Help me Help a friend-She is inheriting a college rental. WWYD?

Question

Hi everyone.  I have next to nothing of advice to tell my friend who is inheriting a college rental about 4 hours away from where she lives.  She was given a name of someone to manage the property.  I believe it is a building that currently has 8 single units in the building.

If you were in her shoes, what would you do given this opportunity.  As of now, she wants to keep it.  I am thinking of a checklist of things to make sure that are in place that she can follow to CYA, along with turn this into a win for her in the long term.  I do believe it is an older building.

What would your checklist of things to do look like?

Thanks

Henry Clark · Answer

@Joe M.

You have 409 posts, you have to have something to contribute.

1.  Update and re-sign contracts.

2.  Update insurance

3.  Photograph and do individual room and all facilities inspection asap.

4.  Check all property taxes, water, gas, electric billings

5.  Provide her your checklist on your investments and adapt.  Provide it on this post.

6.  If she inherited, make sure it is registered with the treasurer.

7.  Do a lien, mortgage and title background search.

8.  If it includes extra acreage, have a survey done.

9.  Have a plumber, electrician, foundation, window/door, roof inspection performed.

10.  Engage a local property manager up front.  She can choose later to do it herself.  She doesn't have the contacts for when the sewer backs up Wednesday night at 9pm, from 4 hours away and it will.

Dave Poeppelmeier · Answer

@Joe M. The other thing for your friend to consider is Student Housing is a little different than a normal rental. @Will Gaston and I have made several posts about Student Housing, but the biggest thing is to find a Property Manager locally that understands and will take on a property like this. Trying to manage something like this from the get-go from 4 hours away is NOT something I would recommend trying. Things they should ask the PM about regarding Student Housing is:

- When is the rental season?

- What is the College/University's policy on student living off campus?

- What are the Student rental rates compared to "normal" rentals in the area?

- Is the culture to rent by the room or by the house/unit?

- Is the PM ready to deal with students who are literally living on their own for the first time in their lives?

Student Housing is a fantastic niche to be in, but you/your PM has to know the differences from a normal rental. I would still have them get up to speed with fantastic books, podcasts, YouTube Videos, etc so they know what should be happening with their units regarding cash flow, maintenance, legal, etc. Good luck!

Mary M. · Answer

@Joe M. knowing there is an attorney involved and a PM, the best thing would be for your fried to go down and meet with both of them and get as much information as possible. the Atty ad the PM are the ones that will know what the financial and legal situation is.   Dont let any of the posts here overwhelm or scare you/her. it is absolutely doable to own an 8 unit building in a college town as your first investment - I know as I did it. :) Use the available resources to her advantage.  the people in place are there to help her and she needs to give them a chance. Why does she not trust them?  She needs them at least for the time being and she should avail herself of as much info as she can get from them.

Maurice D. · Answer

I like @Henry Clark 's and @Mary M. 's advice.  Due the due diligence and hold for at least a year and save from the cash flow.  If she wants to continue in real estate she could then even pull some equity or sell to have some startup capital to buy local properties.  It all depends on what her goals are.

Mary M. · Answer

She should keep the property for at least a year while  she researches her options, etc.  Making big  decisions when you first get an inheritance is not really a good idea.  Is there a legal firm involved? Do they know of a good PM? Who managed the property before?   Can she use the same manager?   i think her job #1 is finding a good manager if the property does not have a manager now.

As for what she should do - that is for her to answer and she should take a least a year to figure this all out.  I know student housing can be an excellent investment.

Also she needs to get to know her building and figure out what it needs. maybe a trip or two to see it and figure out all the systems, what needs work, what areas need improvement etc.etc.   Lots of things for her to research as she makes a game plan

Mary M. · Answer

I have so much I could say as I was in her shoes several years back :)   but the absolutely first thing she should do is sign up for the rental owners association in the state/locale where her rental is....  take every class they have.  Buy this book and learn all she can about how the accounting aspect of rentals works.

There is just a ton she is going to learn!   But the first thing is to not get overwhelmed and dont make any big decisions right now...

Mary M. · Answer

Not sure she needs an LLC - is the property in one now?  If it is in one now cant they just add her as the owner ?   LLCs add layers of complexity - things like tax returns, filings, etc etc. If the property is not in a LLC might be better to get a commercial MF business owners insurance policy and an umbrella policy -  this should be plenty - but of course ask the Atty and CPA that are involved.

Your friend will be fine. One step at a time ad she will learn all the things she needs to know.  Then she can make choices based o sound information.  And, if she joins BP have her reach out to me...  I am happy to share my experience...

Joe M. · Answer

Really appreciate all your posts.

Im not sure if doesnt trust them-I think she is just getting overwhelmed and not sure how much she can rely on these people to help be her eyes somewhere where she is not that familiar.  I think the little tasks like setting up new bank account, potentially LLC, insurance, etc is adding up-with a bunch of other fall out outside of this

Guy Gimenez · Answer

There was a lot of missing information that would be critical to know before you offer any advice to your friend. (1) First, what's your friend's financial condition? (2) Does she have available cash reserves for any needed repairs, evictions, (if even allowed there), etc. and what immediate repairs are necessary (3) is there a mortgage on the building that has to be addressed with a refinance? (4) Are there leases in place and are the tenants paying? (5) What are the landlord laws in the state, county and city...landlord or tenant friendly? (6) Does your friend really want to be an absentee landlord...does she have the stomach for it? (7) Does your friend understand the vetting process when hiring a property management company?

These are just a few things your friend should consider. Owning an 8 unit seems like a cool thing until people stop paying and she's unable to get them evicted in a timely manner...or until a new roof is needed and the building is under-insured. Then the concept of being a landlord can become very real.

Colleen F. · Answer

@Joe M.  you have a lot of good advice here, the information can be overwhelming to someone in her situation.    I actually would tell her to do some reading and then go and see the property and meet with the current PM who is managing it now.  If it doesn't have a PM she would need to go down and meet with several and choose one.  If it is a large university there are PMs that primarily do student rentals. Another thing she could do if she doesn't know the state of the building is hire an inspector to identify defered maintenance.  If the property has a rental registration and it is in the name of the deceased she should change that ASAP.  This will insure she is notified if there are property issues.    Like @Mary M. said wait at least a year to make big decisions.

Help me Help a friend-She is inheriting a college rental. WWYD?

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