\What do people think of this deal

[Marc Oliver]

Have a difference of opinion with my partner and I thought I would come out to the bigger pockets community to see what they think. Below are the details and terms of the deal.

- 7 Unit multi off market 2 blocks from a prominent university

- fully leased 

- Property has had a full reno in 2021, no upgrades needed/expected in the near term. 

- cash flow positive deal from day one after putting 27% of monthly rent towards capex, repairs, vacancy and property management. Also includes taxes and insurance taken into consideration.

- cash on cash return at 3.09% 

Let me know your thoughts! 

[Dan H.]

I do not understand why anyone would consider purchasing with those projections, but I continue to see people make similar purchases or purchase with even worse projections.

I also do not consider the initial allocation as conservative and find that investors regularly under allocate for vacancy/expenses and student housing is likely to have much higher vacancy/maintenance/cap ex compared to standard LTRs.  Even if the tenant takes good care of the unit, the increased number of tenant turns will result in higher expenses and vacancy.

Let's examine the numbers and use the 2% appreciation as starting year 1 with 75% LTV.

Appreciation 2% at 75% is 8%/year plus 4.2% for a total projected return of 12.2%.   Sp500 has a passive lifetime return of 10%.   Why invest in residential RE, and more so student housing, for 2.5% more than a sp500 has returned from very its 74 year lifespan.   This seems a safe option, but increase the risk for Fab 5 it Mag 7.   Or various syndication options.

Residential RE is far from passive or risk free.

I do not invest in residential RE unless I can project far better return than a low risk (over long term) sp500.

Good luck