Would you go for this deal?

Question

Long time lurker here. Want to begin my real estate investment journey starting this year. Please help me evaluate this property that came along my way this week.

Property description:

Multi-unit property in a college town (Syracuse University campus). One of a kind property in an area with high

The numbers:

Cost: $515,000

Number of units: 8

Number of rooms: 10

Monthly rent: $5,950 ($71,500/yr)

Annual taxes: $13,000/ yr

Insurance: $2,400/ yr

Common space electricity expense: $800/yr

Assuming yearly repairs: $7500

Assuming 5.5% mortgage interest: $25,000

Total cash flow: $71,500 - $48,700 = $22,800 ($1900/ month)

Please advise.

Mike Alt · Answer

@Cory Finniss and you need it to make the numbers work..............1% rule in Syracuse MF is borderline losing money in almost all cases due to high capex and property taxes.

Mike Alt · Answer

I have 11 units in Syracuse.  This is not a deal I would pursue.

Cory Finniss · Answer

I'm getting 2 % all over the city.

There is a great podcast explaining the college market . Somewhere between the 30 - 100 mark. If I can find it I'll send a link.

Amit Chaudhari · Answer

@Ryan Yamini Thanks for your response! I would be interested in seeing more properties in this area. I will contact you this week.

Amit Chaudhari · Answer

@Mike Alt Thanks for the detailed explanation. I really appreciate it.

Based on my calculations, I am looking at a 1.16% return on the ross income ($5950 / $515000). This seems to be a normal for most of the properties on the university hill. There are a few that go up to 1.50% but the condition of the house may not be very appealing.

I have two follow up questions if you can help me answer:

1. 8-10% for property management is a big amount. Does this include only overseeing and repairs (excluding material cost)? Or it also includes searching for new tenants?

2. Which neighborhoods do you invest in Syracuse and how is the return in terms of the 1% rule?

Phillip Johns · Answer

@Amit Chaudhari

You’re missing a lot of hidden expenses that you may not think about.

Landscaping,  Lawncare, ice and snow control, bug control sewer trash general maintenance apartment managing etc.

Ryan Yamini · Answer

It appears that this property would be around 4 cap with those numbers. ( not Ideal)  Without knowing what class building this is and its condition, its hard to know if the repairs are accurate. I have seen many properties in this area. I can tell you its really tight margin already and I personally wouldn't buy it. It would most likely operate at a loss. I do know that there will be some new listings coming up in that area that would offer much more and are in great shape.

Mike Alt · Answer

Hi @Amit Chaudhari -- It's just not a very good return.  Your yearly repairs might be a little on the high side for a building that size, but it's a student rental, so you are right to budget a little more.

As the other poster said, renting by the room brings a whole different set of challenges and higher property management costs associated.  I have no experience in this area.

You will need to figure in property management of at least 8-10%, so let's say $550.

Summers will need lawncare/landscaping and winters will need de-icing and snow removal.  You're probably a smaller yard, that runs about $30 a cut so you'll get off cheap, but in the winters you definitely don't want a drunk college student slipping on your pavement and cracking their skull.   Snow removal will run you a few hundred bucks a month on peak months, so let's average at $200/mo.

So now you're at $1150 a month, and you haven't factored in vacancy or the maybe (?) possibility of a tax reassesment when you sell so far over the assessed value.

It's not a loser of a deal, but it doesn't appear to be a homerun either.

You're paying $64,000 per unit in student housing for mostly 1 bedrooms, it sounds like.  That's not comparable to the costs in the area as a whole, from what I've seen.  Smaller buildings like duplexes are selling at 50k a unit for 2/1 (not right on SU hill though) and rent for $800/mo.  You do pay more over there on SU, and I don't own anything in that neighborhood, so possibly depending on the location it's a good deal?

Maybe you can cut your costs a little by self managing or doing your own repairs, I don't know. But that sounds like a low paying job to me.

From what I've seen in the area, you need to do substantially better than the 1% rule to make sense in the City of Syracuse because of the high property taxes (~3.4%) and high cost of capex with the brutal winters and relatively low income population.

That's just my observations, I'm by no means an expert.

Amit Chaudhari · Answer

Thanks for the responses guys. @Mike Alt Can you please provide a little more color on what I should be expecting for it to be a good deal in Syracuse?

Justin Ward · Answer

Not super knowledgable about student housing, but you will likely need to factor in that students are only usually renting during fall and spring semesters. On top of that, I'd check your repairs estimate against other investors who rent to college students just in case. Students can be rough on rentals and won't care how they leave the place. On the positive side sometimes colleges have programs set up with local apartments so that students can use their financial aid to pay the rent. That would get you a semesters rent upfront if SU has a similar program.

Would you go for this deal?

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