Thinking of buying a student rental property

[ustmd]

As someone who has had rental properties, they can be a nightmare and they can be great--like any other business.

I would recommend a property management firm--unless you like 3 am calls about the AC being out.

Also, this is a business and it is covered by a variety of laws--some good, some bad. Some of the other posters talked about getting parents to sign the leases or doing surprise inspections. The laws vary and you need to be careful--just because it is agreed to in the contract, it may not be enforceable or even leave you open to damages. I would recommend checking with a lawyer or this is where a Property Management firm will help.
For example, in my part of the country, if the kids are over 18, you cannot make it a condition of the lease contract that a parent co-sign. You can do credit checks, background checks and have standards to judge the tenets based on those factors, but you cannot require a parental co-signer if they are over 18. Similarly, unless there is an emergency, like a broken pipe, I can not access my rental properties without 24 hour prior written notice and I have to have a "legitimate reason" for being there (maintenance inspection ususually works, but againg it needs to be "reasonable"). I can drive by, but I cannot set on foot on the land.

Good luck--also remember, if a deal lookos too good to be true....

 

[Mousefield]

If you buy them then good luck. We bought and within two years sold 2 duplexes (4 half's) in the mid 80's. IF we would have had good tenants and kept them they would be worth about 1.6 million dollars. However having a heart attack would not have done me any good. We now have two mobiles on our property that we now rent out. One we lived in until we both got jobs and then built a house and the other my late mother-in-law lived in for 11 years. Just yesterday I got $1,000. worth of new carpet and underlay as all the carpet and underlay in one mobile has to be replaced. This was because in just 2 1/2 months a tenant left their dogs inside and they peed on all the carpets. If we had the money we would just get rid of both mobiles. My new saying is give most tenants a tent and pitch it on the beach at low tide. I could, seriously, write a thick book on crappy tenants. We have also been fortunate and had a few good one's, however there seems to be an over abundance of bad one's.

 

[bigtiller]

I know, it could get ugly for sure but the payoff is pretty good. The rent will be right at $10k per semester and the mortgage at the very most will be about $2250 a semester for both houses. of course this is not including the wear and tear that obviously could be substantial to say the least..

I am just wondering if the parents sign the lease if this could reduce the wear and tear a bit??

You are wanting to invest $2250 for a return of $10,000. And this will happen every six months? That is a yearly proffit of $15,500.

Why are you asking us? Do it before someone else beats you out of it! Unless you think it may be to good to be true.

 

[ustmd]

This looks like a good deal, but you need to get an accountant to look at it if you haven't already (you will need one anyway if you buy).

For home rentals it is very, very rare for anyone, in any part of the country to be cash flow positive on the deal in the first 5 years. You have to remember that the interest rate will be higher, you will have a higher home owner's insurance costs, plus all of the rent now counts as income on your taxes (there are some things you can do to offset that with depreciation of the houses), but usually from a monthly cash flow basis, you are lucky to break even.

I mention this because you are giving numbers showing a 4.4x cash flow which is huge. Normally, you don't even see those multipliers on rental properties that you own free and clear.

 

[scesnick]

You are wanting to invest $2250 for a return of $10,000. And this will happen every six months? That is a yearly proffit of $15,500.

Why are you asking us? Do it before someone else beats you out of it! Unless you think it may be to good to be true.

Well, you are right, and we are gonna jump on it but I was originally asking what to look for when we go into the house for an initial look. (things that could be a problem) Then the topic kinda drifted off a bit.

I mention this because you are giving numbers showing a 4.4x cash flow which is huge. Normally, you don't even see those multipliers on rental properties that you own free and clear.

Luckily Wifey is an accountant. or, atleast was at one time. Yeah, we are a bit skeptical for sure. But the bank is offering up these two rental houses for about an incredible rate. The real estate market in my area is just awful and to top it off jobs are few and far between in my area.
From doing a quick bit of research, it looks like these two houses have been up for sale for almost two years and they didn't move at all. So the bank is wanting to unload them.

These two properties are literally right acrossed the street from the university campus. And 2 out of every three students live in off campus housing at this school or 5,000 students.

We looked at one of these rentals a month or so ago, but the price was simply too high. We also looked at a foreclosure that we were a day late and a dollar short on. We then told the real estate lady to keep us in mind if another foreclosure rental property popped up. Well, this isn't a foreclosure but she did call us.

 

[trailbuilder]

I had 4 student rentals at the Uof M in Ann Arbor for 22 years. Just sold them last year. A good lease is key, mine was 17 pages, parent cosigns and a month and a half security deposit and check onthe references they provide on the application. Mine were profitable and were managed from 600 miles away the last 15 years.

 

[forgeblast]

As someone who lived in a student rental area known as "the slums" I think I can give you some hints.

1. Rent to girls, they will keep it much nicer then a group of 20yo guys.
2. How an apartment is treated is directly related to how active the landlord is.
3. Ours had tarpaper for a window, a door that would not lock and walls that didnt touch the floor....
4. talk to the familys around your rental, any loud noise, any parties have them call you first, it may smooth things out.
5. bigger security deposit.
6. watch "referal" rentals. By that I mean a group of us kept finding people to re rent the apartment, for 7 years a group of us had the same place. Which ment that damages from one group followed the other groups. I did find that a well place mirror hid the damage that a previous group did.
7. If the price is right it could be a great investment.
8. what about road/parking/sidewalk maintance/grass maintance/garbage pick up etc.

 

[Dennisfly]

If the units are already rented through 2012 (I think you said that) then I believe you will have to honor the existing leases. So, initially at least, you will be stuck with the existing tenants and leases. I'd investigate the existing lease terms and tenant payment/damage history and see if they are favorable or not.

 

[Fixemall]

If you really want to get into the rental market, look away from the student market. Look into nicer areas and try to find tenants that just completed short sales or bankruptcies, preferably with one child. Keep rents in the 75-80% of max for your area and you will be much happier in the long run. As far as tenants calling you, use a separate # like a majicjack or per paid cell also, have an attorney prepare your lease agreement. I'm also pretty sure when title passes to a property you can shoot holes in previous agreements and have them nullified.

 

[scesnick]

All kinds of great advice here. Thanks. We will most likely go ahead with this deal if the places are not total dumps. The whole area where these are located are student rental houses and, for the most part, are in pretty decent shape.