So, I'm buying my first property, and a broker I'm talking to is trying to tell me about investing commercial grade like 40-60 unit college housing style investments.
How is this different from buying a normal investment property? Do you need the normal 20-25% down you may need for another investment? Id rather own it out right by myself and not have to get a series of investors. So I'm trying to figure out creative ways to find a large investment like that
I'm in Utah.
Is it even possible for someone that's 26 like me to buy a 50 house student housing complex?
Hi Jacob, as a first time investor, there are some aspects of getting financing on a commercial property that may be challenging. All banks are a little different in their criteria, but most require:
65-75% LTV for commercial student housing loans
Landlording experience
Net worth equal to the loan value
Debt service coverage ratio of at least 1.25
Sometimes banks will give you a pass on one or two of these, but not all of them. The good thing about commercial lending is you can partner up with other people, so that collectively you meet all of the banks requirements, even though you don’t on an individual basis.
Holly has a good point though. Calling around to banks is free, so might as well give it a shot and see what they tell you. If it doesn’t work out, you’ll learn something about the process.
Hi Jacob, as a first time investor, there are some aspects of getting financing on a commercial property that may be challenging. All banks are a little different in their criteria, but most require:
65-75% LTV for commercial student housing loans
Landlording experience
Net worth equal to the loan value
Debt service coverage ratio of at least 1.25
Sometimes banks will give you a pass on one or two of these, but not all of them. The good thing about commercial lending is you can partner up with other people, so that collectively you meet all of the banks requirements, even though you don’t on an individual basis.
Holly has a good point though. Calling around to banks is free, so might as well give it a shot and see what they tell you. If it doesn’t work out, you’ll learn something about the process.
By investing, what do you mean, you personally buying the property or buying a share of a syndication?
Also, nothing magical about student housing, so I'd ask the broker why he thinks it's any better than normal rental housing. I guess if you got a killer deal, might go for it, but student housing is getting overbuilt and expensive. Think you'd have a better chance at a deal in regular apartments.
"Is it even possible for someone that's 26 like me to buy a 50 house student housing complex?"
As others have mentioned, it is best to call around to local banks and credit unions to ask about the financing and what they are offering (in a post-COVID world). Student housing is more difficult to get financed these days due to remote learning, shorter-term leases, and the fleeting nature of students. It is also important to find out if parents are required to guarantee the leases.
You may find current higher cap rates/returns with student housing, but they are a higher risk than a 'normal' apartment complex.