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Evaluating a duplex in a college town

Discussion in 'Real Estate Investing' started by GetRichODT, Feb 14, 2017.

  1. GetRichODT
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    GetRichODT New Contributor Read The Millionaire Fastlane

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    Should this be avoided due to the obvious liability issues?

    I have a line on a duplex for that rents for about $3,200 in gross rents. If i assume insurance runs about $3,000 / year and assume the 50% rule based on a 30 year note with 25% down at 4.8%, i'd have to get annual expenses to be around $10,000 / year (including the other expenses that would get me to 50% for the rule of thumb).

    Those expenses seem high for a property that is < 10 years old, but given it's a college property, maybe that's more reasonable. At that price point, it's not worth it. If it's half that, it may be a bit of a gem.

    so questions:

    1) would you avoid it due to the clientele?

    2) what is a reasonable expense ration to assume on a college rental at the upper end of the monthly rent scale?
     
  2. Sauce
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    Sauce Contributor

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    Why would you assume insurance would be $3K? Have you got quotes? Seems really high to me.
     
  3. MidwestLandlord
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    MidwestLandlord Platinum Contributor FASTLANE INSIDER Read The Millionaire Fastlane Speedway Pass

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    What does "college property" mean? Right next to a college? Is in an area where getting tenants that are not college students is unlikely?

    How to Calculate Cash Flow on Your Next Rental Property

    $3,000 for INS seems steep, but depends on the area and property value. (Make sure it's not in a flood zone)

    As a general rule, yes.

    I like to buy properties that will naturally rent to people that are more established, so I have a greater chance of getting paid, less turnover, and less property damage.

    Cats.
    Dogs.
    Kids. (including college students)

    Are all very hard on properties.

    Since discrimination is wrong, illegal, and something I would never ever ever ever do...this is where proper property selection comes into play.
     
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  4. GoodluckChuck
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    GoodluckChuck Bronze Contributor FASTLANE INSIDER Read The Millionaire Fastlane Speedway Pass

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    Some college students actually spend all their time studying. Find renters that are hellbent on an A in Anatomy, not playing the field of anatomies.
     
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  5. lowtek
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    lowtek Gold Contributor FASTLANE INSIDER Read The Millionaire Fastlane Speedway Pass Summit Attendee

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    It's gonna boil down to screening your tenants. Some college students will tear your shit up and leave the place in ruins. Others will treat the property with respect and you end up with normal wear and tear. Find those, to the best of your ability.

    The upside is that rents in college towns tend to be quite high, so you could make a decent chunk of change if the deal is good.

    Hard to make guesstimates based on the limited information you've provided. It could be a good deal, it could be a bad deal. I've done a couple real estate transactions (bought and sold one residence, and bought and sold one 4 plex investment property), and here is how I think of them now - based on the limited experience I've had.

    What's the asking price of the property? What are the rents? Condition of the outside of the property (a clue to how the inside will look)? Is the university a party school or is it a private uni with a brainiac student population? How proximate is it to the university? How close is it to the bars? Is there an HOA to deal with? Is it near a public elementary (important if your students are doing or manufacturing drugs on the premises - don't want to take any chances with potential liability)?

    Do you intend to manage it yourself, or hire someone else? Are you going to occupy one of the units and rent the other? Will you pay any of the utilities? How about landscaping?

    You said the property is < 10 years old - is it still on the original roof and AC units?

    What does rent appreciation for the area look like? Are the current rents under or over the average?

    Real estate really has a lot of moving parts. It's one of those things that seems simple until you actually do it, and then you find all the gotchas.

    If you're not working with a realtor, I would advise doing so. They take a cut, but their experience can be invaluable in helping you find the right deal. It's enormously expensive to buy the wrong property - both in terms of cash outlay and in heartache. A bad tenant can REALLY make you miserable.
     
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  6. EvanOkanagan
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    EvanOkanagan Silver Contributor FASTLANE INSIDER Speedway Pass Summit Attendee

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    My first ever rental property was a student rental. I had 7 bedrooms plus the detached garage (for storage) rented so 8 different tenants. Great cash flow but way more management.

    When I screened well for the first year, I got some great respectful tenants... then year two I got too busy grinding on other things I let the tenant quality slide and that's where I got into trouble. Place deteriorated quick with a couple bad apples.

    You'll be playing a bit more "hotel manager" style of managing your rentals but if you've got the time it can be a lucrative venture IMO.
     
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  7. MidwestLandlord
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    MidwestLandlord Platinum Contributor FASTLANE INSIDER Read The Millionaire Fastlane Speedway Pass

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    Keep in mind with college students that when you run a credit check, you'll likely find little or nothing.

    That's either a good thing for you, or a bad thing haha.

    However, that means you can demand a co-signer for the lease. It's pretty common for parents to co-sign. Gives you a little extra protection if the parents are involved.

    If you can get the co-signer to be the one making the payments...even better. I have one rental right now with a college gal in it, and her dad makes the payments on the lease AND the utilities.

    It goes without saying for all rentals, but make absolutely sure you have landlord agreements in place with the utility companies. Hate for the heat to get shut off because some student tenant got distracted and forgot to pay the gas bill. (good way to have to pay a lot of money to plumbers if you are in a cold area)
     
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  8. Runum
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    Runum Platinum Contributor Read The Millionaire Fastlane Speedway Pass

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    I went through it with my kid and I currently own 3 houses 2 blocks from a college.

    Some college kids are great some are not, just like other renters. Most do not have a background or a job. Verifying rental history and income won't work. The students usually can get an adult to cosign but that has pros/cons. If the kid won't pay the rent you better be ready to fight because that adult cosigner is busy and probably won't pay either. The cosigner will smile and make all kinds of promises just to get the kid on the college path and out of the house, but once out the tune of the adult changes, fast.

    Many colleges won't let freshmen and sophomores live off campus, so you would be renting to juniors and seniors. That forces you into 1-2 year renters max. When they graduate they want to move on, immediately.

    You probably will not get a full 1 year out of most college renters. They attend college August to May. They want to go home or not pay rent June, July. The graduates will move on as soon as they graduate and find a job. They will break a lease agreement to move on, as in, disappear over night. So, don't count on 12 months of rent from a college rental and do count on a lot of turnover.

    Colleges will build massive housing units and put your rental out of business or in a bad market position overnight. Make sure you check for their future plans of the college.

    I don't discriminate against college kids but I make the rents and terms so that college people don't really want to live there. The 3 units have been much more stable since I targeted non college tenants.

    Good luck.
     
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  9. Sauce
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    Sauce Contributor

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    They did this at University of NM. Built 2 massive complexes, but no one wants to live there because they have turned in to party central. Partys at all hours and days, cops on site frequently, drugs, rape, all kinds of nasty stuff.

    You can differentiate by having a safe, clean, quiet complex for serious students. Get the riff raff out ASAP.
     
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