I am a new investor, and this is a situation a member in my family has.
They just bought one side of a duplex in 2005. Now that the market is the way it is, they owe slightly more on it than they bought it for. They want to keep it as a long term investment. They may have to move soon due to a job transfer. Their payments right now are 1900/mo but in about a year they star paying principal so there mortgage payment will go up to about 2400/mo. Its a 3 bd 1 1/2 bath house with a basement and a large back yard. They also live very close to a reputable university. In fact you don’t need a car to get there, you could take a university bus. The market rent in the area for this house is close to 1800. So my question is how can we develop a strategy where the family will not be is such negative cash flow situation. I was thinking about implementing a student housing idea like Nick Sidoti’s. Where you get graduate students in there get their parents on the lease and rent the house by the room. While providing all the utilities and other things. But at that point once you add utilities, cable, and internet and lawn service, the total out of pocket expenses would rise to at least $2700. So you would have to rent each room for about $900. Which is way higher than local houses are renting to students when they are doing it per room. Does anyone have any insight on this situation?
Can they do a short sale?
Negative rental income will drive them into the ground. In addition to that by renting out the property they will have to fix it up everytime people move out which will be more money out of pocket.
Lots of students in rental housing pay their own utilities.
What do the numbers look like if 3 students are each paying for a bedroom? Are you within the norms for your area? You can check the student housing office for rent comparables.
If you leave some furniture and appliances this could make the deal more attractive to students.
Furnished rentals DO bring in more income. Look at the “Doug Fath” thread for more info. Look at the home from a student’s point of view–would you rent it?
If it looks possible, than really hammer the advertising–flyers, Craig’s List, Student Newspaper, etc. Good luck and let us know how it goes.
Furnishedowner
Ahop,
I just thought of something else. Since your family is still living in the unit (owner occupied) contact the lender IMMEDIATELY about doing a loan modification.
The home is UNDERWATER (has more debt than its value), and a huge increase in payment is coming. Get that lender to lengthen the amortization, decrease the interest, or otherwise make accommodations so that they don’t get that house back in foreclosure.
Then if your family has to later move due to job change, that is still better for the lender than another foreclosure. I would play hardball with the lender. Times are tough.
Furnishedowner
Thank you so much for your responses! Great options to consider.
The family really wants to keep the property as a long term investment, because of the location and demand for the area. So they don’t want to do a short sale, until they are absolutely sure they can’t handle the negative cash flow. Definitely a good solution for possibly other people in similar situations.
Next the single dorm rooms go for $3,175 per semester. There is a very limited supply of dorms in general on campus. It is a very densely populated area, and they just don’t have enough land to develop enough on-campus housing, to match the growing student population. I think we could get between $550-$700/ per room, charging more for the bigger rooms, and less for the smallest one. So a good example could be about $1850/ month. We could also possibly rent the basement to another student. There is not much privacy though, because all the laundry facilities are in the basement. The main concern I have with this idea is that there could be 4 people in this house, with only 1 full bathroom!
Let me know what you think with these specific numbers included. Thanks in advance!
You have something to work with.
First, the loan modification. The family has got to impress upon the lender that they CANNOT make any increased payments and that they will default. Which they well might.
You need to become an expert on the particular student housing right there. Talk to the housing office. Read ads. Query students. Run an ad and evaluate the responses. Don’t plan on paying the utilities, except maybe water if there are plants to keep alive.
Later put a “For Rent” sign in the front yard with an information tube on it. Have flyers with all the pertinent information and phone numbers. If the flyers disappear and the phone starts ringing you know you can probably rent that house.
You might want to keep all the room rents the same…“First come, first served”. If the students are all friends the 1 bathroom is less of a problem. In student dorm co-ops 5 students share 2 bathrooms. Sweeten it with some furniture and appliances.
Good luck and let us know how it goes.
Furnishedowner
Furnishedowner, you say don’t plan on paying utilities. My concern is that it will be much easier to move students from semester to semester. However if they pay the utilities we run into several problem. (myself being a college student I have run into this recently) The liability will usually be on one of the students, if they have no credit or previous accounts with the utility company, the company will ask for a very high security deposit, something close 2 months fee for that utility. If the students don’t know each other you won’t be sure the other 2 will pay the one who’s name is on the utility accounts. Second problem, is what if the student is only going to be living at the property for one, maybe two semesters? In other words not a full year. Will they cut off all utilities, until someone else in the house takes on the responsibility?
Basically my thinking is to make it as hassle free to the student as possible. Especially if their parents are the ones footing the bill, the students themselves don’t have as much real world experience with signing up for utility accounts and paying bills. (unfortunately they don’t teach that in college…which is a bit silly if you ask me) That is why I love your ideas on leaving furniture and appliances, perhaps even dishes? I think we would be able to charge more if its flexible housing, without a strict year lease, because that’s different from what the other private landlords are doing. They just lease it and leave the students to figure it out. Which can sometimes be very stressful depending on the room mates.
Am I way off base with my thinking? Or do you think this approach will be able to create higher income revenue?
Your plan on paying utilities can also work. That is the model for my furnished rental home business. However, we have a lot of turnover, way closer to an extended stay hotel. f you do that, you may have more turnover, as students have spats or drop out. You also will need to charge a really high-sounding rent.
Did you read the comments from msneachta on student housing? He does only student housing and had great advice.
1-year leases (you might have to adjust to school year only according to the local market)
Students all know each other and they find their own roommates.
Students pay their own utilities.
Last year my son rented a $1500/month near his University. He wanted his 2 dorm roommates to live there. ALL PARENTS AND STUDENTS signed the lease. They didn’t have a clue about paying utilities but they figured it out–1 set up the cable TV and internet server, 1 paid the gas deposit and got the bill in his name, 1 did the electrical. Parents will cough up the deposits when needed. Remember the students are almost adults, they can handle stuff like that if they want to.
That lease was for 1 year even though we parents only wanted 9 months for the school year.
I would be as strict and hardline on what YOU need to make that rental successful as you can. Don’t be nice, be all business.
You might want to go preview other rentals so you can compare. So you can price yours right, maybe just a bit high to test the market. You can always go down in rent, never up.
Furnishedowner