Interested In College Student Rentals? Look At This Comparison ...

Yesterday, Scott Rogers in Harrisonburg posted an explanation of why investing in college student housing MIGHT NOT be for everyone.  It's an excellent post, and I recommend you read it.  But that's not what this post is about.

Scott highlighted a complex called Hunters Ridge, which caters to college students.  I found that ironic ... Blacksburg has a Hunters Ridge, as well, which caters to college students.  And lo and behold, they look the same!  Must've been built by the same company, and I thought it would be an interesting comparison, to put two college communities in separate university towns against one another.  We'll look at cash flow as it's affected by purchase price, mortgage rates, and rental income, among other things.  Prices in Blacksburg's Hunters Ridge appear to be a bit higher than at Harrisonburg's Hunters Ridge, so we'll take that into consideration as of today, December 21 2007.  So let it begin ... The Battle of Hunters Ridge, 2007.

1470-J Seneca Drive, Blacksburg	1346-D Hunters Road, Harrisonburg
Price of $136450, 80% financed at 7.25%, self-managed	Price of $105000, 80% financed at 7.25%, self-managed
Rental Income + $750, going to $1000 in May 2008	Rental Income + $770
Mortgage (Principal & Interest) - $744	Mortgage (Principal & Interest) - $573
Condo Association Fee - $145	Condo Association Fee - $155
Real Estate Taxes - $80	Real Estate Taxes - $45
Insurance - $28.50	Insurance - $35
Monthly Profit - $247.50 loss until May 2008	Monthly Profit - $38 loss

If you decided to put down only 10% and hire a Property Manager, your numbers would look like this:

1470-J Seneca Drive, Blacksburg	1346-D Hunters Road, Harrisonburg
Price of $136450, 90% financed at 7.25%, property mgr	Price of $105000, 90% financed at 7.25%, property mgr
Rental Income + $750, going to $1000 in May 2008	Rental Income + $770
Mortgage (Principal & Interest) - $837	Mortgage (Principal & Interest) - $645
Condo Association Fee - $145	Condo Association Fee - $155
Real Estate Taxes - $80	Real Estate Taxes - $45
Insurance - $28.50	Insurance - $35
Property Management - $75, going to $100 in May 2008	Property Management - $77
Monthly Profit - $415.50 loss until May 2008	Monthly Profit - $225 loss

Scott muses, "with these monthly losses, you might wonder why someone would buy an investment property." Keep in mind, at least with the Blacksburg property, after May 2008 you'd MAKE $2.50 a month if you managed the property yourself, and lose $190.50 a month if you let a Property Manager take over.  So ... why does investing in college towns make sense??

• from a tax perspective, losses on investment property can actually be a good thing (provided that appreciation isn't going south, as well!)
• College towns have historically been great investments - JMU and Virginia Tech continue to project for more and more students, as does Radford University , and they'll need somewhere to live.
  
  It's an interesting comparison, to be sure.  In both examples, it's either a wash or a loss each month at current market prices.  That isn't to say investing in properties like these doesn't make sense ... but, before you jump into the game, let's talk about what specifically your goals are and structure a plan to get there. 

Comments

[Jane]

What your comparison fails to mention is the benefit of a property manager. Absentee owners often do not maintain the asset, and thus experience diminished returns due to deferred maintenance. The presence of a property manager can identify and address maintenance (and market) issues promptly without detriment to the asset. Actual monetary benefits of property managers for absentee owners are hard to quantify until a property owner has experienced a financial loss due to his lack of action, market knowledge, and/or presence at the property.