Over the last couple months i was looking into purchasing a college real estate investment in my area. At first I was only looking to do a single house with maybe 2-3 apartments. However there werent many good deals available considering the properties on the market, I was looking to either purchase or put most of the money down with $100,000 set aside. Recently a huge apt complex in the town i was looking into was put up, it has 18 units and 40 bedrooms for 800,000. I was immediately interested and even went to check the place out, and considering the prices for student housing the profits would easily cover the cost of the mortgage payments. The property is located 8 minutes walking from the campus and right in the heart of the downtown area.
My question is however mostly wherever i see you have to put 25% down and obviously my 100k wont do that on this 800k property. Do lenders vary on the necessary money down if I show them the profit/loss statements on the property or are they very strict on that 25%? The owner says he is willing to do partial owner financing of sorts, so any creative ideas on this would be greatly appreciated.
Any info on college housing would be appreciated. Although I have done the research and talked to numerous college landlords on the whole behavior of college students so please spare the lectures on college students destructive habits.
Typical LTC on this size loan would be 75%-80%. Banks can legally (per FDIC regs) go to 85% but they won’t tell you that, and it won’t happen unless you have a standing relationship with the bank.
If the seller is willing to carry $100,000 you have the beginnings of a deal. But be aware that any lender is going to want full disclosure as to source and use of funds. Some try to hide seller seconds, but that’s lender fraud, a felony. Not smart.
Key to underwriting will be the cumulative debt service coverage ratio. In order to properly structure the deal you’ll need the actual operating history, current rent roll, and an idea of the terms available from the bank or private lender you intend to use.
Speaking of that, you’ve actually got the cart before the horse by searching for properties without having done the footwork to establish banking or lender relationships. Might want to get that done right away if you want to pursue this deal.
Yes I know I went a bit out of order on this and it is deffinetly confusing the matter a bit, I am working to get everything back on track. I am having 2 friends check out the place this weekend to see if they believe it is a good investment. If so i will kick the tires on working out financing options.
There are still a number of hurdles to cross in this investment, if I continue I will make sure to ask for some advice before I jump into anything.
[QUOTE=ray@lcorn;884549]I live in a college town (Blacksburg VA; home of Virginia Tech) and they are one of my favorite market types. Let me know what you find out.
best,
ray[/QUOTE]
Ray,
I'm very interested in this field myself especially in a college town ( my oldest is a WAHOO and my 16 yr old has an offer from the Hokies). Do you currently have or have you closed on a college invesmetn property? I'm trying to learn the most I can about this field because I would like to get one myself in the future. Thanks
Also remember the seller showed some flexibility. If he has a hard time selling and needs to sell within a few months then he may change his mind and end up selling with even more creative terms than what he is offering now.
Example. I bought an 11 unit property where the owner is now carrying 90% of the financing for up to 8 years with a balloon. I only put down 10% and the payments on his 90% carry back were delayed up to 5 months while I used the current rent revenue to remodel 3 apartments that were in need of repair.
Is there any upswing potential to this apt complex? What is the current occupancy?
My seller was totally against any owner financing at all during the initial 2 months he had the property up for sale. Its amazing how if you make an offer each month how they begin to feel comfortable with you and want to work with you. Its all based on their motivation.
[QUOTE=ray@lcorn;884549]I live in a college town (Blacksburg VA; home of Virginia Tech) and they are one of my favorite market types. Let me know what you find out.
best,
ray[/QUOTE]
ray
i m also interested in this field .! to day i join this community.!
College towns can be great investment markets, but if you’re looking at this deal for $800,000, you may want to factor the expenses necessary to keep up a student tenanted apartment building.
Students do create more wear and tear and can have a higher default rate if you’re not careful about having the leases guaranteed by a parent.
One other thing to check out is that a lot of universities and colleges are expanding their student housing business, meaning that they’re developing more dorms and requiring that students live in them. Make sure that your market doesn’t get scooped by the school’s attempt to capture some of the upside in commercial real estate investment.
Jeremy
It seems college towns are a really hot market. It seems at least once a week on Globe St or other publications there is some “resort” being built on a college campus here. I wish I was in an apartment complex with a lazy river!
If admission rates keep going and the number of students outnumber beds by a wide margin then this market is probably a gold mine for years to come. Universities seem to be on a shopping spree of space one block at a time and just continue gobbling up space to build on.
I do agree there is a downside risk with students because of wear and tear but if you buy a property outside a universities border there has to be a pretty good chance of being bought out in an expansion project.
The question going forward is how long will this trend continue. Will all college campuses across the nation (public and private) enjoy the investment/expansion that the UCF’s of the world have enjoyed?