Thanks for the input, pls keep it coming.
So here's the math. These are in Utah. A student condo built in 1998, brick, nicely done, pool, club, gym with about 150 units total in the complex, considered higher-end student condos, rents for $1250/month. At the peak they were selling for between $200,000 - $210,000, now through short sales there are a very few units that can be bought at around $150,000. Maybe they go cheaper in the future, but the few that have traded outside of short sale in the last year tend to be around $175,000. Parents usually are the main buyers when a kid goes to school.
It is generally easy to rent out as there are 40,000+ students in the area.
HOA fees are $160/month, taxes are $1000/year, insurance is $100/year and management fees are $50/month. Those are the major fixed costs.
HOA fees cover pretty much everything on the outside of the condo, and in the last 10 years there's only been one special assessment of about $3,000. the condo seems to have about 65% of its optimal reserve funded, which I see from reading is pretty typical.
Assuming the above costs only, that gives me a Cap Rate (I'm a newbie at condos so excuse me if I'm not using that term correctly) of 7.6%. For at least the first couple I am a cash buyer using some of my retirement savings. I'm only getting 1% in cash right now as I really don't want to hold equities or anything that could fall 50% and I don't think these condos will. I think interest rates could stay low for at least another 2 to 3 years. While I understand I could lever up, for various reasons I don't feel that is appropriate.
The accounting work I can in theory do myself as I know how to do it, but for the first year I've had an accountant do it so I can just make sure I'm looking at it the right way.
On legal, in Utah you can use Series LLC's, so once I set up an LLC there aren't a lot more legal costs that I can see. Students generally pay and you rarely need to evict them.
I take to heart the comments about costs generally being 50% of gross market rents but is that true for condos or more for homes? I've had several units like this for 12 months now and other than the water heater or a plugged drain haven't had much additional cost. Therefore, for these condos, costs appear to me to be more like 25-30% of gross market rents.
Given I have only been doing this for about a year, I really appreciate the reality check and whether I am just grossly underestimating what these could cost over time.
It is clear to me that there are areas in the US (many thanks for your examples Cheryl) where total annual rent/purchase price is just higher. I pulled up a couple of condos in Reston, Virginia just to look at Cheryl's comments in some more detail. This is very very imprecise, but I notice that taxes and HOA fees for a two-bedroom condo seem alot higher. Taxes were more like $2000 and HOA fees seem to be in the $250-$400/month range?
Likewise, a friend showed me some places in Indiana where I could buy a $50,000 single-family home and rent it out for $850 a month. That is double what I am getting the same dollar investment in Utah. The problems I see with this all are (a) I don't live there and so would have to rely entirely on a property manager (b) while not a slum area, these homes are not in very nice areas and are 20 to 30 years old. I could foresee a lot of upkeep. (c) The tenants are more hit and miss I would think.
Students, although rough on apartments sometimes, are generally pretty similar I have found. They don't ask for alot, they don't do that much damage, and there are a lot of them that want to rent condos.
Does that detail help? Please, I'm looking for people to tell me that I'm way off on my numbers and explain why, because in my one year of doing this, I've felt like the couple I've purchased have generally been good enough to make me want to buy some more. This is my retirement money I'm talking about though and I have to be living on this income very soon.
Then again, I see blogs that have an occasional friend who tells me there are a lot better yields in other parts of the country than this. Texas is another place several people have mentioned.
