First Deal Near A College Campus

Real Estate Deal Analysis & Advice
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First Deal Near A College Campus

Kyle Alberry
Watertown, NY · Member since 2013 · 24 posts · 3 votes

Hello Biggerpockets community!

I have read about 90% of the blogs and articles as well as read Rich Dad, Poor Dad as well as ABCs of real estate, and almost ALL the information I can find on the internet. I am only 19 years old and I am a sophmore going to college in Brockport, NY. I believe a great first investment would be near the campus for many reasons. It will be owner occupied (if not by me, then by my partner because I may be moving away after this year). It is fairly easy to rent out because it is close to campus and there's always a demand for rentals near a college campus. We will rent it out to our friends for 2 years after we buy until we graduate. I will go half and half with my friend who does not have as much real estate intelligence as me, but he works well with his hands and we can split the down payment.

Now for the actual deal:

There is a recently flipped single family home that has 4 bedrooms and 2 bathrooms. We will rent out the bedrooms seperately so it is sort of like multi-family. It was bought in 2012 for $53,000, and is listed now for $86,500. I feel like we can negotiate down to between $75,000-$78,000. If it is indeed $75,000 it will be a $15,000 down payment at 20%. That means at 5% the mortgage would be $322.09 per month with property insurance being between $2,200 and $4,500, so I just averaged them. That would be about $267.

The total monthly payment without utilities would be approximately $589.09.

We were thinking rent would be at approximately $2,200  per unit per semester. That is the going rate for houses around this area at about the low side, so I do not overestimate. If me and my partner live in the unit and rent out the other 2, then our gross rent would be $4,400 per semester, or $8,800 per year. With our mortgage and property tax being at approximately $7,069, that leaves about $1,731 for utilities, insurance, maintenance AND we will not be paying anything for rent ourselves, so we could probably toss a couple dollars in if we needed to because we would be living for free anyway. We would also have about $2,000 per year in equity in case we would like to cash out sometime in the future. The cash on cash and cap rate would be low, but if we graduate/move and decide to rent out all four units, that would double our gross rent to $17,600 per year and leave more cash flow for us, minus the 10% of rent per month or so that would be needed for a property manager since we would not be in the area.

Though having this all thought out, I plan on calling the real estate agent tomorrow to talk to them about the deal, and I am going to start looking at finance options. Since we are college students, we probably will not have enough credibility for a bank loan, so we will hope for seller financing or a private lender.

If you all would be so kind as to give me some advice, a next step, if I'm missing something, or if this deal is not as good as I think that would be much appreciated.

Thank you very much,

Kyle

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  • Jason BottPro Member
    Insurance Agent · Nationwide · Member since 2014 · 2k+ posts · 1k+ votes
    11y

    Kyle, "Student Rentals" can be considered high risk to most insurance companies.  Just make sure the #'s you are quoting on the insurance are for a student rental and not a home owners policy.

    Good luck!

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  • Roy N.Pro Member
    Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
    11y

    @Kyle Alberry 

    You would be renting rooms, not units ... they are not the same.  We have several student properties, including a rooming house with a clientele of international students.  Some things to note about renting by the room (effectively a rooming house):

    1) Many banks will not take a mortgage on a student rooming house (at lease not here in Canada), so I would approach the house as if you were buying it as your primary residence.  Of course, if it is your primary residence, you should be able to secure the house with a lower downpayment;

    2) The tenants/roomers will want locks on their bedroom doors (appraisers and by-law officers will assume rooming house when they see this);

    3) The neighbourhood zoning may not permit rooming houses.  The by-laws may also limit the number of un-related persons who can live in a single dwelling unit. Here the magic number is four;

    4) Rooming houses work best when you have a "trusted" resident who can act as Den Mother to the house: ensure the garbage gets taken out, dishes get done, etc.  In our house - which is a duplex with 4-rooms per unit - my sister-in-law is our Den Mother in-residence;

    5) University students are loath to clean common areas (like the bathroom and kitchen)... or their rooms for that matter.  We use to nag our roomers, but these days we just bake the cost of a weekly a cleaning service into the rent;

    6) When you rent by the room, you have to rent with utilities included.  You therefore need to be on alert for the "thermostat at 90 with the window's open" in January behaviour;

    7) Social dynamics become harder to ignore when you rent by the room as you are the common link/cause for the individuals sharing a house.  You also have more administrative overhead since you have multiple leases.

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  • Max Householder
    Rental Property Investor · Saint Louis, MO · Member since 2014 · 313 posts · 326 votes
    11y

    When I was in college in the mid-2000s, I lived in 4-bedroom apartments for 3 years that rented per-room. Each person had to sign an individual lease which was nice for us so if our roommate quit paying rent or had to move then it didn't affect the rest of us being able to stay. The apartments marketed really had to try and get groups of four friends to rent the place together instead of going for 4 individuals who needed 1 bedroom each.

    On our campus, you had to live 1 year in the dorms before you could move off-campus so they advertised hard at freshmen during second semester of their first year to try and get leases signed in May to start the following August. I had one year of on-purpose roommates where four of us went in together and then 2 years where I took luck of the draw for my 3 roommates as the apartments had a matching system worked out. It turned out great for me those last 2 years as I became fast friends with my roommates anyways, but for international students with language barriers or someone less outgoing, it might have been an awkward arrangement.

    I'd try to advertise to groups of friends instead of individuals so at least you know your tenants should be able to communicate well with eachother and I think it kept us in check a little more than if it'd just been 4 strangers. Anyways, just sharing some thoughts from my experience as a renter in this set-up.

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