Author Topic: Should I buy this?  (Read 4147 times)

fiveoh

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Should I buy this?
« on: July 19, 2012, 12:45:58 PM »
I'm considering purchasing this property as a rental and wanted to get some thoughts/opinions. 

Details:

3 bdr/2bth condo in a college town

I should be able to pick it up for 110k, with 20% down and 4% interest rate I'd be financing 88k and have a monthly payment of 420.  Property taxes would be approx 226 a month and 85 a month HOA.  I figure insurnace to be approx 50 a month.  Bringing it to approx 780 for my total payment, not including any repairs.  The condo was built in 2k4 so its fairly new. 

For the next 2 years my brother will be going to school there and would be renting/keeping an eye on it for me.  He also has friends lined up to room with him.  There would be seperate leases for each of the 3 individuals.

Similar condos in the complex are renting for 325-375 a month per room.  I figure I could get 350 a room.  So 1050 a month.  They would be 1 year leases.

Thoughts/comments/opinions?!?  How do the numbers look?

grantmeaname

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Re: Should I buy this?
« Reply #1 on: July 19, 2012, 01:12:52 PM »
The math for college-student rentals appears to be way different, judging by the fact that people even bother to rent to non-college-kids at all. I don't know how exactly you'd adjust the formulas, but here are the big considerations that come to my mind.

College students expect much more of the maintenance to be done for them in exchange for the higher purchase EDIT: rent price. I do not own a lawnmower or even a ladder, which is balanced out by the fact that my housemates and I pay $2600 a month to live in a 2000-sqft. house in a low-COLA Midwestern city. If something drains slowly, gets moldy, or starts to make a weird humming noise, expect a call.

College students as a demographic also tend to be much harder on units.

These two are balanced out somewhat by the fact that if you're near a big enough school and you only rent a full year at a time, you can expect a very low vacancy for your units.
« Last Edit: July 19, 2012, 02:52:16 PM by grantmeaname »

Another Reader

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Re: Should I buy this?
« Reply #2 on: July 19, 2012, 01:22:13 PM »
Renting out investment property to family is never a good idea.  I would not do this.  Let your brother rent a room and deal with a landlord that is not family.

I dislike condos as rentals anyway.  The HOA fees tend to be expensive and the HOA boards dislike rentals.  They may unfairly penalize you for the behavior of your tenants.  In this case, it seems like a lot of units are rented to students, so your resale market is probably limited to families of students and landlords wanting student tenants.

Depending on the construction and layout, the condo could require repairs and maintenance at 8 years of age.  A/C units have a life of about 10 years and water heaters about 8 years these days.  With high turnover, carpet lasts 4 to 5 years on average.  Budgeting $100 a month for repairs and maintenance would be reasonable.  You also need to allow for vacancy and collection loss.  You may find your brother's friends are fun, but not especially reliable for the rent checks.

In sum, I don't think you will make a lot on the cash flow here.  You can do better.  And again, I would not rent to family or friends.

tooqk4u22

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Re: Should I buy this?
« Reply #3 on: July 19, 2012, 01:36:07 PM »
Renting to college students can be worthwhile, especially if it is located in close proximity to campus, but it is different than managing a traditional apartment - it is usually more management intensive.  Repairs and maintenance will be a lot higher, as will turnover - security deposits can help with this (very important).  I realize you say they will be 12 month leases but if this not consistent with the market norm (i.e some college markets lease for 9 months) then it may not lease. 

Also get the parents to sign the individual leases.

arebelspy

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Re: Should I buy this?
« Reply #4 on: July 19, 2012, 01:40:16 PM »
By most standard, conventional metrics and rules of thumb, this is not a deal worth doing.

I probably wouldn't pay above 75k or so for that.

A good deal would be less than 70.
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Another Reader

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Re: Should I buy this?
« Reply #5 on: July 19, 2012, 02:50:53 PM »
Arebelspy:

What are your buying parameters in Vegas? 

Fiveoh:

The rule of thumb is called the 50 percent rule.  The idea is that over time all of your operating expenses, including your capital improvements, will be around 50 percent of the rent.  The remaining 50 percent can be used to pay the P&I on the mortgage and your profit.

fiveoh

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Re: Should I buy this?
« Reply #6 on: July 19, 2012, 03:28:39 PM »
Well the grass and outside are taken care of by the HOA fees. 

I'm not really concerned with renting to my brother since my dad is paying for his college.   

You cant buy a decent place in this  city for 75k but with that 50% rule i'm in the hole every month so I guess it's not worth it. 

I appreciate the suggetions!  I was wanting to dip my foot in the rental water but I guess I'll stay on the shore for a while longer. 

Another Reader

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Re: Should I buy this?
« Reply #7 on: July 19, 2012, 03:55:05 PM »
Rules of thumb are exactly that.  If you are really interested in investment properties why not talk to some of the other landlords in the project, find out what they paid, what their rents are, what their student tenants have been like, and what their expenses have been?  If nothing else, you will get some insight into how investors analyze property.  Maybe the numbers work at $85,000 and the seller will take a low offer to get out from underneath the property.  You won't know unless you talk to people.

I try to learn something from every potential deal I look at, and I have been in the rental property business for over 15 years. 

arebelspy

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Re: Should I buy this?
« Reply #8 on: July 19, 2012, 04:17:23 PM »
Another Reader's correct: The 50% rule is a great place to start to see if something's viable and worth looking into more, then if it is run the numbers to find the actual NOI for the property.  Many things can influence it (for example an HOA isn't typically counted in the 50% rule.. but places with an HOA may or may not have different maintenance costs because of that, so it's worthwhile to run the actual numbers if it's close on the 50% rule).

Arebelspy:
What are your buying parameters in Vegas? 

For my long term buy and hold portfolio:  All SFRs so far.  Looked into a few multiplexes, had one under escrow for awhile, but didn't pull the trigger.

Generally around 3 or 4 bedroom, $40-50/sqft., built in the last 10 years, little to no repairs needed.

My rehabs are obviously a different criteria, and I just started buying notes, but not in Vegas.

Commercial here scares me, but I'd like to get into commercial elsewhere (Texas?).
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
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fiveoh

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Re: Should I buy this?
« Reply #9 on: July 19, 2012, 04:32:08 PM »
Another Reader's correct: The 50% rule is a great place to start to see if something's viable and worth looking into more, then if it is run the numbers to find the actual NOI for the property.  Many things can influence it (for example an HOA isn't typically counted in the 50% rule.. but places with an HOA may or may not have different maintenance costs because of that, so it's worthwhile to run the actual numbers if it's close on the 50% rule).

Arebelspy:
What are your buying parameters in Vegas? 

For my long term buy and hold portfolio:  All SFRs so far.  Looked into a few multiplexes, had one under escrow for awhile, but didn't pull the trigger.

Generally around 3 or 4 bedroom, $40-50/sqft., built in the last 10 years, little to no repairs needed.

My rehabs are obviously a different criteria, and I just started buying notes, but not in Vegas.

Commercial here scares me, but I'd like to get into commercial elsewhere (Texas?).

I'm in TX and can't find anything near that cheap in decent condition.  It would probably be considered "slums".   I guess East Texas might be a different story from what I hear.   

Another Reader

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Re: Should I buy this?
« Reply #10 on: July 19, 2012, 04:52:10 PM »
The Las Vegas market has dropped by 2/3 or more since 2006.  The economy there is not diverse, and house prices got way out of whack as unsophisticated  investors piled in.  With prices now substantially below the replacement cost of the structure alone, folks like Arebelspy are sweeping up after the mess.

Most of Texas has been largely immune to the market downturn because of a strong and diverse economy.  That's good for employment, but not so much for real estate bargain hunters.

fiveoh

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Re: Should I buy this?
« Reply #11 on: July 19, 2012, 05:24:43 PM »
The Las Vegas market has dropped by 2/3 or more since 2006.  The economy there is not diverse, and house prices got way out of whack as unsophisticated  investors piled in.  With prices now substantially below the replacement cost of the structure alone, folks like Arebelspy are sweeping up after the mess.

Most of Texas has been largely immune to the market downturn because of a strong and diverse economy.  That's good for employment, but not so much for real estate bargain hunters.

This is very true about TX.  I'm in Houston and saw on the news the other day, Houston real estate prices are at a decade high. 

arebelspy

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Re: Should I buy this?
« Reply #12 on: July 19, 2012, 07:23:54 PM »
Right, Texas interests me because it's a strong market, not because it's undervalued (like Vegas, or, say, Atlanta).
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

hardworkingpenguin

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Re: Should I buy this?
« Reply #13 on: August 04, 2012, 11:08:50 AM »
I look at very similar parameters like arebelspy after having touched condos, townhouses, SFRs, and fourplexes. I kind of find it annoying to manage fourplexes but I think I like SFRs the most because I believe the tenants are more likely to stay longer. HOAs can definitely be a pain and they've been bothering me with the most ridiculous stuff ever. Even the HOAs in SFRs suck.
Still, if your brother were to stay in a room and manage it for you, then you should have less worries.
Good luck!