21 Years Old: Looking to rent property to college students
First off, I want to thank all of you for providing me with a plethora amount of responses and discussions to read and learn from.
A little about myself, I am 21 years old, MBA Candidate at a NY school. I am very familiar with my schools area and the current off campus housing situation. I am a value investor when it comes to stocks and the same goes for real estate (Although I have not been involved yet). There is a great deal of money to be made renting to college students in my area. I know personally as I have rented with a few roommates. I would assume my landlord brings in around $50,000 a year collecting from us. That's not a bad secondary income.
I am looking to get involved in this business, I do need some guidance as I am young. I have a more economic background and financial service background so I do understand the interest rate climate and mortgage environment in relation to the stock market and global economy. I also enjoy scouting the housing market for value.
One thing I am missing is capital and advice/direction. Interest only mortgages seem to be the easiest way to maximize profits early, ARMs, fixed. I'd appreciate any advice I can get.
Hoping to meet a few potential people who could pay it forward and help me get my life/career started at a young age. I believe renting to college students could be very profitable. Appreciate all the advice I could get.
Thank you,
Michael
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Wondering about this as well
If you understand value and are a "MBA candidate" then it's very simple. I'm going to assume you're buying either a very small MF structure, or plan on going with a SFR (possibly a triplex or such). If you're going with the SFR, then look at your capital requirement to get into the structure. I know in my state, FHA & Fannie have programs that require much less than your typical 20% down. Granted they will have Mortgage Insurance, but as long as your rental income is sufficient and you can maintain the property within a reasonable expense ratio, then it should still be profitable. If you're going with MF, 5+ units, then you will have a higher capital requirement and might have to start building a relationship with a local credit union/bank to get some decent leverage in today's market.
Keep in mind, you are renting to students. People who are approximately 18-23, drink excessively, do stupid shit, break shit, spill beer, have wine Wednesdays, throw parties, don't care about cleaning, etc. (not saying all students are like this, but think about some of your friends from college....). You will have to properly budget for turnover costs, repairs and maintenance, and the time of managing the property. Granted you have a security deposit for a reason, but these are all things I would be weary of. Student housing is very profitable but it is also very competitive. You have a very specific window to get your leases signed and if you do not perform, then you will have a difficult time leasing it during the school year.
Rent out mobile homes near community colleges. Seriously. All bills paid and make it slightly more expensive than nearby apartments, but have much more relaxed credit requirements/rental history requirements.
You can make serious coin off that.
Source: my old boss owns 10 trailer homes on a plot of land, rents out each room separate to students, makes good coin. 30 rooms filled every single year, and new college students every year mean more potential clients.
There's a manufactured housing community near either Kent State or University of Akron that does exactly that. The owner came in and bought a busted up old park, and thus still could use the nonconforming use, brought it new units and rents it out as 100% student housing.
I believe they do pretty good business. I'm sure you could find the community if you looked hard enough. I also think given the OP is in NY it might work if he's in an area upstate. Tons of mobile home parks around those parts.
What I would like to see (here in Dallas specifically) is the idea of buying a plot of land and then putting pre-fab modern mini-homes all throughout the area. With the idea of renting them out to young professionals and having that young adult suburbia instead of families and picket fences.
Have the ability to buy a 'cheaper' home ($100Kish) which is smaller, but better quality and builds equity for younger adults who are more pro-rent than pro-own.
Could even have the community run a shuttle to the local working district (Addison for us). Just a fun idea, but mobile homes + student housing is great if you're lower on capital and want to get a start.
What about doing the same thing near military bases? The military usually covers off-base housing for more senior soldiers and soldiers with dependents.
This, honestly, is a terrible idea. And I'm not sure how you're a 21 year old MBA candidate either.
I had the same thought when I was in undergrad. I looked around and said somebody here is making a lot of money..... Turns out it's huge multinational REITs, not other students. You're too young and inexperienced to actually understand all of the issues surrounding this, but they are many. IMO stay away.
No offense but that's a completely stupid reason not to do it. Youth is only bad on the front of being inexperienced. I'm 21 and I run a small company which went from $0 to $120,000 in revenue in less than 8 months. Everyone told me I was too young, and they were wrong.
Discounting people based on youth without any ability to gauge their talent is pretty narrow minded.
In response to both of you.
UDT- this is real estate not facebook. While youth may not be a factor you actually need funds to buy real estate, most 21-year olds should't have enough money to buy a house, even a cheap house. But since he is young he is going to make so many mistakes in renting his properties(if he can afford them). I doubt he has any idea what the actual expenses are in the house and that most likely the owner he mentioned clearing 50k most likely nets 25k/30k.
Also, I like your development idea a lot.
thexaspect - I agree completely. I think we have all had the idea at some point that our college landlords were raking it in, and they were. In my school while single family houses were being rented for 400 per mo we were being charged 1000 per month.(ghetto philly). Also there is no way for a 21-year old with minimum credit to obtain financing unless mom and dad can guarantee the loan.
Wait you're telling me you have over 1,000 banana points and you're only 21?! You're an inspiration. Thank you.
Instead of assuming total risk by buying a property outright, why don't you by a stake in a multifamily complex? Granted the opportunity must arise, but it may be worthwhile waiting. My aunt's boss will be purchasing a section 8 mf and has offered me the opportunity to buy a percentage of the property. It will be small (2-5%), but it is hassle income as the property won't be managed by us. I'm 18, so while you're a little older than I am, I still think it's a good option for you to consider.
Ever heard of a REIT?
I own about 20 beds near a small (10k student) university. Rent is about $450/mo. Tenants pay all utilities. It's typically these kids first time living away from home / dorm where their hands are held daily. It's a lot of work from the management side.
Buy SFR / Duplex / Triplex / Quad / Small apartment within 1.5 miles of a university. The closer, the better. Lima One Capital is good for acq. loan...you need 20-25% down.
Sometime around 2008 San Diego created an ordinance not allowing "mini-dorm" housing. A mini dorm is a house with, say 4 or 5 bedrooms housing 2 students per bedroom. I had a buddy with a house getting $750 a head. This was 2000 - 2007. Large lot, good parking, pool, etc.
Assuming you don't have the ordinance problem, a mini-dorm could be the way to go. Student housing in general down here works like this. It's done this way cause rent is nearly 100% guaranteed...Always structure a September to September lease, or Fall Semester to Fall Semester. Even near SDSU there is vacancy in July. Second, if you have 5 students in a mini-dorm get the parents, preferably both, to sign on the lease. Now you have three guarantors per bed. Rent will get paid.
Mini dorms and conventional MF student housing deals get leased like this all the time down here.
As far as financing, find a way to get an owner occ FHA loan with 3% down.
Yes, renting to college students could be very profitable. The demand for rentals is great in college towns. But you should be ready for high tenants turnover. While there is a large rental market in a college town, these tenants are often short term.
You should also be aware, the it could be hard to find tenants in off-season. Since fewer students attend college in the summer, you could be looking at vacancies during the summer months.
Most leases for off campus housing will start in June. This is when issues arise with tenants illegally subletting them to summer students during non school months. I've seen it before. Besides that, if you have property near the campus, you never going to run into any vacancy issues.
a buddy of mine worked full-time throughout university and bought residential property our sophomore year (2010), then rented the remaining rooms out. He graduated without student loans and like $120k in equity (primarily due to jump in real estate values). im tots jelly
As for OP, scrounging up a down payment and getting a loan without a primary source of income is going to be tough. Do your own research and figure out if it's even worth pursuing at this point in your life
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