Given your numbers, that’s only a 5.9 Cap and you aren’t including a vacancy rate in which the bank is going to want to see.
I think the real question that should be asked is do you have any experience buying, managing, etc. real estate and specifically student housing properties? My portfolio is 100% student housing and no matter what anyone else tells you it is NOT the same as other types of residential rental properties.
Here’s the problem with your idea. If you don’t have any experience in this business unfortunately noone is going to loan you upwards of $8mil on any deal, no matter how good it looks, sorry. If you do have experience, first you shouldn’t be asking us these questions and second you should know that property is overpriced by about $3mil.
I love student housing, it doesn’t rely on the same variables that affect other forms of REI, but it does mimick the others in the fact that it still has to be a good deal! Let me give you a little bit of insight as to what’s going on in the student housing business. Big time Wall St. firms have started investing HEAVILY in student housing over the last 4–6 years constructing these mega student housing communities all over the country. When a new community comes online they are almost always at 100% occupancy because they are the new thing in town and have ammenities the others have not thought about offering yet. They are also cheapy constructed and after a year or two of students the signs start to show. After a year or so of 100% occupany these properties go up for sale and they look like a steal because of the high occupancy, seems ok right? Wrong, when other firms see these levels the first thing they do is build there also which also brings down the occupancy of your newly acquired property.
Clearly you’re going to do what you want but I would highly advise that you look just beyond the potential property to properly evaluate this deal. Specifically look at the barriers to entry for other properties of this size. If this property is located a block from campus and land is scarce that’s good. If it’s out of city limits, maybe a mile or 2 from campus, watch out. It starts with 1 or 2 of these Wall St. funded communities then quickly balloons to 5 or 6 and they can build fast!
If you do decide to move forward let me know and I can point you in the direction of some firms in your area that have financing products for student housing deals. Good luck.
I did a quick bit of math just so you could see.
$11,500,000 @ 5% (prime) over 20 yrs is: $910,740
Your projected NOI is: $686,951
Annual LOSS!!! $223,789