Hello BP family, thanks for taking the time to help me with this dilemma!
I'm interested in student housing, it's actually the niche I've been focusing on for awhile. I found a college where the rent seems to high compared to the prices of the houses, so I did my research on the area and there is one house that popped out to me.
To say as little as possible on the house, it is listed at $60,000 5 BR, 2.5 Bath. The owner said that the house rented out for the 2014-2015 school year at $325 a bedroom. That is insane to me and I couldn't believe the return the house has. So I asked to tour the house and there is nothing extremely wrong with the property. No major rehabs need to be done, and there is even a possibility for a SIXTH bedroom in the basement (which is mostly done already).
This house has the possibility to rent for $1500 - $1800, and only cost me around $60,000 for the purchase. After calculating expenses, it could be possible to receive around $700 in cash flow from this house. Sounds perfect right?
Well, here is the issue. It is a little further away from the campus and it did not get rented out for the 2015-2016 school year. The owner said this was the first year it didn't get rented out, which could mean it was bad luck. However, around the campus there have been two major apartment complexes built which have been getting the attention of students. While they are expensive, and in my own personal college experience, students prefer houses to apartments. I'm thinking that this could result in a trend of the house not getting rented out because of it's location, which would mean the cash flow is meaningless.
Would you take a risk? I know that there hundreds of variables to look at, and it's impossible to make a comfortable assumption with the details I've given you, but any insight would be appreciated.
PS - I do not believe it is walking distance to the campus, it is closer to the college village (where the night scene is) but still not extremely close. It is close enough to ride a bike however.
PSS - I was also thinking of including a parking pass to the tenants so they can drive to the campus and it will be free of charge (costs $60 per vehicle for the pass).
Like you stated, lots to look at to know if it's worth it or not. Do you know if it's rented for next year? My student rental is rented out for next year already, as is a lot of student housing in this area. I would as the seller to see past leases. Do it to see that it has been filling in the past... Like you said, students like having a house. If it's been renting solidly in the past, it should continue to rent. Yes bigger apartment complexes can make it a little more of a challenge. If you keep up with listings and build a good repoire with your student tenants and you'd be surprised how the rental seems to fill itself!
Also if you're worried about not being able to rent it to students in a given year, you might see what regular 4/5 bedroom houses are renting for in the neighborhood just to have a back up plan. If you can't find students for $300 per bedroom, you might still be able to rent the whole thing for $1,000 a month or so to a family or someone who works at the college if they like living in the area. Cash flow won't be as a great, but it could still work financially, although you might need to make a few improvements. Anyway, just be sure to look at all of your options!
If I had renters in hand for next yr (even is I have to discount) would make me a lot more comfortable.
I have found the key to being a great investor is to see the value when other do not. So in this case you see this house that the current landlord was not able to make successful. There are always risks but if you see a way go for it! It will have lots of moments just remember its a marathon.
Just for a personal note: When we got started everyone thought I was absolutly nuts. While there are still a few that think I crazy, most people will tell you that we will be in a great place in 5 years. So trust your gut and go for it!
The other key is to remember that college students are an interesting breed. So be ready to manage ;)
It is currently not rented out for the next school year, which is concerning to me. That is a great idea to ask the owner for past leases! I'm going to email the current property management company that is overseeing the property and see if anyone has inquired about looking at the property recently and ask their opinion.
That is another reason I like this property; there is room for adjustments. Even if I rented it out for $1,000 a month, I would still make a decent profit. Current +4 bedroom houses rent from $325 to upwards of $450 in the area! But of course, they are closer to campus so they are getting the first looks.
I agree 100% Chet, but it's currently not rented out for next year. This has been a red flag for me and a reason it has been hard to pull the trigger.
I always love this kind of advice as it makes me want to pull the trigger and show any doubters that I can make it! I'll continue looking at the bigger picture and think that this is only the first in many risks that I would have to take if I want to make it "big".
And I'm still a college student myself, so I hope they take it easy on me ;)