Single Family, Duplex, Triplex, or 4-unit Apt in College Town

General Landlording & Rental Properties
9yFollow

Single Family, Duplex, Triplex, or 4-unit Apt in College Town

Kem M.
Investor · Dayton, OH · Member since 2016 · 4 posts · 1 vote

Hello!

For context: I am looking to purchase property in a smaller division II college town (student population ~6,500, has post graduate courses). The town itself has~11,000 people. Apartments and homes are averaging $250-$350 per room, and appear to cap out around $1,300 for a 5-bed.

My question is regarding property types. I have several options who all APPEAR to have similar ROIs. So, in general terms (and keeping in mind this is predominantly a college rental town) what would be the advantages/disadvantages of the following properties:

1. Triplex / duplex (3/1 & 2/1, $140-165K purchase)

2. Single family house with 4-5 bed/2ba ($75-105K purchase)

3. A 5-unit apartment (located on main street between two bars, 5/2, 4/2, 2/1, 4/2, 2/1 for $240k )

Do you recommend investing in a town such as this where turnover rate is so high and the population itself is sparse? Is it possible to own these without a property manager if you live out of state? Thanks for reading!

0Reply
12 views

4 Replies

Jump to latestLatest
  • Peter MckernanBusiness Member
    Residential Real Estate Agent · Irvine, CA · Member since 2013 · 2k+ posts · 1k+ votes
    9y

    Hello @Kem M.

    These numbers would need the expenses, which include vacancy rate in the area, taxes, insurance for a college rental if different, property management, and maintenance. Once you get these you can get down to finding out the best return out the three properties. At a quick glance I would easily say that the five unit property would be the best return for your money.

    If you average the rooms at that property at $300 per room the gross rent per month would be $5,100 and $61,200 per year. Let’s say that the management is 8%, maintenance is 5%, insurance is around $150-$200 a month (go with higher number), vacancy rate is 5%, and taxes are .9% (not sure the tax rate in your area). These expenses will cause the cap rate to be 10%, which is a great cap rate. 

    I calculated all these numbers on strictly averages from each section, and I only calculated the Cap Rate. You’ll need to do your homework on the expenses in the area for the property. Also, you will need calculate cap rate off those numbers, cash-on-cash return, Pro forma, Gross Rent Multiplier, and Debt Coverage ratio.

    The McKernan Group4.957 Reviews
    WebsiteView Page
    1Reply
  • Kem M.
    OP
    Investor · Dayton, OH · Member since 2016 · 4 posts · 1 vote
    9y

    Hi Peter!
    I've ran all through the BP calculators...multiple times....at 04:30 on a Saturday because I am an admitted nerd and love this stuff. You are absolutely correct; the 5-unit is by far the most profitable, but I was curious if there are intangible things I am not considering. For example, with the 5-unit I would have to do a commercial loan if I do not have a private investor. I have one (family), but I am not sure if I want to completely deplete that source pool (his limit is ~200k). Secondly, do you have rentals in a college town? Any advice on this aspect?

    I have two rental properties currently (single family), and have had good success with these. However, college rentals is a new area for me, and apartments/multi-plexus are as well. I want to ensure I am not missing something breaking into new territory. Thanks for your reply!

    1Reply
  • Kem M.
    OP
    Investor · Dayton, OH · Member since 2016 · 4 posts · 1 vote
    9y

    Hello @Peter Mckernan

    0Reply
  • Peter MckernanBusiness Member
    Residential Real Estate Agent · Irvine, CA · Member since 2013 · 2k+ posts · 1k+ votes
    9y

    Hello @Kem M. 

    Typically commercial loans are great to use and if you need to utilize a commercial loan many banks small and large can facilitate that especially with a deal like the 5 unit. Check out some different lenders in the area and see what feedback and what types of rates you can get.

    I had two rentals in a college area. I just sold one, which had college students in the rental and when they moved out the property was the same as when they moved in. The other rental in that same area has a family in it and has been there for three years, which is great! All I suggest is keep your standards a little higher for college students (i.e. make sure parents co-sign the lease, and have a strict set of rules).

    The McKernan Group4.957 Reviews
    WebsiteView Page
    2Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free