I am interested in purchasing buy and hold multi-family property to rent to Yale students. I am seeing that in prospect heights for example, it looks like one can buy a multi fam (3 units for example) for around 250 k or so and make over 1000 per month per unit (2 beds for example). It seems too good to be true to make around $4,000 per month of a 250,000 or even 300,000 property. Is the cash flow really that good in New Haven, or am i missing something? I see a lot of pre-foreclosures in that area.
@Marielle Walter If a 3-family is listed at $250k and rents for a 2-bedroom are only $1000 then it is not an area that Yale students would live. It may look close on a map but it is outside the area they look to rent.
Check out the properties in the East Rock area of New Haven if you are looking for Yale student rentals. Much higher purchase prices but also much higher rents.
@Michael Noto the 3 bedroom units are going for $1500 each and the 2 bedroom 1200. the crime map shows it is a safe area, half a mile from Yale. These renters would not be students? What type of renters do you imagine? Either way the cash flow seems strong?
@Marielle Walter If it is a Yale student rental area then every apartment in the house you are considering and the ones surrounding it will either be rented by a Yale student, someone who works at Yale, or a working professional. I’d check that first as an indicator for the tenant class you can expect.
2-bed apartments for Yale rentals in my experience will be $1600-$2000 and maybe even more based on specifics and 3-bedrooms north of $2k month.
@Marielle Walter Also check to see if the Yale shuttle has stops near the home you are considering. That is a major plus when trying to attract student renters.
If you take that $4,000 per month times 12 = $48,000 per year.
Then subtract your annual expenses (all estimates on my part):
Taxes: how much? $8,000 maybe more?
Fuel Oil (heating): $6,000
Maintenance (snow, lawn etc): $2,500
Total Expenses (including mortgage) is $45,000
Which leaves annual profit of $3,000 or $250 per month
@Michael Noto that is super helpful. I'll consider the yale shuttle. I would assume if within half mile of Yale wouldnt need a shuttle but perhaps its a very large campus (or students dont like to walk :). But ill make that a condition of purchase if i look further out.
@Peter Nikic those are quite grim numbers you lay out. I wouldnt estimate quite as steep numbers as you have in some areas, for example, propeorty tax is 5,000, (and also expect to have renters pay at least part of their utilities). I am curious what market you invest in that you see better margins according to your numbers?
Originally posted by @Marielle Walter :
@Peter Nikic those are quite grim numbers you lay out. I wouldn't estimate quite as steep numbers as you have in some areas, for example, propeorty tax is 5,000, (and also expect to have renters pay at least part of their utilities). I am curious what market you invest in that you see better margins according to your numbers?
All my numbers were just guesses, but just wanted to give you an idea of why it's not as good as it seemed at first glance. I'd be willing to bet I'm not that far off. I also didn't account for vacancy or non-payment of rent.
My current properties are in westchester, they weren't always profitable, but better now. Sometimes it just takes a little time before the investment starts to bear fruit. I am currently looking and interested in mid-atlantic states (NC,SC,GA & TN).
@Marielle Walter keep in mind if property taxes are $5k currently, they will likely be reassessed based on your sales price and may go up (usually they do go up).
@Marielle Walter , It is worth the Amtrak ride from DC to CT for a weekend (~$600?) to see the area and judge for yourself if it is what you are looking for. For an investment of this size/magnitude, I would want more information that Google/BP Users/Theory can provide.
To other's points, if this isn't a student area, you can scout out and identify where the student areas are. If you are around on a Saturday night, you will see either kids or seedy characters (ok, I am exaggerating a bit).
In lower Westchester County NY, property taxes are easily $15k and up. I don't think @Peter Nikic tax number is that off. It should also be noted the CT's economy is stagnating a bit and they are slightly loosing population; just to keep in the back of your mind as it can affect rentability, taxes etc.