Rent to Own Apartments: The Quickest Way To Analyze Student Rentals
About fifteen years ago, we purchased $5,000 worth of tapes (yes tapes, not CDs) from a Real Estate guru in the U.S. And there were only two tapes that were really amazing. The first was something to do with public speaking and how you engage with an audience. I was doing a talk in front of 300 sales people later that month and the advice was priceless.
So it didn’t help us own any properties, but it did help me knock that speech out of the park :)
The other thing that we learned from that big box of CDs was the 1% rule… Which turned out to be a pretty insightful little tip.
It’s a way to analyze student rental type investment properties in 30 seconds or less.
Here’s how it works:
Let’s use an example of a student rental property that you’ve found close to a University of College that is asking $280,000.
It has seven bedrooms that can be rented out for $400 per month.
That’s a total of $2,800 in rent every month. And $2,800 is 1% of $280,000. It’s a slam dunk and deserves further investigation.
What’s the catch? Well, there are some. We bought a student rental property that qualified under the 1% rule but we didn’t give enough consideration to the condition of the property.
About a year after buying the property, we did renovations on the property that cost us about $6,000. We updated a small bathroom and replaced some flooring.
A year later, we then spent about $18,000 updating another bathroom and kitchen.
We had been blinded by the 1% rule. We were so happy with the numbers of the property, we overlooked other things we wouldn’t normally.
So what looked like a great deal to begin with, turned into a bit of a money pit. We survived the process and now that property is cash flowing nicely. But if we had not been able to come up with the cash for those renovations, we could have easily turned into the motivated sellers that we were once looking for.
So use the 1% rule on student rentals as a way to quickly screen properties but don’t let that be your only analysis of the property! Sounds pretty silly saying this now but we could have used this advice ourselves.
To make this little tip really useful you’ll have to also adjust it for the area.
For example, by York University in Toronto right now it’s difficult to find any properties that qualify under the 1% rule.
When you divide the asking prices of $600,000 by the average gross rents of
$4,200 you end up with 0.7%.
But you can still use this information to quickly screen properties.
If everything in that particular area is equaling a 0.7% then if you stumble across a property that’s a closer to 1% than the others you may be onto a good deal for the area.
For example, perhaps one property is listed at $590,000 and the rents are $4,800 because they have enough space for an extra bedroom.
That works out to 0.81% and may be worth a closer look. Remember, don’t let this little tip blind you. Student rentals still need to be close to the school, they should be in good condition, check for any local zoning by-laws and confirm rents by talking to students in the area.
There you have it… A quick and dirty way to analyze student rentals on the fly… In under 30 seconds!
Another great investment opportunity (if you think student rentals are not for you), is rent to own apartments. Rent to own apartments can be an excellent source of passive income.