Analyzing a Student Rental Property

[Ian Livaich]

All,

I am under contract on my first deal -- a student rental property in New Jersey.  It is a single family home with 6 bedrooms and is fully rented for the upcoming academic year.  

I am trying to determine the best way to calculate CapEx and repairs with a student rental property. When I originally ran the numbers to evaluate the deal , I allocated 8% each for Capex and repairs based off of the gross income of the property (6 students x rent per student). However, I was recently thinking that using the gross income of a student rental is unnecessary because it is a single family home so the expenses should be similar to that of a single family home (subject to more wear and tear as discussed below). So, I considered allocating 8%-10% each for CapEx and repairs based off what the home would rent for as a single family home. For example:

Using the Gross Income as a Student Rental: $3000 x 8% = $240

Using the Gross Income as a Single Family Home: $1600 x 10% = $160   

The numbers are very solid even when using the income as a student rental. I understand that this is a very nitty gritty detail, but I want to be sure that I am setting the proper amount aside for these expenses. I am leaning towards using the gross income of a single family home but instead of using the typical 8% figure that I use for CapEx and repairs, I think it is best to use 10% (at least) because this is a student rental after all and there will be more damage and wear and tear compared to a single family home.

I appreciate any tips and advice on this question and student rentals generally.  If this goes well, I will likely shift my focus to acquiring student rentals in my target area.  

Thanks in advance,

Ian