All Forum Posts by: Wes Brand

@Eric Neal No offense, but you need to do a ton more research before you think about an investment property. It seems fine as a primary residence, but not great. It's a terrible investment unless you have reason to believe your market is going to go way up.

Don't ever buy a property thinking you "might rent it to students in the future" -- if you're going to rent to students, be aware that you're renting to students, and design it appropriately (for example, expensive fixtures are generally a bad idea in a student rental). While you can make money with students, they're generally very hard on your property and require a bit more hands on management until you have it dialed in with your particular student body.

Renters insurance covers the renter's belongings, NOT your house. I've never heard of HOA dues that cover taxes, but I suppose it's possible.

Make sure they aren't double-counting the debt. I remember reading about someone here who had to educate their loan officer how to properly calculate your income with rental properties. Sometimes loan officers will do the following:

Current Debt Service: $300/mo

Current Gross: $700/mo

Current Net(gross less debt service): $400/mo

DTI: $300 / $400 => 75%

This is obviously wrong ;)

I've done student rentals in SFH land, and a turnover means a pretty decent rehab at a non-party college known for how little the students do outside of coursework (the athletics program is a running joke, the majority of the student body is actively hostile towards frats, etc). None of the individual tasks are difficult, but you still find holes in your walls, need to refinish the hardwood floors, broken doors, etc after two years. I don't know what the actual costs are for furnished low income student rentals with mid-high end appliances and furnishings, but I'd highly suggest figuring out what it would cost to fully rehab one unit and use a multiple(4 units / year? 1 unit / year? 0.5 / year?) of that for your budget. Also add in some things that will have to be done between every turnover (repainting, for example) Do not use the seller's word for these things, as I'm sure you're aware people tend to discount their own time/hours spent.

(again, not trying to discourage you, but just go into it knowing that students will actively, but not maliciously, work to destroy the property)

I've done my share of fixing holes in the wall and broken doors; you're going to see more of them in student housing than you will in any other kind of housing situation. And by hole in the wall I don't mean "put a nail into it", I mean "got angry and decided to punch the wall", still not too expensive but....You'll run into people who don't know you should not flush tampons, who don't want to bother you with the leaky tub (especially bad when it's the hot water, and they keep the door closed...enjoy cleaning *that* mold out ;). Who think that they can take a pot out of the oven at 400 degrees and set it directly on the countertop (with granite this won't be an issue, but...) 

All I'm saying is that they're *going* to be rough on the units and your provided furnishings. If you've done the math and have the contacts where $400 can completely turn over a unit provided the worst wear and tear you can think of, great. To me, 400 sounds extremely low given that a destroyed bed frame would run you at least 200. A mattress would be about 400 for a bad one, so a dead mattress and frame would be 600...

EDIT: 

I should add that 400 sounds low because it's furnished AND students AND low income students AND the materials are higher quality. It means you'll need to replace the marble tile with marble tile when someone drops a pan on it, not vinyl sticky tile. Not trying to scare you off or anything, it sounds like it could be a good deal.

Also, what are your landscaping costs?

To make the point a bit more clearly ;) you need to specify what the location of your rental is. Some areas allow you to deduct for cleaning, some do not. Some only allow it if you've specified it in the lease.

I don't have much experience here, but off the cuff I'd say your maintenance budget sounds low for student housing with upscale furnishings + provided furnished (new bed, $400 minimum for a dirt cheap mattress...). If a kid cracks that granite countertop and puts a hole in a wall how much will you actually have to spend to repair it to keep it consistent? Figure with that many units anything that can happen, will, in at least one of the units. You're only allowing ~400/unit/yr in maintenance right now and renting to students. Low income students, at that...

If the units are only a few years old, why do they need to do new roofs / exterior paint? 

What are the actual property management fees? Vacancy during the "summer" semesters? (even if that's not your problem now, it will be when the uni contract runs out unless you think you can renew it)

You'll also want to get a feel for what kind of people the university attracts. Hard partiers? Quiet stay in the room and study types? Something in between?

I use it for receiving my housemate's share of the rent. I've used it for the past 3 or so years without issue. It's convenient and they can pay by credit card for a fee charged to them, or by debit card / balance transfer from a bank for free. Free for you to use.

I lived out there 11 or 12 years ago. It was pretty run down at the time with no real signs of improving. Entirely possible it's changed since then, though. Appraisals for cash out refi typically come in low. If comps are 85k I wouldn't be surprised to hear an appraisal of 75k or less. Especially if you're relying on 'new roof' as the improvement. That doesn't typically add even close to the cost in value.

You want to be concerned with: how likely are the rents to go up/down, what's my ROI if the rents stay the same/go up/drop by 20%. How likely is it they'll drop/stay the same/go up over the next 10 years? (10 is a random number ;) You then want to ask if that ROI makes sense for you. If I'm looking for cashflow I won't go under 10% on an all cash purchase, but your goals might be different. Do not make the mistake of assuming it's decent just because it cash flows X/month. You need to look at what you have invested compared to the return.

I see. Troy is kind of risky -- population has been in decline and the jobs have been moving out. When I lived there I wouldn't say there were any A class areas, everything was B- or lower, but maybe your place is outside of Troy itself. How confident are you that you'll be able to continue getting the 1500/mo combined rent? You have a pretty high expense ratio with your taxes, so if you can't get those lowered you're only looking at an ~8% return on an all cash deal. In non-NYC NY 7-8% returns are typically found in B+/A class areas. There's also a risk that your private bank does not assess at the numbers you hope, and they only let you cash out 75% of the 60k you paid.

How close to the college are you?

Would you suggest going forward to offer shorter term agreements with the sellers?

Think about what you're offering them and what you're asking for. Offering to buy the property for asking price and asking them to provide you with a 0% interest loan for 30 years is...ballsy. You can calculate the amount you can pay however you like, but if the numbers build in no profit to compensate the seller for the risk of holding the mortgage, they're unlikely to be accepted unless there's another reason the property isn't selling.

You also want to think about what their motivation is. She wants out, and probably does not want to hold a mortgage note and have the risk of you not paying and having to foreclose on you.