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Real Estate Deal Analysis & Advice

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Andrew Jacobs
  • Arlington, VA
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Student condo with shared management/risk--good deal?

Andrew Jacobs
  • Arlington, VA
Posted Dec 25 2014, 23:16

I'm visiting my father-in-law for Christmas, and he told me about a student condo he owns that's not like anything I've run across before.  It has about 160 doors and 700 or so rooms, and all doors are subject to the same rules and are run by one management company.  Gross rents are $1500/mo and net is $1000/mo after the management company covers its overhead, the property taxes, insurance and improvements.  All units are owned by individual investors and all receive the same monthly payout, regardless of how many of the rooms are rented (since the amounts are based on that total complex's occupancy rate).  This serves to drastically reduce the risk, so it wouldn't matter if none of the beds in the unit I purchased were actually rented out or not--I would receive the same monthly payout as everyone else.  Occupancy has been historically at 95% or above.

It's interesting to me as I live in northern Virginia (where everything is crazy expensive), and the property is in Provo, Utah, where things are more reasonable.  And it would require no hands-on involvement from me at all.

A unit is currently listed for $225k, and I could get a loan with 25% down at 4.125%.  So that's about $818/month in servicing the debt vs. the $1000/month in payouts from the rent (taxes and insurance are covered in the overhead).  In the 7 or so years since the condo was built, the payouts haven't varied that much--went down to $900/month during the downturn.  

Wondering what I'm missing here, and what else I should be thinking about.  I don't own any other properties currently other than my primary residence, so this would be my first foray into real estate investing.

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