Pros and Cons on Rooming/Boarding House Investment

[Jacquie Hannibal]

Hi there,
I'm a new investor, have not made a first purchase yet, still exploring and learning.

Thank you to everyone for being so open and sharing - makes it less overwhelming to learn!

I'm wondering if there are any opinions (or facts?) on investing in a boarding/rooming house. I'm looking for buy and hold for passive income.

There is a 13 unit property with 1 common kitchen and living room, 3 shared bathrooms. The rest are just bedrooms. Its located in the university district so "easy" to rent to students.

Asking price is $1,350,000.

Income:
Rental income $90,000
Parking income $1,600
Laundry income $1,250
Utility reimbursement $9,100
Signing fee income $750

Expenses:
Maintenance $5,600
Cleaning $3,000
Insurance $2,600
Taxes $11,600
Utilities $3,500
Gas $1,700
Water/Sewer/Garbage $3,900

Not sure of cap rate for area. sell sheet says 5.17%

I like the idea of one property with multiple rents coming in so there should be less risk to making mortgage payment, fewer kitchens and bathrooms to remodel, one roof, etc. Downside is renting to students and potential to have several vacate around the same time with school schedule.

Anyone with experience in these kinds of property have any opinions?

Any thoughts on an appropriate price range?

I've asked to see rent roll and maintenance schedule for past 3 years. Anything else I should be asking for to make an initial assessment?

Thank you!

Jacquie

[Joel Owens]

Seems way overpriced to me.

I assume by rental income you mean gross potential rental income.

If landlord pays no utility then take away 50% cost.

90,000 / 2 = 45,000 at a 10 cap that would be 450,000 sales price and at a 5 cap 900,000 sales price.

I am guessing they did not do repairs much to the property and you will find deferred issues you have to fix. Owners show schedule E's and say look at all of this great cash flow and expenses are only 30%!

That I because they rigged everything over the years and want the buyer to be the sucker that overpays and inherits a ton of repairs that will kill returns for years.

What kind of money were you putting down??

Most commercial loans are at 75% ltv but with my clients we get the seller to hold a 10 to 15% second which makes you only have to put 10 top 15% down.

Unless you are banking on back end appreciation and want almost zero cash flow after servicing the debt I do not know why you would buy such a property. Having more doors for an apartment building is a great thing because you can control the whole look and feel of the development and have a full time repair person and property manager on staff. Smaller buildings your investment is influenced more by outside parties and you have less control plus the scale isn't big any to put the proper hands off structure in place.

Where I am at my buyers are getting 9 to 10 cap going in with good areas. Not amazing areas that are appreciation driven and overpriced but good quality areas.

Some investors love student housing investments. The yield can be more but the properties can take a real beating from the kids.