5BD/2BA College Student Rental

[Joshua O.]

I'm evaluating a  a single family rental home that is used as student housing for the local college. From the numbers, the property seems attractive, but I have some reservations about the place. The property itself is turnkey, no major maintenance/expenditures expected in the next five years and all of the appliances are newish and well maintained along with the property itself.

That said, it is a little farther away from campus that I'd hoped making it less desire-able. Additionally, the current lease is due to expire at the end of this month and there is no new tenant lined up. From what I can tell, and my own experience most students line their leases up for the upcoming school year before they leave for summer break which leads me to believe that the PM will have a tough time finding someone this late in the cycle. I'm worried that the PM will be unable to find students to rent the house and the rent is a little high for the neighborhood (outside the university microcosm).

Property Info (numbers are a mix of estimates and actual)

Price: $140,000

Down Payment: $28,000

Expected Closing Costs: $3,500

Total Cash Outlay: $31,500

Rent: $1,750

Gross Income: $20,328

Expenses

Taxes: $1,800

Insurance: $1,000

Maintenance/Repairs: $1,200

Utilities: $100

Admin/Inspections: $210

PM: $2,033

Lease Fee: $1,750

Total Expenses: $8,093

Cash Flow

NOI: $12,235

Mortgage: $6,416

Cash Flow: $5,819

Cash ROI: 18.47%

Total ROI: 24.73%

Cap Rate: 8.74%

[Steve Potash]

You analyzed the deal correctly and your concerns/issues are valid.  I'd look for a better deal, because they should have already had tenants in place for the upcoming school year.  Your risk is that school is about to start, so there's a good chance it will remain vacant for an entire year resulting in a huge negative cash flow.