Building a rental portfolio: Start small?

Question

Hello everyone, I'm new to posting on here although I have cruised around the website s lot. For the lest year or so, I have gotten the itch to buy and hold rental properties for present and future cash flows. I live between two major universities in the state of Georgia. Can anyone briefly share their opinions on owning rentals in college towns, or are you better off in a regular town. Thanks!

Jack Tucker · Answer

I have also found there to be a lot of value in condos. For example, I have 3 rather large condos currently rented at $1350+1350+1250= $3950 per month that I could let go to a cash buyer for only $270k. The Pro-Formas show a 12 cap rate On that one. Vacation rental for even more. I have another package in a neighborhood that's a slight step up that rents for $4950 that I can let go at $400k. These are below market value and off-market deals, but if you spend the money on direct mail and hunt as hard as my company does, there is value in Athens in The condo asset class.

Ethan Atkinson · Answer

To preface - I am an agent who works with lots of investors in the Athens area and have worked with folks all the way down to Greensboro, Union Point, Buckhead, but most of the activitiy now is focused on helping investors find deals on and off the market for cash flow and flipping. The one important thing(maybe most important for certain risk tolerance) to know that there are restrictions the county has imposed on all properties not already zoned Multi-family. No more than 2 unrelated people can live in any house not zoned Multi-family. If you are buying a duplex, triplex, 99% of condos and townhomes in Athens, you will be ok to rent to whomever and however many you would like. The rule is in place to protect the neighborhoods that had too many rental homes, with property owners who did not care to keep them up well, and where tenants would park in the yard, have late night parties, and do all the things students do in college. There are still plenty of people "breaking" this ordinance, and they are taking the risk, but very likely getting much higher rent, because it's usually based on a per bedroom price, rather than a family that is looking just on a normal house for sometimes lower rent price. The company where I hang my license manages more than 400 total doors, and a majority are college student housing, but still plenty of long term families or young professionals. There are plenty of properties that come for sale every once in awhle that are houses or townhomes, and condos in the areas that do well for student type housing, that are mixed in with family and young pros. On the flip side there is a need for regular family rental homes, that may not need quite as much work in between tenants, or if you are smart and update the property correctly you, there will never be much need to fix up in between tenants, after installing hardwood floors, tile, waterproof vinyl Allure, granite counters, tile surround showers, etc. And if you are a smarter person, rent to people that have friends who then invite them to replace after they move out. I am about to list a duplex that rents for $5000 per month, and the owner has never had to do anything ever, not once in between tenants. The same sorority group of girls has rented since 2009. That doesn't have to be an anomaly in a college town. Another note about families renting in the Athens and Oconee area is that I get an email at least once a week maybe more about a someone needing a rental for a family usually $1400-$2000 per month. The average retail in many areas is only $125,000. Sounds like a no brainer, but I can find you even better deals because of my marketing. For college students there are plenty of homes that come up for sale around $125-$185 that rent for more like $1500-$2000+. Also no brainer!!

Allen Thomas · Answer

Investing in college towns is great because the jobs that come with universities and the business that the students provide help the local economy thrive. But the lease issue mentioned above is a valid concern. I personally have never rented to college students, although I do invest in a college town...

Curt Powell · Answer

The main concern I have about starting small is how small? Town or SF? And how small of a price. Houses are pretty cheap where I live but I worry about the quality of the tenant pool. I do have the luxury at my age of living in a house that is paid for so my train of thought says to invest in rentals while I have no mortgage and no kids. Does anyone agree?

Curt Powell · Answer

While living in Athens as a student (in a rental property) I noticed that there is a dense collection of housing on campus. But like you said, school is in session for only 8 months but it seems ideal on the surface to buy property on "campus." The reason I say is because I know plenty of sophomores through seniors as well as grad students look for housing around campus. But let me ask another question, would it be best to try and find duplexes and town homes in the areas of Athens and milledgeville? They seem to be in abundance.

Jacob Sampson · Answer

I don't think living near colleges means you are locked into renting to college students. Your can still buy and, by choice, limit your exposure to college students. The title question seemed different than the actual question in the body. As far as the title question is concerned, absolutely! Keep your mistakes small by starting small.

Richard Balsam · Answer

If you can locate a home with well defined bedrooms and baths for college kids near the college - great! Perhaps it's a house near a bus stop that takes the kids to school- great! If it's a house just in the town, where the kids have to get a parking permit to keep their car on campus- it may be somewhat challenging to keep all the rooms rented. Depends on the school, parking availability on campus, bus routes, etc.I speak from experience. I was thinking about it too- but after two daughters at UGA - I prefer not to. School is in session 8 months per year, with 12 month lease contracts. It's fine if the kids continue paying while home for the summer. If not- collections may become an issue. Also- the parking situation at UGA is far from ideal. Houses not near a bus stop - forget about it! I'm sure other campuses are similar- parking is tough on campus ( Ga Southern, Kennesaw, GCSU, State, etc). But - for houses located along the route - and you can get the house at the right price- it might be good. Just remember- kids do not take care of a house - just the opposite! So- property management is important.