Student House Buy or Not?

[Jonah Xu]

Hello BP,

I am looking at a rooming house that is currently rented to students. The house is located at 850m from the University, but it is located 1.5hours from my city.

House Description (Currently):
13 rooms with 13 leases
$42 000 of revenue
850 m from University
Bungalow with rooming permits

House Potential:
18-19 rooms
Increase revenue to $68 400

Price: $236 000
Down Payment: $59 000 (This is 25%. The bank is only willing to finance 75% of the house, because it is consider as a small business mortgage.)

Repairs: 4 bathrooms: $32 000
Exterior Wall: $26 000
Roof: $10 000
Adding 5 rooms: $10 000 - $20 000
Total: $78 000 – $88 000

For the repair, I am looking to get a second mortgage or a refinance from my current house. I am looking for $50 000 – $90 000 mortgage. 

Here is the breakdown of the upfront cost:

Down Payment                                                            59 000
Closing                                                                          10 000
Repair (Repair cost 90 000 – 80 0000 mortgage)   10 000 __________________________________________________________
Total (Round Up)                                                          80 000

Here is the breakdown of the house monthly and yearly cost:

18 roomsMonthYear

Small Business Mortgage (25Y Amortization, 5.5% interest):     1080.39       12964.68
Second Mortgage (15Y Amortization, 3.5% interest, $80 000):   571.91         6862.92
Municipal Tax:                                                                                     310.61         3727.33
School Tax:                                                                                          53.62            643.39
Internet:                                                                                               100.00         1200.00
Janitor:                                                                                                  200.00         2400.00
Electricity:                                                                                             500.00         6000.00
Insurance:                                                                                            450.00         5400.00
Property Management Fee (10%):                                                   540.00         6480.00
Repair (5%):                                                                                          270.00         3240.00
Vacancy (5%):                                                                                       270.00         3240.00
Roof (It will be a new roof):                                                               55.55            666.66 _______________________________________________________________________________________
Total:                                                                                                     4402.08       53304.96

Revenue
18 rooms (275$ per room current average)                                   4950.00       59400.00
18 rooms (300$ per room)                                                                5400.00        64800.00

Profit
18 rooms (275$ per room current average)                                   547.92          6095.04
18 rooms (300$ per room)                                                                997.92          11495.04

ROI
18 rooms (275$ per room current average)                            6095.04/80000 = 7.62%
18 rooms (300$ per room)                                                         11495.04/80000 = 14.37%

What do you think with this calculations. What I am most scared of is that not enough people want to live in this kind of house because there is too many people inside or am I just over thinking. The University only have about 14 000 - 16 000 student. Also for the price per room I cannot really increase more then 300$ because of the market value.

I am looking forward to listening to what you guys have to say :)