5 Unit Multi-Family Convert to Student Rental-FULL REHAB ADVICE

2 Replies

Today my wife, our contractor/partner, and myself went to evaluate a few properties to make into student rentals.  Wife and contractor loved a couple single family home to make into rentals and each one can bring in about $12k a year in income however I see the wisdom in large scale.

We looked at a 5 unit row home property, currently has 15 bedrooms and 10 bathrooms but ability to go to 20 bedrooms and 15 bathrooms easily.  Problem is the propety is qoing to requrie a down to the frames renovation.  Currently it is in unlivable condition, has water coming in from roof but the structure is solid for most part, foundation is mostly good besides on corner.  

The propety needs new roof-probably structure too that makes the roof, all windows and doors, and full interior redone from studs up-electric, plumbing, gas lines, drains, etc-Literally building new houses inside existing shell.  However there are things that scare my contractor off and the wife.

First is foundation on one corner has a tree growing out of it, which is old stone wall foundation.  Will require digging out tree, shore up that side of house, build new foundation under it.  Estimate that to be upwards of $25-30k.  Second is no current fire walls and contractor thinks city will require adding this to propety.  How bad is this really to do.  Contractor is not going to be doing work as to large of project for him but to me I don't see that being to bad to add, especially since units are going to be completely gutted to the studs.  My mind is not a big deal, just add it in but he thinks just a money pit.  All in he estimates total repairs to be $200-$250k, but I figuring $300k to be safe.  Asking price for property is $100,000 but is in bankrupcy and estate sale fiasco.  

The good, if I can get approved for student housing, rents would be at least $350 a bed on low end, high end in area is $600 a bed.  Agent thinks could get $400-450 a bed.  At $350 a bed times 20 bedrooms that is $7000 a month, 10 month leases brings in $70,000 a year.  To me this is a no brainer and worth the investment but everyone around me thinks I am crazy.  Agent thinks propety value is around $10,000 the way it sits but said the ownership is a mess and not sure if it will ever sell. He think eventually city will just tear down after another 10 years or so.  

From people with experience in this matters, am I crazy to think this is a good opportunity?  Exterior shell and structure of units and foundations is faily intact as a whole.  I had 2 schools of thought. One was to make a low cash offer not contingent on zoning.  Another offer at a higher cash price contingent on zoning approval for student housing.  If didn't get approved for student housing rents would only be about $650-700 a unit, so yearly income would only $39,000 to $42,000 a year which make things much less appealing.  Still lots of things to overcome to make a student rental but at $70,000 a year on the low end and having  a max invested in property of $400,000 I still think it is a amazing investment option.  If we put all money back into paying off renovation we would have large cash flowing property in less than 7 years.  What do you all think? 

Oh, lastly the city is offering a $16k cash towards making propety lead free which should help with some of the cost.  This could bring in $80k to help cover renovation expenses.  Am I just surrounded by people to scared to a chance or do I have some beer goggles on here?  Also, any idea of what I could do for financing the repairs of property?

Chris,

does the town have separate zoning ordinance to have student housing ? usually it's just the matter of making sure that it is zoned as 5 units, then you are allowed up to 4 non related people in each unit ( check with the town on that, some restrict it to 3, but normal legal is 4) . it does not sound like a bad plan to me, you have to look at it this way, everything will be brand new, weather tight, super insulated and your maintenance costs after that will be barely anything. i have a house just like that ( it's sitting right now, i stopped work on it because i am about to purchase a school and turn it into 17 apartments) but the house i bought for 20k, completely gutted it so that everything will be new, so far i have new roof on it and 3 gas meters run to the house. so i do not think you are crazy.

Patrick Liska, Contractor

thanks Patrick.  I was thinking about this all night last night. There are a few hurtles to overcome to make this a reality.  Town does have specific student housing zoning and must be approved for this to work.  To make this happen I will also need to purchase a vacant lot across street to allow for necessary parking and get property zoned correctly but if that all happens then I have a killer deal on my hands.  After reading codes came across even better news, I can have up to 5 students in a unit so increases profits even better.  

I think I am going to put in two offers.  One cash that I can afford to loose completely as is a possibility so will be extremely low and one more realistic but contingent on zoning approval.  Hopefully others will chime in but I keep thinking brand new houses, high yearly income and low upkeep and management fees, just can't go wrong.  

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