solid. But deferred maintenance is an issue for college rentals.  Make sure you do your due diligence!



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Jon Bon

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Re: College rental deal analysis
« Reply #9 on: August 03, 2019, 09:40:27 AM »
Lots of good advice here on the basics, I will add a few secondary points.

1. Getting it rented is going to be your first priority. I would probably list a bit under market to get it rented right away. Do your credit checks using cozy. Because they are college students their debt levels are not going to be good. However student loan debt is NBD, lots of credit card debt it.  Hopefully you get lots of interest and you can get A+ tenants at a 10% discount your first year in business.  House does feel a big far from campus. YMMV. I would probably give a friendly call to a few management companies. Have a casual conversation and ask any market specific questions that you might  have. IME a tenant who is professional on email, prompt and put together is a better indicator of how good a tenant will be over debt levels.

2. I have zero vacancy. I hate about 7-10 days that the house is empty to get 30 days worth of work done. Otherwise known as hell week. I also do not prorate the last month. Some leases I have seen have 12 "installment" payments, rather then a .months' rent. I do buy back days/week from tenants when I have a major project going on. They are almost always happy to move out a few days early.

3. Self managing is fine. I think you should do it just to learn the business anyways. My advice here is to be calm and deal with things via email and text. That way you dont have to be rushed into decision. "Let me think about it" is always a great answer.


4. Pets.... ehhh, They are ok. Id rather do without them. However sometimes I get nervous and allow tenants with pets if I think the rental window is closing. They are just more wear and tear on a place that is already getting beat up. Just be prepared for ESA bullshit.

Question: This is a 5/2?  Pay attention to where you bathrooms are. If there are 5 bedrooms on the second floor, and 1 bath. Guess where 5+ showers a day are happening? No on is trekking down stairs in a towel to take a shower.


I will leave you with a list of stuff college students LOVE IME

1. Central AC
2. Similar sized bedrooms
3. Included Off-street parking
4. Fenced yard (for pets)
5. Lots of bathrooms
6. Washer/Dryer
7. Front Porch

clarkfan1979

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Re: College rental deal analysis
« Reply #10 on: August 05, 2019, 11:02:23 AM »
I have two college rentals. My vacancy has been 0% since 2007. Students move out on July 31st and move-in on August 1st. Typical group stays 2 years. 

College students that want to rent houses like garages, open floor plan with good access to a patio outside. You can get more rent per bedroom with a house if you offer things that apartments do not.

I also get more rent by allowing dogs. Try to minimize carpet if you allow dogs.

I think the sweet spot is 4 bed/2 bath. One of my rentals is officially a 3 bed/2 bath. However, I converted a laundry room into a 4th bedroom (non-conforming). I moved the washer and dryer to the utility room with the hot water heater and furnace.

Archipelago

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Re: College rental deal analysis
« Reply #11 on: August 05, 2019, 02:32:46 PM »
Well another issue is that I wouldn't acquire the house until mid September. This means I wouldn't be able to rent it until the following school year. I suppose I could rent individual bedrooms immediately, or around the spring semester, but the overall timeline is not ideal.

Papa bear

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Re: College rental deal analysis
« Reply #12 on: August 05, 2019, 09:17:49 PM »
Make the offer contingent on having the house leased.

Offer to advertise the property for lease while in contract.

Rent out for spring semester, short term lease for extra rent per month. These come up from time to time for employed persons that get paid to go to school for a semester (GE is common) or someone who transfers.

Check out your local Facebook page for college leasing.  You can rent out by the bedroom.  You could also air bnb until the next rental season.

Lots of options here.


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Jon Bon

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Re: College rental deal analysis
« Reply #13 on: August 06, 2019, 06:51:00 AM »
Make the offer contingent on having the house leased.

I've tried this, they politely hid their laughter

Offer to advertise the property for lease while in contract.

This I have done instead, it worked out

Rent out for spring semester, short term lease for extra rent per month. These come up from time to time for employed persons that get paid to go to school for a semester (GE is common) or someone who transfers.

Check out your local Facebook page for college leasing.  You can rent out by the bedroom.  You could also air bnb until the next rental season.

Lots of options here.


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A Fella from Stella

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Re: College rental deal analysis
« Reply #14 on: August 20, 2019, 01:56:30 PM »
Don't allow pets. some 19 year old idiot is going to have a cat or dog ruin your place.

tralfamadorian

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Re: College rental deal analysis
« Reply #15 on: August 20, 2019, 05:35:05 PM »
As others have said, 9 or 12 mo lease is going to be based on that school's culture. Same as whether miles from campus is going to be acceptable.

I once bought a property where there were two days between closing and classes starting.  I signed an intent to lease with the parents of the tenants that I advertised with the sellers' permission. Everyone signed the lease immediately after closing and move in was the next day. It wasn't ideal but it worked.