I’ve mentioned a pending real estate deal a partner and I have been working on for a while. I thought I’d give a quick update on how we came upon this opportunity, what we’ve done to date, what’s left to do to close the deal and all the lessons learned along the way. To recap, I’m borrowing from my 401(k) $50,000 since I have no doubt the ROI is much better than the crappy equity and bond funds offered (if you’re saying “tisk, tisk”, see why I have all my bases covered on this loan) and the properties are at a local college – where the damage potential is high but cash flows are very lucrative. We minimized our down payment and with rates at historic lows, we snagged an attractive 5.5% loan which is great for commercial ventures.
The Deal – It’s a pretty sizable deal with 5 dwellings and about 25 students (give or take). My partner has multiple properties at another college and these gigs have been cash-flow machines, especially on larger scale projects since you spread many of the fixed costs like property management, accounting, legal, repairs, etc. Since there’s usually very little vacancy risk on heavily populated college campuses and you don’t need to plow a ton of money into the properties. You remember what your college housing looked like, right? It’s just gotta be “good enough”. Finally, parents tend to pay the bills and there’s a much lower incidence of deadbeat renters…
Continue Reading: My Foray into College Real Estate – Animal House 2011
Darwin,
Living 1.5 hours away from your units = Dumb
Have 5 units with 25 students = Really dumb
Repairs and Rehab by workers = Eats up your cash flow
Outside Management = Its not their property, they give a shit, and eats up your cash flow.
Student Parents = It is not their property, they don’t give a shit either.
Student enrollment is declining, and property values are declining .
We are in a world that is going to be turned upside down, be careful with your nest egg. College rentals are a hands on venture for small investors, and only work well if you have other taxable income, and they are used for a write off. You need to put 50% down for adequate cash flow.
Your article reminds me of a young lad who just discovered his first hard on. Good Luck!
I’ve been a Wildwood shore landlord for 7 years. We only rent to families, never teenagers or young kids. Even supposedly family tenants beat the shit out of a rental unit. They don’t care. The rugs get trashed. Appliances get busted. Garage doors mysteriously fall down. The linens get stained by something. The wear and tear on the furniture is brutal. And this is from just renting to families 10 weeks out of the year.
Imagine what college kids, drunk 50% of the time, will do to a rental unit.
I will never be a landlord again after this experience.
Yeah, college rentals are not really passive investments. The people that I ran across having these investment properties were ‘hands on’ owners and or had enough units to have an in house maintenance team. You really don’t want to be paying a plumber to replace a toilet float, snake sphagetti out of a P trap or hair out of a sink. Constant turnover at the end of each semester or worse when a roomate/s leave. No thanks. If I’m going to have rental property give me a homely woman who likes to garden as a tenant.
Well, my partner’s been quite successful. He started with a small 6 unit rental 5 years ago and now has multiple larger apartment-type complexes and I’m guessing his free cash flow is mid 5 figures to 6 figures annually. It’s relatively passive. That’s what property managers are for. We already have a contract with the same guy who’s managing the seller’s other properties (who lives 3 hours away by the way and still holds 7 houses) and he fields ALL calls, lines up all repairs, has his own contractor biz, etc.
I’m fully aware of the wear and tear from college students; I lived in a fraternity house for 4 years. What you aren’t recognizing is that a) the returns (sale price) commensurate with the risk, b) the damage repairs come out of THEIR pocket via security deposits and c) they don’t give a crap what the place looks like. You don’t have to plow a lot of money into the properties.
Welshman, you have no clue.
“You need to put 50% down for adequate cash flow.” – you don’t even know what the cash flow is, how could you possibly make a blanket statement like that?
Darwin:
Your doing great. We need more slum lords. I’d convert to section 8 housing, then watch the accelerated destruction of your investment.
College kids are only drunk 50% of the time? What a bunch of pussies!
On the other hand, he wouldn’t do much better at the mercy of the 401K salesmen.
You guys are brutal! First it’s a bad investment, then I’m a slumlord (implying I’m taking advantage of tenants). So, what the hell do you all invest in? besides gold/silver, I can tell that.
Darwin
Welcome to TBP. The monkees are throwing shit. You better duck. You aren’t one of us until someone calls you a dumbass.
I suggest you blast one of your critics with the most foul mouthed attack you can muster.
Welshman
Are you sure college student enrollment is down? Last time I checked there was a bubble forming in college debt. With unemployment so high, many are jumping back into education. Unfortunately, many are piling on college debt for degrees that they hope will make them more attractive as a prospect. Times are tough and getting tougher as the supply of jobs continues to decline as demand for jobs continues to rise.
Correct; nobody can get a job so they’re going back to school. Aside from that, higher education has always been and will always be a massive transfer of wealth scam. Middle-high income pa full tuition while grants and aid are conferred to the rest. I get it, those who can afford to pay do and those who can’t get assistance – but this has resulted in the ability for schools to increase tuition at absurd rates and nobody balks. 6-7% per annum as far as the eye can see all on the backs of those making $80K and above. Let’s just call it what it is.
That being said, I don’t see the trend reversing. Enrollment should continue to be strong; btw, landlord has been increasing rents 5% y/r for some time, so has my partner (4-6% every year). They justify it by citing the tuition increases – even though housing should be de-linked.
Darwin:
Maybe you need to change your investment thinking into these terms: You need to invest in something the government can’t seize and/or take away from you. It’s good to get out of your 401-k, but property can/will be seized eventually. All you have to do is look at what the banksters are doing, trying to foreclose on properties they don’t even have mortgages on. How long until the government realizes it can do the same?
The more investment gurus you read, many presented here, the more you keep hearing about getting assets out of the U.S. Why do you think corporations don’t repatriate so much of their profits? Taxes, yes, but safety also. Who knows what those idiots in Washington are going to do? Could be almost anything. Do you want them to seize everything you have and hand you an IOU so they can continue to spend $4 billion a day they don’t have? They’ll do it someday.
Foreign assets in safe countries. Of course, gold is better. I’m no economist, but why give ’em a chance to rip you off?
I give him credit for pulling his money out of the 401K Ponzi scheme and at least doing something he will learn from. None of us really knows whether it is a good investment (neither does he, yet) or whether he is a slumlord. I just think that since our 401Ks are all going to end up worthless anyway, you might as well at least get an education and some experience out of it.
I am not invested in anything but gold/silver and my own marketable set of job skills. I consider it highly unlikely that I or anyone else in my age cohort will experience retirement as it is has been known in the past so I just stopped worrying about it. When my health is shot and my money runs out I’ll just die in peace.
You can afford to be a king-pin slumlord and buy hundreds of units in “safe” Pakistan…
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College housing… hmmm. I was walking by a house across the street from the University after class and thought the same as the For Sale sign swang in the breeze. The idea isn’t something to discard yet if the price is right.
Then again, as someone gainfully employed in the remodelling sector (not as busy as before but good reputation does wonders in bad times) and having rehabed some places fucking DESTROYED by tenants, I could see it. As a matter of fact, certain materials can bulletproof a rental pretty good. Main thing is no pets.
It’s not ludicrous, but raising rent on good tenants will land you higher turnover which is really spinning the chamber on the revolver playing Russian Roulette…
It’s an extremely high-maintenance investment. Things you can’t do leaves you hiring people like me…
That’s not even going into Rent Control… keep raising rents in a college town and it won’t be long.
Darwin,
If you can’t be hands on, your are screwed. If you can’t put down high down payments, your are working for the bank. You over leveraged these properties and the banks or the economy will shove them up your ass sideways.
Apartment housings is illiquid and difficult to sell. You make more per square food, but they are more time consuming.
You might think I am brutal, but forty years of experience in rental property, I have a foundation from where I speak.
Darwin’s Money,
Excellent, informative article. Pay no attention to Welshman. You have forgotten more about real estate than he knows. He is a mentally challenged fool who has a knack for letting his mouth overload his ass. He doesn’t know shit, and thinks he is an authority on all things economic.
BTW, Welshman——The USA is a train wreck. Take it to the bank.
China owns the 21st Century.
Make peace with that, you shit eating maggot.
Welshman,
The only forty year foundation you have is sucking black cock for forty years in Section Eight housing.
Keep pretending you are some kind of real estate magnate.
The King Of The Fucking Jungle is Back!
He steps back into it like he never left. Fucking brilliant and clever as ever. Welcome back the Guinness World Record Holder for the smallest penis known to mankind. Welcome back Smokey!
The Chinese will not fare well if they keep bowing with that disrespectful smirk… a little more QE and the smirk will be a scowl.
Tough shit.
They can keep their mounds of rubber dog shit and we’ll keep our ships fille to the brim with scrap metal…
Now if only our leadership could see things my way.
I’ve been a property owner/landlord in a college neighborhood for 15 years or so. I watch my property like a hawk. I don’t miss a thing. I screen my tenants and warn them if they don’t follow the rules. I run a tight ship and it works. No evictions or damage to speak over the ownership of the property.
I would never own a college rental property out of town. You have to be on top of students or else it will blow up in your face. Do not let the students set the tone on how the property will be run.
I’ll make it simple for you. NO PARTIES!!! They will destroy your property. Set hard firm rules and don’t give an inch. Put the needed money back into the property so your able to attract the decent college student. There are plenty of students who want a clean, attractive, quiet place to live. GET THIS CROWD. The party crowd are a bunch of animals similar to Jim’s 30 block crowd.
You do not want to be a college slum lord. The city will ride your ass, the cops will ride your ass, the university will ride your ass and repairs and lost rent from the animals leaving early will kill you.
It’s a tough and can work if you do it right.
Smokey,
Remember you are only a pvt., so be a little more humble if you can manage that. LOL
I’m certainly not a real estate magnate with eight town houses and two homes dickwad, I have the mileage in rental properties. Small investors need to take small bites and be close to their properties.
jmarz,
I don’t know about private college enrollment other than many colleges are stating that cost and future careers are holding students back. The budgets at state college are being trimmed, so they are not letting enrollment bust their budgets.
My wife is a pharmacist, so we follow that career path somewhat, and the enrollment into that career is just exploding, but that will be a bust with medicare cut backs.
We have a Jr. College and a State College where I live with a total of 28,000 students, and there are alot of vacant college rentals. People are being a lot more frugal, and more students live at home.
Yes, you would think Smokely would pinch you in the ass as a newby, insteady kicking you in the ass the first hour he is back. He is much like the Section 8 tenant that thrives on entitlements he has not earned.
Since he cannot show me any god damn respect, I shall just refer to him as a Smokey Wigger.
Since I am old, these new terms take time to learn, but he fits it to a tee. What is hard to believe, I was fairly nice to Smokey Wigger in the past. I only did not agree on his China Syndrome, Newt love affair, and ripping out Stuckies jugular.
AWD,
Be sure to get up warm and close to Smokey Wigger, he will leave me somewhat alone once he get to know you LOL.
Welshman,
You were fairly nice to me in the past?
Let me tell you something, you fucking old coot.
I never, EVER, disrespected you on this blog. Until you decided to stick your fucking nose in shit that wasn’t your business.
Keep on giving me your unsolicited opinions and I’ll keep packing your shit
Take it to the bank.
Milw05,
You are the man my friend, you get it. I had a 7 unit college apartment for five years, my stepson and I put blood, sweat, and tears into that unit, and it still is very nice. After five years I sold my share at a profit to him, and now he brings me 2661.25 everymonth every month, and bitches for one hour. At tax time I do his taxes, he is a nurse, and he pats me on the back and says, “Thanks Dad, you told me the write offs would make my day once a year”.
Rentals are not for the faint at heart, and college rentals test your soul. Thanks Milw05 for the testimonial and SWES.
Smokey,
I just opened a saving account in your name. So you get in online just use SWES, and you can check the balance on your nasty account. I see you carry bagage Smokey, and hard ons.
I guess you have taken names and many of us will have to feel your pain. Too bad. Anyway, welcome back and grow up.
Darwin’s strategy, when combined with Milw05’s iron fist of rule, is a win-win. But it also has to be for your typical “away from home” school and not some commuter university like a Cal State Fullerton or UC Irvine. Personally I like the model if you are close by to monitor it, manage it and fix it yourself.
Case in point. My son shares a large house with five other college kids. $750/mo rent for each of them. For 10 months (that’s the minimum commitment). $4,500 x 12 = $54,000 annually. How much does it really take to repaint and replace the floors each summer? Add another $2,000 expense for replacing or fixing appliances. And you pay Jose $50/week to keep the grass/bushes trimmed (and that’s generous…could probably get it down for half that). This particular house is a freaking money machine for the local owner. And he has a wait list for the place every year. Way cheaper than student housing, too. Cha-ching!
Welshman,
The names I took can be counted on one hand.
And every one of them, including you, jumped UNPROVOKED, sideways into my shit.
You were a bad ass tough motherfucker when I was tag teamed thirty-five to one, but now that the numbers aren’t there for you, you whine like a little girl.
Take that $50,000 and invest in physical gold (or the GLD EFT if you only have a 6 month investment horizon).
The United States economy is imploding and housing prices WILL continue to grind down just like Japan and the 1930’s. Your investment may be cashflow positive, but if the value of the underlying asset is deteriorating or goes into free fall due to economic collapse you lose out.
Having said that, do your homework, free advice from random blowhards on the internet is worth exactly what you pay for it…
Hiring a property manager who is a badass, which it sounds like he is doing, may be just what is needed.
I live in a community of condos, and most of the people who live here are just fine – they don’t bother their neighbors, they pay their dues on time, and this is a pleasant place to live.
It is just a small number of residents, usually renters, who cause problems – noise violations, the police getting called, parking violations, non-payment of dues, too many pets or pets above the 30-lb rule – and our property manager, who is normally a cuddly, friendly and jovial woman, turns loose on these people. She turns into 250 lbs of fury and fines the shit out of them, taking them to small claims court if necessary, until they either straighten up or move out.
Of course the problem people think she is a bitch, but when you’re dealing with deadbeats that’s just what we want her to be. (I’m on the board.) So while a property manager will cost you money if you don’t live nearby, or if you’re just not the type of person who can pull off being a badass, I think you could still make a living with rental properties if you got the right manager to mitigate problems.
You know, not all college students are drunken savages. The dorms and frat houses may be overrun with them, but a non-traditional student (someone over the age of 30, say) or a lot of the foreign students, who didn’t grow up as members of the FSA, really want to live like adults and have a quiet place to live and study. I think they would be drawn more to off-campus housing. The trick is to target and find them. My sweety lives near a university and already has a roommate, and he is a full-time student himself. But if/when his roommate moves out, he’d like to find a serious student to room with him. Probably an Indian or an Asian (and preferably a math major, hee hee), though it may not be politically correct to say so. Oh, and I told him it has to be a boy.
Oh, and Smokey – ferchrissake. It is good to have you back, even if you end up calling me a dumb cunt again. Of course, it’ll be easier for you not to get tag-teamed 35 to 1 if you don’t act like such a cocksucker.
Also, can you get your old avatar back? Every time I saw the creepy joker face, I knew to whip out my pencil and paper and start jotting down some truly ghetto shit-slinging.
Pirate Jo,
I am actually totally ignorant of the subject of cocksucking.
But you are obviously a seasoned professional.
So you are the perfect person to enlighten this board–FROM EXPERIENCE.
So do me a favor, you fucking ugly ass cunt—go suck some more thick cock you fucking WHORE.
Pirate Jo,
Coat-hangered any babies lately, you fucking SLUT?
IT’S ON NOW, BITCH.
Where HAVE you been? What have you been doing in your absence? I’m disappointed that you ran away from this board like a little girl.
I have not coat-hangered any babies lately because I know how birth control works and because sucking cock does not get women pregnant.
And AS to my cock-sucking abilities, you will never know because your cock is skinny and short.
PJ – make that 35 – 2. Just saying.
PJ- you said “not all college students are drunken savages”. You are right, there are a few that are TOTAL PUSSIES. It is the god goven right of all college students to be drunken savages, and if they aren’t up to it, they need to drop out and get real jobs.
They need to study too, but you only get one free swing at being a drunken savage, so you better damn well make the best of it.
Alright cockblockers, so here’s the deal (which I laid out in my full article, but will reiterate)…
– Putting down as little as possible is intentional, it optimizes ROI. Who the hell would put down 50% when you can put down 25%?
– The property manager IS a badass. Oh, and by the way, we’re taking over leases that are signed for next year (not that big a deal), but 2/5 are FULLY signed for even 2012-2013! and 1 more is half-signed as well. That’s about 50% booked for 2 years where we don’t have to do shit by way of tenant procurement.
– In looking up and down the street, it’s all the same story; they’re all older, kinda crappy houses. We just completed inspection and while we’ll live w the little stuff, seller just agreed to repair all safety related items prior to sale.
– Regarding hands on vs property manager… frankly, I’d NEVER get into a real estate deal where I actually HAD to be hands-on. My time isn’t worth it! I’d rather spend my time pursuing other ventures where my ROI is higher. I’m paying the guy like $30 an hour for everything from handyman work to tenant procurement. Even if I lived say, 20 minutes from campus, showing the place at an hour each (2 way commute plus time w tenants) is an hour of my time. I value my time at more than $30 an hour. And I’m definitely not up for repairs, truckin’ to home depot daily, spackling and all that crap.
– As far as being tough to move, none of these homes even go MLS – they’re all private sale! There’s so much demand for properties at some of these colleges, they move rather quickly. Granted, the sellers like to sell in blocks of 2-5 properties and don’t want to screw around with mom and pop buyers, but my partner was already an established college real estate entity, so it worked out.
I’m not so naive to believe there won’t be unanticipated issues; but we’ve put in a ton of due diligence, the leases are solid, we’ve had great legal protections put in place and I’ve got a partner so it’s technically 50% of the bullshit for 100% of the return on my investment.
I’ll make sure to report back and eat my hat if I’ve missed anything.
Until then…eat me :>
Thanks though; I do feel like part of the club now that you’re willing to spend the time calling me a schmuck. I’ll be back with updates….
Darwin
Can I ask which college your rental units are near?
Depends on what college it is (undergrad only vs. undergrad + graduate + postdocs), but I imagine one could make a niche out of renting off-cycle to get a different crowd. Since your typical college town leases go something like Aug 1 to July 29. There are always those students, especially on the grad/professional end that will need something off the standard cycle. Most of these folks are desperate to find a place that they aren’t going to have to drop 6 months rent on when they leave, so they are wiling to pay a little premium in price. But it would be a more hands-on job to find tenants.
Darwin,
Your property undertaking is informative and a good read here.
The overwhelming key to your endeavor, in my opinion, is the extensive experience of the guy you are doing the deal with.
Your partner has been there, done that—-so please do not think you need to defend or justify your investment to the assholes here who don’t know shit but are so quick to criticize you.
I’ve looked on your blog. You know about investing money and are apparently EXTREMELY careful before committing funds to a project.
If you have confidence in your property manager, your financing, your partner—only you know what your risk tolerance is. Seems to me that you are seriously addressing any risk factors.
Good luck with your project, and I hope it opens a few more doors for you.
Darwin – I will quibble with this “Putting down as little as possible is intentional, it optimizes ROI. Who the hell would put down 50% when you can put down 25%?”
First – it increases risk. It is like buying stock on margin. If stock goes up – you do well. If it goes down – not so well.
Second – the ROI of 15% on money invested can disappear in a hurry if the property is damaged. Or if perhaps one of the units is left empty for a while, etc. etc. It may or may not be a worthwhile investment – it depends on your appetite for risk. Without knowing all the tax figures, whether it was bought through a company or personally, etc etc I cannot comment further. But it is indeed a high risk investment.
Hope it goes well for you.
LLPOH, I studied and got my degree, then became a drunken savage later in life. There’s nothing wrong with that.
And there’s nothing wrong with women licking pussy either, but even if I was into that, I’d never eat Smokey’s, because hers smells like fromunda cheese.
Smokey godammit you are on Darwin’s side like me. You cocksucker. I should let our property manager sit on your face, until you learn some manners.
Pirate Jo 2016!!!!
Darwin:
Don’t blame us for questioning the details. Its all in the details.
BTW I think 30 an our’s good money if it’s steady and I’d gladly take it, slum lord…
In the rental biz you get what you pay for.
I’ll gladly fix your day laborers’ mistakes for 50.
PJ – no way in hell you are dragging me into a flamefest between you and Smokey. I will bystand this one, thanks.
Sure, Scranton.
As a side note, we had the appraisal recently and the appraiser opened up a bit and discussed his thoughts in general on the properties and the area. He affirmed our thinking that the deal was pretty attractive, said the properties sell quickly when the do come up and things at the college are going well (enrollment was up last year again, forget how much)
Darwin
I think Scranton is a low risk area for your investment. My sister went there. I’ve seen the college. It’s a Catholic University so it doesn’t put up with too much partying by its students. The cops are tough. My sister was on probation for a year for getting caught drinking under age. The tuition is high, so the students are more serious.
You’ll do great with the investment. The stock and bond options in your 401k will return 0% in the next ten years.
Darwin
Just don’t rent to these guys.
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@Darwin’s Money:
If you invest in this housing near a college, your moniker will be most apt. In fact, we should change it to “The Darwin Award for the Worst Monetary Investment of All Time”.
Let me tell you why.
My Dad, after he retired from teaching, led the maintenance crew at the Claremont Colleges (in Claremont California). Yeah, I know, a guy with a Master’s degree painting and making furniture and repairing sheetrock, but my Dad loved that kind of stuff and he was damn good at it. Sure beat the hell out of trying to shoehorn some educamation into the ungrateful nappy heads of his students when he was a teacher.
I don’t know if you know about the Claremont Colleges, but they are actually 8 or 9 colleges in all. They are considered by many to be the California version of the Ivy Leagues in terms of their entrance requirements, exclusivity and PRICE. For fuck’s sake, I grew up just down the block from them and could not afford to go there without incurring $150K in undergraduate debt.
The kids who attend come from extremely privileged backgrounds, usually from pricey K-12 prep schools, all the extra-curriculars, summer in the Hamptoms, senior trips to Paris, blah, blah, blah. Hardly the stuff of the 30 Blocks.
Yet these kids behaved no better than them. My Dad and his crew would basically have to remodel their dorms every damn semester as the little darlings would trash them. Holes in the wall, graffiti in the lounge, closets filled with trash, and you do not wish to know what was stuffed down the toilets.
And if you thought the student’s dorm was bad, let me tell you about the professor’s housing!!!
No my friend, better to invest in some nice, and remote, arable land with water, some guns, gold, silver and means to defend same.