Are colleges a good idea? Market knowledge in the NOCO area

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Are colleges a good idea? Market knowledge in the NOCO area

Joshua Tikal
Loveland, CO · Member since 2017 · 55 posts · 3 votes

My wife and I are really excited to start growing our portfolio but we quite nervous where to invest.

Our goals:

1. Maximize rental cash flow \ equity in 10yr-15yrs for college funds for our children

2. Provide good homes for college students. We have a great passion for education and helping people accomplish any goals related to education!

3. Retirement  20 yrs

We have one property with equity as well as savings but we're not sure where and how much to invest. About $140k is our limit so we're looking for small homes and condos.

We are looking to start in the Greeley \ Evans focusing on University of Northern Colorado and ideally growing to afford the larger markets Colorado State University or University of Colorado. We have found that the University of Wyoming in Laramie could be an option as well. The property values are as much as 25%-30% less which fits much better  in our budget but the market looks to be much slower. We are also concerned about finding tenants as we see many properties are available and the owners are giving away rent just to get a tenant. We are very familiar with the Northern Colorado area but not Laramie.

Any thoughts \ strategy on investing in college areas?  

Thoughts on houses vs. condos?

Would you invest in a cheaper unknown area with the possibly of investing in multiple properties or invest most\all money in a known area?

Any thoughts \ strategy in investing around UNC (Greeley\Evans) or UW in Laramie.

Thank you so much for your time!

Joshua  

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Alex Deacon
Investor · Pittsburgh, PA · Member since 2015 · 1k+ posts · 1k+ votes
9y

@Joshua Tikal College rentals are not something we specialize in but the experience I have had from managing thousands of rentals over the years is that everyone starts out wanting to provide good housing options for the general public but lose sight of the fact that this is a business and please run it that way. College rentals are potentially more profitable but more difficult to manage. You will have high turnover and if you remember when you were 18-22 you may have not been the cleanest or quietest person in your household. Dont use your emotion when screening tenants and dont trust anyone. Regardless if they are a Doctor, college student or a low income housing tenant.  

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  • Alex Deacon
    Investor · Pittsburgh, PA · Member since 2015 · 1k+ posts · 1k+ votes
    9y

    @Joshua Tikal College rentals are not something we specialize in but the experience I have had from managing thousands of rentals over the years is that everyone starts out wanting to provide good housing options for the general public but lose sight of the fact that this is a business and please run it that way. College rentals are potentially more profitable but more difficult to manage. You will have high turnover and if you remember when you were 18-22 you may have not been the cleanest or quietest person in your household. Dont use your emotion when screening tenants and dont trust anyone. Regardless if they are a Doctor, college student or a low income housing tenant.  

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  • Michael Plante
    Deland, FL · Member since 2017 · 2k+ posts · 1k+ votes
    9y

    if you decide to go ahead I would suggest doing what I did 

    I charged One year upfront and the lease was with the parents of the occupants I had theor security numbers and they were personally responsible for any damages At no limit

    I first went to a real estate attorney and had him write up he lease to make sure it was all legal

    Worked perfectly when a group of them did nearly $10,000 worth of damages 

    Mommy and daddy paid up within days of them leaving at the end of the school year. 

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  • Account Closed
    Oakland, CA · Member since 2017 · 133 posts · 58 votes
    9y
    Before I become a landlord, I have the same thought like you, want to rent it to college students. After I become a landlord for a few years, my mind is changed, I do not want to buy properties close to the college anymore, because my mindset is the same as @Alex Deacon now. My focus tenants are not college students anymore now.
    1Reply
  • Joshua Tikal
    OP
    Loveland, CO · Member since 2017 · 55 posts · 3 votes
    9y

    @Alex Deacon, thank you for your feedback as I absolutely understand. This probably shows my inexperience but I am hoping to grow a successful business but also help people at the same time. Maybe this is not possible as the business cannot be compromised with compassion but could there be both?  

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  • Joshua Tikal
    OP
    Loveland, CO · Member since 2017 · 55 posts · 3 votes
    9y

    @Michael Plante fantastic suggestion. We currently rent a condo which the lease is quite straight forward. I see opportunity for greater protection as the risk will be higher. Do you still rent  in college area(s)? The thought was to find location where renting will always be in demand. Yes the risk is high with a young population but is the risk worth the continual demand? This demand also generates a lot of competition so has it been worth it for you?

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  • Joshua Tikal
    OP
    Loveland, CO · Member since 2017 · 55 posts · 3 votes
    9y

    @Account Closed, what were your struggles with renting to the college population? Were the tenants not profitable due to continual expenses in repairs and inconsistent vacacy rates?

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  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    9y

    I am in a university town. It has been very profitable for us. We tend to rent to graduate students, and we haven't had any problems. We also have parents as co-signers, and that helps preclude neglect when the parents know they're also on the hook if little Junior destroys the place. 

    As with anything else screening is key. Lots of students are good people that aren't going to destroy your house.

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  • Jim D.
    Investor · United States · Member since 2015 · 415 posts · 487 votes
    9y
    I think it's great you want to help college students in their endeavors for education. However, I would put some thought into how you owning the property they rent actually helps them. Are there properties available for the students to rent now? If so, by purchasing one you would just be changing hands of ownership from someone else to you. The students would just be sending rent checks to a different address, and it wouldn't really affect them. My recommendation would be to invest in whatever property the numbers make the best return for you, and focus on supporting students in a way that will have a bigger impact on them than being their landlord.
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  • Joshua Tikal
    OP
    Loveland, CO · Member since 2017 · 55 posts · 3 votes
    9y

    @James Marshall I went to school in the area that I am looking to invest. My experience is maybe some emotional motivation but I feel if I can provide improvement to the area and give students a better place to live and maybe sacrifice some margin,  I am helping to improve the community. With that being said, I am excited to invest in real estate to make money as well. So can I have my cake and eat it too?

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  • Michael Plante
    Deland, FL · Member since 2017 · 2k+ posts · 1k+ votes
    9y
    Originally posted by @Joshua Tikal:

    @Michael Plante fantastic suggestion. We currently rent a condo which the lease is quite straight forward. I see opportunity for greater protection as the risk will be higher. Do you still rent  in college area(s)? The thought was to find location where renting will always be in demand. Yes the risk is high with a young population but is the risk worth the continual demand? This demand also generates a lot of competition so has it been worth it for you?

    I moved away from the area where I was running in a college town so no I don't do that anymore best of luck to you 

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  • Bill S.Pro Member
    Moderator
    Rental Property Investor · Denver, CO · Member since 2013 · 4k+ posts · 2k+ votes
    9y

    @Joshua Tikal I am late to this post. My thoughts are as follows.

    1) You mentioned a better product with "maybe sacrifice some margin". Typically a better product results in higher margins. Don't shoot too low. 

    2) College rentals can be very profitable. Some landlords get in with a campus group (think engineering honor society) and get students from that group who will graduate in different years. Each year some students move out and their friends move in. Zero vacancies and zero hassle finding new tenants. Grad students are another bunch that has low party/property damage demographic. Make friends with some people in the college and they will steer good tenants to you as well.

    3) Do some research. Find out what properties rent for. Find out where college rentals can exist. Most of the towns you mentioned have zoning ordinances that limit college rentals in some areas. Find where you can do it and where you can't. 

    4) College rentals are typically by the bedroom. More bedrooms mean more revenue provided you can do it legally. See comment #3 and fire code and such things as egress windows.

    5) I always vote for what you know. That said, you can learn so Laramie would be good if you learn about it and can know what is good and what works and what doesn't work.

    6) Learn learn learn. In some areas it is customary to require parents to guarantee the student's rental and in some areas it is not and parents won't do it.

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  • Joshua Tikal
    OP
    Loveland, CO · Member since 2017 · 55 posts · 3 votes
    9y

    @Bill S.

    @Bill S.Thank you for the fantastic information! I really like the creativity in marketing the property with college groups, great idea. This is exactly why real estate is so interesting. 

    The common saying you get what you pay for definitely justifies higher rent as my focus is to differentiate the properties with quality and customer service. I am seeing challenges in the offer acceptance process as properties are in poor shape and require a significant amount of rehab. The owner however does not agree as they have successful occupancy rates but they also have lower income tenants. I'm in a position in trying to justify the low offer due to the rehab because I want to produce a higher quality product with higher income level occupants which will justify higher rent and higher margins. 

    Do you have recommended strategies with this scenario?   

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  • Bill S.Pro Member
    Moderator
    Rental Property Investor · Denver, CO · Member since 2013 · 4k+ posts · 2k+ votes
    9y

    @Joshua Tikal unless you want to take on your own marketing, you are probably stuck in that situation. Nice properties command a premium price in this market. 

    If you have the ability to manage a property rehab, the BRRR strategy would be good. You could buy a property needing work, fix it up, rent it out at a higher rate and then refi out your cash. This could allow you to repeat the process and grow you holdings faster.

    Don't buy a fix up unless you do lots of homework and have at least some experience with construction/home improvement.

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  • Joshua Tikal
    OP
    Loveland, CO · Member since 2017 · 55 posts · 3 votes
    9y

    @Bill S.

    Thank you. BRRR is the strategy to grow our portfolio, ideally we can increase the number of cash flow streams and cash on hand to rinse and repeat. The challenge is how to convince a seller that their property is in a lower state than what they believe (which I'm sure this is typical). They feel $100 is a great price as they have tenants but I need the price at $60 as I want to change the target market with a higher quality.

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