Student Housing - Analysis Help.

[Robert Freeborn]

Hi BP. 

I'm looking at several apartment buildings for sale in Idaho next to a major university. I received some initial information about a complex, and I'm trying to decide it is worth a second look.

It is an 12 unit building, 11 are rentals and 1 is a live in manger required by the university. The asking price is 1.25 mil. NOI for last year was 70,000. After mortgage service, with 25% down, yearly profit is 16,300. This comes out to $131 a unit per month (not including the managers unit).

The university has 3 semesters a year, and a 7 week summer term. Students are required to live in approved housing. The university has just announced some expansion. The property is located, literally, across the street from the campus core.  It is an older building, 1968, but has been kept up. The owner is renovating the kitchens this summer, and expects to raise rents by $50 a student per semester. The building has 4 students in each unit, 2 per room.

I've seen numerous times on this site that many investors want to see $100 per unit per month for their investments. This seems like a lot of money to tie up for a low profit. But maybe i'm too inexperienced to realize a good deal when I see one.

My question is, does this look like it has potential? Is it worth the time getting more information?  (Paying it is an entirely other issue.  However, the owner is willing to have someone assume the loan (if his loan permits.), but I'd likely have to get a partner for the down payment, or just wholesale it to someone.)  Any and all advice offered would be welcomed and appreciated.

[Patrick Liska]

First thing you need to find out, what type of expansion is the college doing ? very important, i have student rentals next to a college, the college expanded and added dorms, all was good for 2 years after, then enrollment went down. the college changed it's policy and instead of just Freshman being required to stay at dorms they made it so that Freshman and Sophomores had to stay in dorms, took a big hit on the town rental. you need to figure that Sophomore year is a big year for student rentals, kids start to drop out after that year, so those would be your biggest rental. If they like your place they will stay the next 2 years if they stay at the college. Find out what the college is doing before proceeding with purchasing it. If i understand right, you have 44 students in there ? 11 - 2 bedroom units ? what is the cap rate for commercial property in that area ? if it's 10% then it should be valued around $700,000. what they are saying is the CAP rate is about 5 1/2 % which would show a steady income, but student housing isn't always steady.