Still in shock...looked at a few student rentals today

[Andrew S.]

Still looking for my first deal and decided in our run down town that student rentals provide the best cash flow. I have done a lot of research and today was the day to finally see some. We have the worst economy in perhaps the worst state in the country. However, we have a growing university and healthy student rental market with about 95% occupancy.

Now, it was the seniors "Bar Crawl" today so the realtor warned me they'd be partying and it's the end of the year so houses are in rough shape. Good Lord above. I was a college student, but I don't recall living like these students do. We looked at four houses with cap rates of 10 to 12% depending on neighborhood, all fully rented and fully rented already through 2015. When I say "tired" or "rough" or "run down" or "abused" it doesn't even scratch the surface. In one my feet stuck to the floors they were so filthy, and the toilets hadn't been cleaned yet this year, the walls had holes, they all stunk and had varying degrees of unidentified food on all the stoves. I have been in inner city tenements in Philadelphia in better living conditions that these. One was so vile in its smell I swear there was a dead human in there as I've been unfortunate enough to smell a decomposing human before, we all gagged and ran out while the students were milling about (drunk.) I doubt had dead human been there he could be located under the piles of dirty clothes and empty bottles.

I am looking for cash flow, not equity, and I will certainly pay to have the property (ies) managed as I will not/cannot do that. The realtor told me it takes a special person to invest hard earned money into these properties and I'm not sure if "special" means "stupid." She said the properties that are clean belong to the nerds and are in center city, but are very expensive and there's nothing listed right now. I also had the person who would manage the property with me today. He admitted that had I looked in July after these properties were all turned over for the new tenants I'd have a better impression. These properties were $375,000 to $550,000, more than I wanted to start with. I'm just having a hard time wrapping my mind around investing money in a property that is already 75 years old and totally abused and I doubt will last another 75 years. Am I chicken, naive or just don't get it? I asked the realtor to show me smaller properties, preferably rented by the chess club : )

[Joel Owens]

I look at properties like this but they are say 50 units for 3 million to 4 million for my commercial clients.

They key is to get grad students in the third to fourth year. The partying is gone in many at that point and they are getting degrees versus freshman and sophmores finishing core classes and being sent away by mommy and daddy to do something with their lives.

The key is getting the parents to guaranty the leases and take hefty deposits to offset damages. If you don't have the parents it's a no go as these students are broke and good luck getting damages from them.

I would challenge your quoted 10 to 12 cap rate. After assessing damages and putting in my numbers I bet it's grossly overpriced trash.

Are you paying all cash or putting 20% down?? Why would you even want this headache?? Plenty of other options depending on money you have to spend that is better than this brain damage.