Best Way To Fund 5 Student Rentals in Boulder Worth Over $1M/ea

[Connor O'Halloran]

Hello BP Family,

Apologies in advance for the lengthy post, but I have a rather unique opportunity at my fingertips that is a once in a lifetime opportunity and I'd love to get as much advice from as many savvy real estate investors as I can. 

Here we go....

I have a family friend who is basically the Godfather of student rentals in Boulder, CO. He owns 19 single family houses (Many of which are completely paid off) a few blocks away from CU Boulder. He has remodeled each house to maximize the number of bedrooms and get the most rent per bedroom as humanely possible. This friend has owned a few of the properties since the late 90's and has had 100% occupancy in all his rentals for roughly 20+ years. 

Most of the properties have six bedrooms and rent for between $1,100 - $1,500/month per bedroom. These numbers are great for my friend since he owns most of them outright, but they are also worth between $1.3M - $1.5M each so the numbers aren't so great considering a 20% down payment would be over $250K.

I became a licensed real estate agent a few years ago and recently made it a mission to help this family friend find new rentals that fit his criteria. After calling this friend every few weeks with properties I thought might be a good fit for him, he called me last week and wanted to meet for lunch to present an opportunity to me.

We had lunch last week and he brought five files with him which were the leases and rent rolls of five of his properties that are all right next to each other or across the street from one another. He told me he wants to be more liquid and would sell me my favorite of the five properties (or all five properties), or wants me to find buyers for the five properties since he wants to be more liquid in a few months for  a larger development opportunity. He wants to sell these properties off market to save money on realtor commissions so I don't gain much unless I'm buying them or partnering with people on them.

He told me to treat him as a brother on these deals and ask any questions I have while I am determining a fair price for these properties. He said he would sell them to me at a price that will cash flow from day one.

After thinking about this opportunity for for the last several days, I would like to be the owner and/or partner in all five of these rentals when the dust settles. The only issue is that I only have $50K of my own money to invest at the current time.

It appears my best two options are to either get a hard money loan to pay for the down payment, or partner with a family member or friend who would pay for the 20% down payment and we would be 50/50 owners. My wife and I would obviously prefer to be the sole owner of one or all these places but I have no idea how hard it would be (or if it's even possible) to get a hard money loan for one or all of these properties. It also comes with much higher risk and I would have to purchase them at a price under their market value that gets me enough equity to re-finance in six months or a year to pay the hard money off loan off. 

Questions I Need Answers TO:

1. Is there a third or fourth option I haven't thought of to finance these purchases?

2. Do you think it's worth buying all or any of these properties at a price that breaks even for one or two years while I have to pay the mortgage and hard money loan off at the same time? 

3. What can I do to make a hard money lender really want to give me loan for one or all these properties? 

4. For those of you with student rentals, how much do you like netting per bedroom per month?

Thanks for taking the time to read this lengthy post. I'd love answers to any of my questions and would appreciate any feedback any of you have.

[Nghi Le]

Hard money will not provide funds for down payment; they typically want to be in first position. So you'll probably need to partner with someone to provide the down payment, or maybe the seller can carry the down payment, although you'll have to find lenders that allow that. Most lenders want their borrowers to have skin in the game.

Curious... If he wants to be liquid, why doesn't he consider taking a loan on some of his properties? It doesn't necessarily help you, but definitely solves his problem.