BiggerPockets

What are the total rents? How many students occupy it?

$1500 each or total? $245K for $1500 in rent doesn't seem very attractive. What's the upside here?

I meant the profit upside. I get a P&I payment on $245K at 6.5% for 30 years of $1548. With $1500 in rent, you're losing $48 a month just for the P&I. If you apply the 50% rule, your NOI is $750. Subtract the $1548 P&I payment and you're in the hold almost $800 a month. I put break even on this property at about $118K.

The 50% rule applies to all rentals. The property's situation when you buy it doesn't affect this rule, since any fixup that's needed has to be added into the purchase price. At $500-550/tenant, this will fall into "lower priced" for almost any landlord. Student rentals in general are equivalent in work and tenant-induced maintenance to any other low-income rental.

Now, if there's an opportunity to buy this and resell it for a higher price, there might be a play. But if IU's making offers, why not just sell to them?

Sorry, no, it applies to all rentals. There are a couple of long, sticky threads in the Rental Property forum about this rule. Several people provided data that consistently confirmed this rule of thumb.

Its not the price of a property that makes a property, well, "low rent" or not. Its the rent. $1500 would be pretty high for a 3BR in my area ($900-1000 more typical), but its still hardly a high end rental. Further, as one member recently reported, high rent doesn't always translate into high quality tenants. Students certainly don't typically fall into the high quality tenant category.

An old-school rule of thumb says rents must be at least 1% of the purchase price. That translates to 12% of purchase price per year for gross rental income. Subtracting off 50% of that leaves you 6% of the purchase price per year in NOI. If your interest rate is higher than 6%, you'll be negative cash flow with just the interest, let alone any principle payments. So, this rule of thumb really depends on containing expenses and getting some appreciation. Containing expenses almost always translates into limiting maintenance, since that's the only expense you can control. And that's why so many rentals are crummy. Then, long term appreciation (which is driven mostly by inflation), makes for a payday when you sell.

I'd rather find better deals than that.

If you can dump this deal to IU at a profit, I'd do it. Why try to leave some money on the table for another investor if you can easily grab it for yourself. Plus, I doubt it will generate much profit for an investor. The transaction costs on real estate are exhoribiant (vs stocks, bank CDs, etc.) The cost of money to hold the investment is high. You're really talking fix and flip numbers. If you sell it to someone for 80% of what IU would pay, they might net 10% of the IU price for a (taxable) profit, after all the costs. If you just sell it to IU for that price, you'll grab that entire 20%. Go for it!

Thanks for the advice. This property is probably better as retail, perhaps for an owner occupier. Just thought I'd put it out there and see what investors thought about it. Thanks!