\What do people think of this deal
Marc OliverPro Member
Member since 2025 · 34 posts · 13 votes\What do people think of this deal
Most Popular Reply
Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votesI 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
17 Replies
- Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes5mo
Cash on cash seems low for having 7 units, I can see the pause. Is the rents under market? What kind of area would you grade it? Any sort of value add component to help with the low cash on cash?
- Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes5mo
@Marc Oliver, a few thoughts:
1. It is close to a university, but is it a college rental as currently managed?
2. Your 27% number for capex, vacancy, repair, and property management is very conservative IMO.
Are you being that conservative for a reason? For example, maybe its managed as a college rental and as its being managed you lose 1 month of rent every summer on average increasing vacancy?
3. If this was a typical long term rental, I might underwrite this at 23-25% for those items. My thinking would be 5% each for cap ex, vacancy, and repair and 8-10% for PM.
4. Are you accounting for any included utilities? In many places some utilities are provided for by the municipality and if unpaid become liens on the property. In those situations often those utilities are paid by the landlord and baked into the rent price if they are a flat fee utility such as municipal garbage often is.
5. Are you accounting for any lawncare, snow removal, etc that the landlord is currently responsible for?
6. The 3.09% CoC seems skinny to me. I know some people invest hoping for market appreciation but I like cash-flow better because I have a LOT more control over that.
7. Did you and your partner have any plans to increase that CoC? For example adding a paid laundry room facility or rentable storage spaces for tenants?
- Member since 2025 · 34 posts · 13 votes5mo
Quote from @Kevin Sobilo:
@Marc Oliver, a few thoughts:
1. It is close to a university, but is it a college rental as currently managed?
2. Your 27% number for capex, vacancy, repair, and property management is very conservative IMO.
Are you being that conservative for a reason? For example, maybe its managed as a college rental and as its being managed you lose 1 month of rent every summer on average increasing vacancy?
3. If this was a typical long term rental, I might underwrite this at 23-25% for those items. My thinking would be 5% each for cap ex, vacancy, and repair and 8-10% for PM.
4. Are you accounting for any included utilities? In many places some utilities are provided for by the municipality and if unpaid become liens on the property. In those situations often those utilities are paid by the landlord and baked into the rent price if they are a flat fee utility such as municipal garbage often is.
5. Are you accounting for any lawncare, snow removal, etc that the landlord is currently responsible for?
6. The 3.09% CoC seems skinny to me. I know some people invest hoping for market appreciation but I like cash-flow better because I have a LOT more control over that.
7. Did you and your partner have any plans to increase that CoC? For example adding a paid laundry room facility or rentable storage spaces for tenants?
Hey Kevin,
Thanks for the insight and taking the time to give your thoughts. responses below
1. Unsure. I would suspect it is rented to college students but don't know that yet.
2. I like to be conservative. I changed it to 24% and here are updated numbers of COC now 4.2%
3. see above
4. All utilities are tenant expense. No LL expenses here
5. No snow care needed. theres no lawn. very minimal expenses for landscaping. Maybe $1K a year. Which I will say wasn't put into the original number.
6. I'm in agreement with you. Not expecting any appreciation for the next 24-36 months. After that I would consider 2% as a safe number.
7. All units have their own washer/dryer. Based on my research these units are roughly $100 a month under market. I haven't put in increases to be conservative but even in a market with slightly higher vacancy, I think conservatively we can increase by $50 a month fairly easily.
- Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes5mo
@Marc Oliver, makes sense. Sounds like you have a good handle on things here.
Now with your CoC projecting at 4.2% and also the potential to increase rents a modest amount, what would you project your CoC to be a couple years from now?
One more question, is this deal based on the asking price or have you negotiated a sale price? If you haven't negotiated a price you might then look at what price would get your partner from a "No" to a "Yes" because it sounds like that is getting closer.
In addition, I might even look at what numbers might look like in 5 years when you have paid down the principle on the loan a bit and potentially can refi at 0.5-1% lower than today perhaps!
Often deals look better and better over time and perspective like that might be what your partner isn't seeing as well.
- 5moDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
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
- Member since 2025 · 34 posts · 13 votes5mo
Quote from @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
Appreciate the insight. Next question. At what purchase price number would you be comfortable with acquiring the asset?
- 5moJ CastroBusiness MemberLender · Florida · Member since 2025 · 698 posts · 253 votes
From a lender’s perspective, the deal has a lot of positives — fully leased, recent renovations completed, and strong location near a prominent university. Those factors typically help reduce operational and vacancy risk.
The main concern would be the 3.09% cash-on-cash return. While it’s still cash-flow positive, it leaves less margin for unexpected expenses or market shifts depending on the debt structure. The strength of the sponsor, reserves, and exit strategy would play a big role in how comfortable a lender feels with the deal.
Overall, it sounds financeable, but the numbers and leverage would need to make sense for both short- and long-term stability.
- Member since 2025 · 34 posts · 13 votes5mo
Quote from @J Castro:
From a lender’s perspective, the deal has a lot of positives — fully leased, recent renovations completed, and strong location near a prominent university. Those factors typically help reduce operational and vacancy risk.
The main concern would be the 3.09% cash-on-cash return. While it’s still cash-flow positive, it leaves less margin for unexpected expenses or market shifts depending on the debt structure. The strength of the sponsor, reserves, and exit strategy would play a big role in how comfortable a lender feels with the deal.
Overall, it sounds financeable, but the numbers and leverage would need to make sense for both short- and long-term stability.
Hey J,
Thanks for the insight here. At what COC from a lending perspective does this look alot better?
- Member since 2025 · 322 posts · 120 votes5mo
I use 30% in my underwriting, and I have seen people using 35-40%. In my opinion 27% is not conservative.
- Member since 2025 · 34 posts · 13 votes4mo
Quote from @Ying Tang:
I use 30% in my underwriting, and I have seen people using 35-40%. In my opinion 27% is not conservative.
Thanks Ying for your thoughts. Greatly appreciated.
- Realtor · OH · Member since 2026 · 122 posts · 77 votes5mo
Quote from @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!
A 3.09% cash-on-cash (CoC) return on a fully renovated 7-unit property near a university is essentially a "wealth preservation" play, not a "wealth building" play, and it is likely where the friction with your partner is coming from. While being cash-flow positive after a conservative 27% expense load is a great safety net, a 3% return is currently trailing the "risk-free" rate of a high-yield savings account or a 2-year Treasury note, meaning you are taking on the headaches of property management and physical asset risk for a lower return than passive paper assets. The value of this deal isn't in the current cash flow—it’s in the "basis" and the proximity to the university; you are betting on aggressive appreciation and the ability to push rents annually as student demand increases. If you can't see a clear path to double the CoC through rent hikes or operational efficiencies within 24 months, you are essentially buying a very expensive, low-yielding bond. I hope that helps.- Member since 2025 · 34 posts · 13 votes4mo
Quote from @Alioune Camara:
Quote from @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!
A 3.09% cash-on-cash (CoC) return on a fully renovated 7-unit property near a university is essentially a "wealth preservation" play, not a "wealth building" play, and it is likely where the friction with your partner is coming from. While being cash-flow positive after a conservative 27% expense load is a great safety net, a 3% return is currently trailing the "risk-free" rate of a high-yield savings account or a 2-year Treasury note, meaning you are taking on the headaches of property management and physical asset risk for a lower return than passive paper assets. The value of this deal isn't in the current cash flow—it’s in the "basis" and the proximity to the university; you are betting on aggressive appreciation and the ability to push rents annually as student demand increases. If you can't see a clear path to double the CoC through rent hikes or operational efficiencies within 24 months, you are essentially buying a very expensive, low-yielding bond. I hope that helps.Hey Alioune,
This is great and definitely helps. I am very much against appreciation buying and frankly don't see this seeing any appreciation for 2-3 years. I can now see why my partner doesn't like it. Appreciate the feedback.
- Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes5mo
3% cash on cash would be a deal killer. 27% expense ratio is light as well. This deal would be a pass for me unless I can get at least 6% CoC at 35-40% expense ratio. To be fair, I would need a lot more details to fully analyze the deal.
- Member since 2025 · 34 posts · 13 votes4mo
Quote from @Todd Dexheimer:
3% cash on cash would be a deal killer. 27% expense ratio is light as well. This deal would be a pass for me unless I can get at least 6% CoC at 35-40% expense ratio. To be fair, I would need a lot more details to fully analyze the deal.
No based on everyone's opinion Todd I think you're right. Is the 6% CoC basis your minimum. Obviously some things can change with location, quality of area, under market rents, etc... but when you look at deals is this where you need to be at?
- Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes4mo
Quote from @Marc Oliver:
Quote from @Todd Dexheimer:
3% cash on cash would be a deal killer. 27% expense ratio is light as well. This deal would be a pass for me unless I can get at least 6% CoC at 35-40% expense ratio. To be fair, I would need a lot more details to fully analyze the deal.
No based on everyone's opinion Todd I think you're right. Is the 6% CoC basis your minimum. Obviously some things can change with location, quality of area, under market rents, etc... but when you look at deals is this where you need to be at?
6% is low, but acceptable if its a great location or something is going on to make it better. The only way to go with lower returns is if there is a bunch of upside.
- Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes4mo
I agree with people here that 3% seems low. However you could make an argument that it is actually higher once you factor in loan buy down, tax benefits, and appreciation.
The challenge right now that I'm seeing is vacancies are high and even the most minor of repairs are getting expensive. I understand this property has been renovated, but you never know.
The other potential roadblock is with 7 units, you are in commercial loan territory. That means you may have a balloon payment in a few years, and that's where people are getting in trouble. Rates fluctuate and if they go up and your rents didn't keep up, you could be in trouble. That risk also has to be factored in. I'm starting to review the 5-10 unit space and I need to be way more conservative knowing this.
So I just took a look at my high interest savings account and that's bringing in 3.5%. Put your money there and you are getting better returns with zero headache and far less risk.
- Member since 2025 · 34 posts · 13 votes4mo
Quote from @Rick Albert:
I agree with people here that 3% seems low. However you could make an argument that it is actually higher once you factor in loan buy down, tax benefits, and appreciation.
The challenge right now that I'm seeing is vacancies are high and even the most minor of repairs are getting expensive. I understand this property has been renovated, but you never know.
The other potential roadblock is with 7 units, you are in commercial loan territory. That means you may have a balloon payment in a few years, and that's where people are getting in trouble. Rates fluctuate and if they go up and your rents didn't keep up, you could be in trouble. That risk also has to be factored in. I'm starting to review the 5-10 unit space and I need to be way more conservative knowing this.
So I just took a look at my high interest savings account and that's bringing in 3.5%. Put your money there and you are getting better returns with zero headache and far less risk.
I hear you on the balloon payment. Coming from Canada we have to renegotiate our mortgages every 5 years, even on our family home. As an example in 2021 I renewed at 1.99% (small benefit is that we are generally lower than you guys on the 5 year terms) but when I renewed this past april it was 4%. Still low but when you budget based on 2% and it doubles, you are seeing so many people in Canada being forced to sell right now. I do have on the model room for capex but you are correct, things can come up and wipe that all out.
For the underwriting here I put in a 6.5% rate. My guess/hope is that rates will be slightly lower on renewal but to protect myself, the goal was to have $50-100K available to pay down the mortgage to mitigate the risk of it increasing from where I have it.
Appreciate the feedback, I'm scouring that 3-10 unit range here in Phoenix looking for opportunities.
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