Real Estate Investment in Student Housing (College Towns)

**Ksaberni** · 06-26-2009 08:00 PM

I have been recently thinking about investing in real estate properties near a college town (Indiana University). I'd like to invest in a house and rent it out to students. Does anyone have any experience with renting houses to college students? Or any thoughts on this?

**Ruman** · 06-26-2009 09:15 PM

I am all for rental properties. The only key I would recommend is to have a little bit of a savings just in case anything goes wrong, repairs, vacancies, etc. I would recommend 3 months rent in savings. I know it may sound steep, but trust me, when someone moves out on you and leaves a half a house full of trash behind, you'll be happy you did.

**noob** · 06-27-2009 09:47 AM

Originally Posted by Ruman

I am all for rental properties. The only key I would recommend is to have a little bit of a savings just in case anything goes wrong, repairs, vacancies, etc. I would recommend 3 months rent in savings. I know it may sound steep, but trust me, when someone moves out on you and leaves a half a house full of trash behind, you'll be happy you did.

Not steep enough, should be at least 6 months.

**Ksaberni** · 06-27-2009 12:11 PM

First off, I am new to this forum so I probably should have introduced myself. In May 2009 I graduated from Indiana University with a business degree in Supply Chain Management and Technology Management.

Let me start out by telling you what led me to asking this question about investing in real estate.

Throughout college i've lived in various rental properties as most college students do. While living in these rental properties I began thinking that there is alot of money to be made by being a landlord in a college town. I can't even imagine the amount of money some of these large apartment complex owners are making. These large apartment complexes are filled very easily every year since students need housing.

Now that I am out of college and currently unemployed, ive really been thinking hard about pursuing my idea of renting in college towns. The problem is that I currently do not have any money. I also have a large college loan to pay off. The only way I could possibly make this work is with financial help of my Dad.

I believe that with any entrepreneurial idea (especially with this case) it is best to start young.

I'd really be intresting on hearing any thoughts on this.

**pboychuk** · 06-27-2009 12:35 PM

I love the idea of investing in real estate and college towns are probably one of the best places for tons of reasons... except inflated prices.. But, I still have my doubts, maybe ill learn something in the real estate class i am taking next semester.. Basically I don't understand how you can make money by owning single family home type properties and renting them out..

My reasons, tell me why I am wrong please:
The cost to own the property (mortgage, taxes, insurance and association) will basically equal the rental payment.. I know my landlord is losing money in the townhouse i live in he told me...

After that you have repairs, I live in a 10 year old place.. and if you buy a rental property it will eventually reach 10 years
So since I have lived here (2 years) the landlord has had to replace the entire air conditioning system ~4000 and the dishwasher, not to mention a slew of other problems from the place being lived in by college students for soo many years.. also scheduled maintenance.

Next there is tenant problem (non-payment and such) - we are moving out this year and already my landlord had the first signee back out on him, and my lease ends in july..

Damage by the tenant, the security deposit only covers soo much, I am sure if a college student caused a minor flood or broke something that could be coverd up, it would.

Unlike a managed property you cannot keep an eye on everything that goes wrong, charge extra for everything possible.. I am sure those managed places make 10-25% of their income from "extra charges."

So, my only scenario is that the tax write-off for interest is what makes it worthwhile, and the possibility of being able to sell the property for more than you bought it for.
But, in the end, is it really worth all the risk and carried debt? This is all assuming you make 100-200k per year, and don't have money to throw out the window.

**criniit** · 06-27-2009 01:10 PM

I own several single family homes both 2br/2bath in a college town. Bought them for 40k each. I am making about 250$/month per house cash in pocket after all expenses.

It is defiantly possible to have positive cash flow in a college town. I have hired a management company so it is passive (I don't do anything accept cash the check.)

Just make sure you have enough money for repairs that will come up, and get a 30 year mortgage, your going to be buying old houses anyway, it is not about capital appreciation it is about monthly cash flow!

**Ksaberni** · 06-27-2009 01:11 PM

Pboychuk, You bring up some good points. I am also confused on these topics. But I can tell you this. There are landlords out there that are make alot of money by investing in student housing.

I recently ordered a book off amazon called "Profit by Investing in Student Housing" by Michael H. Zaransky. It has not come in yet but I am hoping that it may answer some of my questions.

**pboychuk** · 06-27-2009 01:14 PM

Originally Posted by criniit

I own several single family homes both 2br/2bath in a college town. Bought them for 40k each. I am making about 250$/month per house cash in pocket after all expenses.

It is defiantly possible to have positive cash flow in a college town. I have hired a management company so it is passive (I don't do anything accept cash the check.)

Just make sure you have enough money for repairs that will come up, and get a 30 year mortgage, your going to be buying old houses anyway, it is not about capital appreciation it is about monthly cash flow!

So you basically just proved my point for me.. because if you can find a 2br/2ba in 99% of the college towns for less than 80k, you are lucky.. 40k? seriously?

**Ksaberni** · 06-27-2009 01:18 PM

Originally Posted by criniit

I own several single family homes both 2br/2bath in a college town. Bought them for 40k each. I am making about 250$/month per house cash in pocket after all expenses.

It is defiantly possible to have positive cash flow in a college town. I have hired a management company so it is passive (I don't do anything accept cash the check.)

Just make sure you have enough money for repairs that will come up, and get a 30 year mortgage, your going to be buying old houses anyway, it is not about capital appreciation it is about monthly cash flow!

criniit, How did you get started in doing this and when did you get started? Is this something you do full time?

**Ruman** · 06-27-2009 01:57 PM

pboychuk,
You are correct, it is next to impossible to make a 100% living doing single family rentals, starting out. You depreciate the home over 27.5 years, so if you make $100-$200/mo it is essentially tax free until you sell the property. Another benefit is that you can roll over the money into other properties without having to pay taxes on it, similar to a 401k. The difference, though, is that when you finally do pull out money from an investment property, it is considered capital gains rather than normal income(assuming it's not your fulltime gig), which means you are taxed at a lower rate than you would if you were to pull cash out of your 401k/retirement account.

I see rental properties as a long-term investment goal. The reason I like them, is that they will be collateral to get a larger loan in the future, if needed, for a business opportunity/larger rental complex.

If you have ~5 properties that you have been paying on for 5-7 years, and you have built a little equity in each one, you have a greater chance of being able to get a business loan to do something bigger.

Cash is king, whether your own, borrowed from a bank or borrowed from a friend. There's nothing banks like better than collateral.

**Ctash** · 06-27-2009 04:26 PM

I attend the University of Tennessee. I have been looking at apartments for rent and so forth. The apartment rates per month is based off rooms being rented out. Rooms go for anywhere between 650 to 850 per month. If you break down the math for example a 2 bed 2 bath for $125,000. The monthly mortgage would be around $790.00. Rent out both rooms for $650.00, the monthly revenue would be around $510 dollars per month. There are many variables to calculate as mentioned in the previous posts so the profit is questionable. I have read that across the U.S. in over saturated condo markets, developers are starting to target college students to fill up the empty condos. If you feel like dealing with the headaches, it can be profitable. Just research the market, level of saturation, and number crunch.

Regarding capital gains, if you roll the amount into another investment property you should be able to avoid the massive taxes. Research various exchanges such as the 1031 exchange.

**Ruman** · 06-27-2009 04:57 PM

Ctash,
For a $125,000 property, with PITI(principle, interest, taxes, insurance) you are talking more like $1,000 per month. $790 wouldn't include property taxes and insurance. If you are renting rooms, most likely the landlord is paying the utilities, so thats $200-$300/mo depending on the time of year.

Therefore your expenses are $1200-$1300/mo and you are renting it out for $1300/mo.

It's amazing how much difference paying a little extra saves you. If you pay $300 extra per month, or $1300/mo on the same property, it pays off the 30 year mortgage in 15 years, which saves you $89,000 in interest.

Chase

**pboychuk** · 06-27-2009 06:47 PM

Originally Posted by Ctash

I attend the University of Tennessee. I have been looking at apartments for rent and so forth. The apartment rates per month is based off rooms being rented out. Rooms go for anywhere between 650 to 850 per month. If you break down the math for example a 2 bed 2 bath for $125,000. The monthly mortgage would be around $790.00. Rent out both rooms for $650.00, the monthly revenue would be around $510 dollars per month. There are many variables to calculate as mentioned in the previous posts so the profit is questionable. I have read that across the U.S. in over saturated condo markets, developers are starting to target college students to fill up the empty condos. If you feel like dealing with the headaches, it can be profitable. Just research the market, level of saturation, and number crunch.

Regarding capital gains, if you roll the amount into another investment property you should be able to avoid the massive taxes. Research various exchanges such as the 1031 exchange.

650 per room! good lord. thats what me and my roomate pay total for our 2br/2.5b townhouse in athens (UGA). and the max you would look to pay here is 450 per bedroom in the nicest places.. So maybe I was wrong with my assumptions, It just seems like everything in Georgia is cheaper housing wise. Because Athens is way more expensive than the rest of the state.

I was just looking at the website of landmark properties, the biggest leechers on college housing in athens, they have 5-10 college communities here.. Anyways I noticed they are starting a project knoxville, so maybe its a lucrative place..

My main gripe was that after the fixed costs no profit could be turned.. because in athens you pay 125k, for something that rents for 700-800 per month total. I am looking for some good tax deductions over the next two years before i finish college and buy my own place, maybe ill look in tenn....

**pboychuk** · 06-27-2009 06:54 PM

Originally Posted by Ruman

Ctash,
For a $125,000 property, with PITI(principle, interest, taxes, insurance) you are talking more like $1,000 per month. $790 wouldn't include property taxes and insurance. If you are renting rooms, most likely the landlord is paying the utilities, so thats $200-$300/mo depending on the time of year.

Therefore your expenses are $1200-$1300/mo and you are renting it out for $1300/mo.

It's amazing how much difference paying a little extra saves you. If you pay $300 extra per month, or $1300/mo on the same property, it pays off the 30 year mortgage in 15 years, which saves you $89,000 in interest.

Chase

where the heck does the landlord pay the utilities? and if that's not the case than 1000 per month when rent is 1300 sounds amazing to me, I would jump on that in a heart-beat, call me naive but, thats 300 per month, plus the tax savings, which could almost be another 300 per month..

I really can't wait to take my real estate class next year... I have a lot to learn i guess.

**criniit** · 06-27-2009 06:58 PM

Originally Posted by Ksaberni

criniit, How did you get started in doing this and when did you get started? Is this something you do full time?

I got started a year ago. Was looking for cheap rental property around my college and found these 2. I worked out a deal with the owner for 1000$ down and the rest ownerfinanced.

No I don't real estate invest full time. I am actually launching a magazine in one month so that's taking up slot of my time.

@pchuck

There are TONS of properties in the 40k range around my college. I would buy more if I could get the same deal, but bank dosent like me not having a steady paying job.

I just noticed your at UGA I'm at Georgia southern