Student Housing Opportunity = Too Good to be True?

[Taylor Shapiro]

Hello all. I have an interesting deal I'd like to get your opinions on. A broker sent me an OM on an apartment building that was converted to student housing a few years ago. The owner's an older man with some health issues and is looking to sell off his portfolio. Even though this isn't your typical multifamily deal, the numbers appear too good to pass over. 

The building was originally 12 units, all 2/1s. They knocked down some walls and created 6 larger units which are now 4 BRs, 2 BAs. Students sign a 9 month lease for the school year at $8,500 and they fill the units with interns during the 3 summer months at $500/bed ($1500 for 3 months). 

9 month lease GOI: $204,000

3 month lease GOI: $34,000

Total GOI:          $240,000

The owner says he's been pushing for $600/month on the summer interns and $9,000/ 9 month lease with success but we'll stick to the numbers I have listed above for simplicity sake. 

Utilities, internet, and furniture are all included in the lease. 

At the moment, 21 of the 24 units are occupied. Annual expenses are listed at $89,000. Here's my quick breakdown of the numbers

GOI:                                     $240,000

Vacancy 15%:                     -$36,000

EGI:                                      $204,000

Expenses (added $10k):     -$100,000

NOI:                                     $104,000

After several conversations, the owners agreed to a sale price of roughly $800,000. At 4.5% interest, 25% down, amortized over 25 years, P/I would come to around $40,000/year. 

NOI:                                   $104,000

P/I:                                     -$40,000

Cashflow:                         $64,000

$64,000/$200,000 (25%) = 32% ROI

As you can see, the cashflow is tremendous... on paper. To make things even more enticing, other student housing units, depending on location and finish quality, range from $9,000 to $11,000 compared to the $8,500 this one rents for. Summer interns typically start at $600/month which the owner was able to charge this past season. My mentor, who's heavily invested in this market, seems to think I'd be able to charge those prices without issue.  

I'm looking for any feedback and insight from those who have experience with student housing. The fact that I'd be filling the building twice every year is a little daunting but the numbers look great. 

What should I be asking here? What am i overlooking?