Turnkey Frat House - Partnership options?

Question

Hey y'all! Some bullet points about the property before you look at the calc:

Rental income is contractual and provided by the frat, ergo 0% vacancy. Any un rented rooms will still be paid for by the organization
The property is 2 blocks from the local college to which the frat belongs
Yes, the taxes are accurate and they're ridiculous. The millage rate for an investment/non-owner occ. property in this area is 84.67
I will be self managing

*This link comes directly from our calculators, based on information input by the member who posted.

My biggest concerns:

I don't want to lose $55k on the down payment
This is a new chapter of this fraternity, as of 2017 at this college
There's not enough profit to support a partnership

There is unfortunately not a ton of value add, other then maybe a coin laundry in the basement. Most big CapEx and repairs has been completed, so a BRRRR is not an option on this one. If I was seeking a partnership for that down payment, what is a good approach? What would make this worth it to an investor (or is it worth it)? Thoughts appreciated, thanks BP crew!

Jason Munger · Answer

@Matt Hurley just some friendly advice. Don’t call it a “frat” when you talk to the fraternity. Call it petty or semantics, but they hate that word. It’s a fraternity.That said, besides the obvious that the house will take some serious abuse, new chapters often fail or run into compliance issues. IF you go through with this, make sure you have a plan “B” that works as a college housing rental unit. If your numbers still work with that scenario, you MAY have something...all concerns already mentioned taken into consideration.

Ryan D. · Answer

I'm a successful (or reasonably so) investor...I was also in a fraternity in college.....this is a pass, hard pass. These are college kids, who will be VERY HARD on your property. There is also additional liability. You will also have little-no control at all over who lives in the building, or what type of "fun" they are having there (trust me). Unless this is gold-mine-money, you're looking at a lot of headaches that are probably not worth it. Go watch "Animal House", this is a reasonably accurate depiction of what happens in a fraternity house (from my experience at any rate).Now, if you have the chance to own a sorority house, maybe (women, in general, will put a lot less wear & tear on the building), but you still have the same issues of lack of control over who lives in the building.

Caleb Heimsoth · Answer

This type of investment isn’t exactly what one would call “hands off”. It’s going to be a lot more hands on then I think you’re thinking.

Matt Hurley · Answer

@Caleb Heimsoth Appreciate the patronizing comment :) I'll go wherever the numbers take me. I've already got a large rehab on my hands, so I'm not looking for something that's going to add massive time and oversight. Bigger Pockets exists to educate people and create community, so that's what I'm doing. @Jason Munger thanks for the perspective. I don't know much about fraternities, so simple wording like that would not have crossed my mind.

Caleb Heimsoth · Answer

@Matt Hurley. Everyone tells you to run and you still want to go for it? Lol. Good luck my man. You’re gonna need it if you get into this.If someone puts up all the money I’d expect to give that person 75-80 percent of the profits personally

Matt Hurley · Answer

I appreciate the thoughts everyone. Any perspectives on how to structure a partnership for something like this? Has anyone dealt with a partner who provided down payment only and how did you split profits? I'm still researching around for investors who have dealt with something like this in my area, as well as finding the building owners of the surrounding sororities and fraternities via public records. Thanks all!

Robert Hooks · Answer

Wouldn't touch that liability with a 10 ft pole. #rooftesting

Caleb Heimsoth · Answer

Not as an owner but I was in a fraternity and saw it from that side. I’m just saying it could be a hassle, it could vary a lot school by school but just figured you’d want to be aware of that.

Matt Hurley · Answer

@Caleb Heimsoth, good question. I do need to discuss rates with my insurance company to see how different they might be. That being said, I've read multiple BP forum posts about people who own Frats/Sororities and all speak highly of the investment. Have you dealt much with student housing?

Caleb Heimsoth · Answer

@Matt Hurley what’s the insurance coverage like on this? That’s a lot of liability. The fraternity messes up one thing and they’ll likely get kicked off campus. Not to mention the members maybe hard on the property. Are you sure you want to deal with all that?