All Forum Posts by: Claude Goodman

Property management....it just make business sense as a leverage point for efficiency of your time.  It frees you up to focus on living your life and acquiring more property.

Yes, thank you. I do know that and I'm raising the rents $100 right now, so I'd have to convince a buyer that they're low and maybe get a higher valuation. I've been raising the rents $90/year and can never catch up with inflation! I just can't go higher than $90 for the tenant's sake, so hopefully I'll catch up by next year. The (4) 1 bedrooms are probably $100 lower, not $200. 

Has anyone had experience doing mid or long-term rentals with student housing? An example of this being a SFH with 4 or 5 bedrooms and renting each room to a student. If so, what were your experiences (good or bad)? Do you think it's viable? What considerations would/do you make if pursuing this strategy? Any other advice? I'm not in this market but it's something I'm considering as a potential option.

All:

I've recently spoken to a few REIA groups in my area about my business and I thought it would be a good idea to share this info in the forums.

I've been investing in college student rentals for 12 years and currently have ~50 units (SFHs and duplexes, mostly) within a 3-4 mile radius around the University of South Carolina in Columbia. I've rented to close to 1,000 students since I started at the age of 25 and wanted to offer some insight. It's my belief that because of the age, maturity level, number of decision makers (parents & their child) that it is one of the hardest niches in buy and hold investing. I have several landlord friends that have tried to rent to students and said "never again." But it can be done and done successfully

As I see it there are 4 major reasons why you'd want to rent to students:

1) CASH FLOW: 

They pay a whole lot more than non-students. In my estimation, somewhere between 20-100% more. I have a SFH home with a cost basis of 60k that rents for $1725, a 170k duplex that rents for $5,000, and a 90k that rents for $3,500. I pay no utilities and these are all one year leases.

2) THEIR CREDIT RATING

College students almost always pay their rent. At least the ones that I rent to. Out of all the students I've had, only had four (4) did not pay their lease in full since I started. Over 4 million dollars of leases and only ~$3500 was not paid. That's over 99.9%. And I do this without parental guarantors. 

3) ABILITY TO RAISE RENTS

Raising the rent $100/month on a family is a big deal. Raising it a $100/month on a duplex that 4 students are sharing is only $25/person. The fact that they split the rent up makes it much, much easier to raise rents on students versus non-students.

4) CONSISTENCY OF THE TENANT BASE

Barring a catastrophic occurrence, the University will be there for a long time. Every single year 5,000-6,000 new students will come in needing housing. I know when they need to move in and when they need to move out. Companies and even military bases can close down and move away, but this is highly unlikely with state University. 

There are roughly 8,754,999,549,142 reasons why you'd NOT want to rent to students but here are my top 4.

1) DEALING WITH PARENTS

This is usually surprising to a lot of other investors. My least favorite thing about the student rentals are not the students. It's their parents. They're usually well meaning, but when they get involved with the leasing process, a repair issue, a neighbor complaint, etc,  it always escalates the issue. And it's because they're only getting 20% of the story from their child.  Dealing with and communicating with 6 nineteen year old girls living in a property together is hard enough, I can't and won't deal with their 12 parents. 

2) DEALING WITH NEIGHBORS

Neighbors in my market don't like student rentals just as they don't everywhere else on planet earth. They usually have the expectation that students should be respectful, not park in the yard, have loud parties, etc. And they're right. That's what students should do. However, that is not realistic.  These same neighbors are living 3-4 blocks from 30,000 students and 25 bars. I've been able to curb a lot of this through large fines in my lease, but even having to pay $1,000 will not always dissuade my tenants from continuing that behavior. 

3) IRRESPONSIBILITY OF THE TENANT

If you're renting to students forget about ever getting them to admit to anything. They lie all of the time. "I don't know what happened" or "It was that way when I got home" are the constant excuses I hear regarding damages to the property. I've had over 100 broken windows in the last decade and only had 4 of those admit to breaking it on their own. Full disclosure I was the same way when I was in college. They're not bad kids, but they are kids. 

4) CONSTANT TURNOVER

80% of my properties turn over every single year. This makes the summer an incredibly busy time, especially with a lot of these turnovers happening within an 8-10 week span. We tried to expedite these turnovers by using the same wall paint, ceiling paint, trim paint for all of the properties. If you're looking for long term tenants, student rentals are not for you. I've only had one group stay for longer than 2 years and that was only for 3 years.

Hope this insight can help if you're thinking about renting to students. And if you do, Godspeed!

Pretty open-ended. You really need to look into the A/B/C/D gradations of MF properties, which are sort of like credit ratings on bonds and determine the risk of the property. The risk will be based on desirability and convenience of location, and age/condition/attractiveness of structures. The market's perception of whether the general area will grow, shrink, or stay flat over time will determine if investors feel that a capital appreciation/depreciation component should be buillt in as well.

I'm sure folks on here can give you their general cap rate guidelines for each quality tier. I might suggest:

A - 6-8%
B - 8-10
C - 10-15
D - 15+

You do need to be watchful of clustering of many distressed/criminalized MFs in an area, which happens often in urban areas as criminal activity and unemployment leads to vacancies which leads to broke landlords who can't fix their distressed units, so more people leave that area, and it just spirals down from there.

@Travis McGray, I like simplicity. When first starting out on this journey, you only need to know two things, you need to know the actual NOI and market Cap Rate of the property to determine if you have a deal.

How to figure an apartment’s NOI

The first step to determine NOI is to calculate Total Income.

Total income is simply the total of all income streams from the property for the year and can include:
• Rents from the apartments themselves
• Laundry and vending machines
• Parking fees
• Late fees
• Any other income

For a simple working example, let’s say that we’re looking at a 100 unit complex where every unit rents for exactly $1,000 per month – ha ha, wouldn’t that be nice?

The complex has on-site laundry facilities and several vending machines that generate $1,000 per month in income.

Also, this complex features preferred parking spots for $100 per year and 50 units have them for an annual total of $5,000.

So what’s the Total Income?
1. 100 units X $1,000 per month = $1.2 million annually for rent income
2. $1,000 per month in laundry and vending = $12,000 annually
3. $5,000 parking fees annually

Our total income is $1,217,000 for this complex.

Now we can find the NOI by subtracting all the Expenses from the total income.

Here’s a list of potential expenses that an apartment complex might have:
• Management fees
• Maintenance
• Trash collection
• Landscaping
• Pool service
• Taxes and insurance
• Accounting and legal
• Utilities
• Payroll

And NO…the mortgage payment of principal and interest are not considered an expense for calculating NOI.

Let’s say that all of our annual expenses on this 100 unit apartment complex comes out to about $517,000.

So what is our NOI?

$1,217,000 – $517,000 = $600,000

The NOI in this example is $600,000.

Figuring purchase price

Let’s say that we’re using a cap rate of 10 or expressed as a percentage – 10% (I am picking a 10 cap only as an example to show you how the math works)

We divide $600,000 by .10 and we get $6,000,000 as the purchase price or value for this apartment complex.

Do you see how important NOI is?

If we base the purchase price on total income it would be twice as high.

The true beauty of buying apartments is that the income after paying expenses determines value.

It’s all about the numbers.