Is this a feasible idea? (Buying a rental property for Eq students)

[Concordia]

What if you can't find any renters, period? Can you support the mortgage if for some reason you just can't find tenants? It happens.

[cyndi]

I have a five-acre farm with barn/arena and 1920s farmhouse that I own and lease out. I owned it before I met my husband and could not bear to part with it when we got married and bought a bigger place together -- plus it is in an appreciating area that may be commercial in the next ten years and is good investment. http://www.alvinhouse.com


I have been leasing it for 8 years now and have not had many problems.

However, as many have noted - I would not go out of my way to try and rent it to college students. For one thing, what will you do if you have 4 students leasing it and one cannot come up with the rent? Kick that one out and lease their share to someone who may not fit in with the rest? And what would the other tenants have to say about a perfect 'stranger' moving in?

In my experience, in my area, places set up for horses are scarce, very easy to rent, and rent for a premium. I make about $700 a month above and beyond my basic expenses on the property -- and $500 over what the place really costs me, including $ for long-term maintenance like new AC unit, water well, etc. The most important thing is to figure out what it REALLY will cost you each money - not just rent, taxes, insurance and mowing the yard.

To determine this, I make a list of everything on the property that will need to be repaired/replaced, etc, what that item costs, how long it is expected to last or how often it will need to be done, and assign a monthly 'cost' to it. I did it for painting, water well, septic, roof, water heater, dish washer, AC unit, etc. Also factor in some months when the house is vacant. Then add all those amounts together, on top of your mortgage, insurance, taxes, etc and that is your TRUE cost of owning the place. You MUST be able to make a profit above and beyond THAT to truly be making money.

It was easier for me to be 'profitable' from the get-go since I'd lived in my farm for 7 years before I started renting it out - properties had appreciated quite a bit in that time, and so had rents. (And I live in an area that was not hard-hit by sinking property values.)

Also, you need a very good lease, that is 'legal' in your state. You can buy these pre-written, for a reasonable price. Then I add our state's equine limited liability language, stipulate that NO commercial activity may take place, etc. etc. And I get landlord references and call those.

I have three rental properties that I manage myself. My first property, I have been managing for 25 years now. The secret to making it as headache-free as possible is to check references and listen to your gut. You can also hire a Realtor to find a tenant for you - that will usually cost about a month's rent.
It also helps if you are 'handy' and enjoy do it yourself projects. It also helps keep expenses down. I do not mind painting, and paint all the properties myself - inside and out. That alone saves me a LOT of money.

Rental property can be a good investment - and I happen to think that property on acreage is the best place to put your money if you're interested in investment/rental property.

[StGermain]

Cyndi - Your farmhouse is darling, and I'm not a person who uses cutesy words lightly. I live in an 1849 farmhouse that has no central heat and air, and I'm slowly rehabbing it myself. I'm relatively handy and can set a toilet, paint a wall or wire a light. I was trained as a paralegal and will make sure all i's are dotted and t's are crossed.

This house has a tin roof, so that should last for a long, long time. It's only 17 years old, so some things may be maxing out their useful lifespan, like the A/C unit.

For those who think college students live to party, I know my niece goes to a small, private, very expensive engineering school. She makes it sound like their wildest fun is cooking brownies in the dorm to eat while studying. Physics is NOT fun.

You guys have convinced me not to market to college students (although I won't rule them out). I have no idea if I will get this house, but I like the idea of some extra income during retirement. With the stock market like it is, I may be saying "Welcome to Wal-mart" when I'm 80 years old.

[sketcher]

Cyndi

For those who think college students live to party, I know my niece goes to a small, private, very expensive engineering school. She makes it sound like their wildest fun is cooking brownies in the dorm to eat while studying. Physics is NOT fun.

HAHAHAHA!!!!!!!!!! I too went to a small, private very expensive school for a degree with as many science and math requirements as an engineer and believe me, there is always time to party. What is easier though, is convincing the 'adults' in your life that everyone has to work so hard that there is not time for fun like all those psychology students.

[dghunter]

hijack
Cyndi, that is one of the cutest places I've ever seen! I love that house!

/hijack

[kdow]

I would say also consider if you want to manage it yourself, or pay someone to do it.

I know someone who had a house for rent in the UK for a while (maybe still does, I'm not sure) and she ultimately decided that when she considered the 'cost' to her in terms of stress dealing with issues, finding renters, checking references, etc. it was less expensive to have a management company manage it for her. (In the UK it's just certain real estate agents that do it, and they take a percentage of the rental income.)

She was going to college (well, university) herself (she inherited the property) and she just didn't want to add those worries. Then when she started working, she could make more per hour actually working at her job than if you broke everything down for 'working' on the rental into an hourly rate, so she just kept the same arrangement.

I'd also be cautious about depending on the rental income, because there will be times when the property doesn't rent for a while, and you don't really want any of your important bills to be relying on rental income. I think she treated hers more like a credit card, in that she'd sort of save it up (in an account that got relatively good interest rates) and then instead of putting a big ticket purchase on a credit card, she'd buy it from her saved up rental income. So if it took her longer to save up because there were no renters for a few months, no big deal.

[StGermain]

kdow - I have a job that pays my expenses. I have no debt besides my mortgage, and won't depend on this for any income. As I said, I just want it to support itself, at least until it's paid off. I'm trying to think long-term. In fact, I'd probably separate it from my day-to-day finances by having a totally separate bank account for the rental place. It's easier to track that way.

StG

[cyndi]

Oh, I will note that I have a separate bank account for the 'pink house' as we call it (actually, one savings account for each rental property I own) - and all rent goes into that, and all expenses come out of it. I also keep an excel spread sheet on it, one for each year. I rarely spend a PENNY out of those accounts otherwise - mainly because it is my separae property and I want to keep it that way - and two because I am ultra paranoid about having enough money to take care of whatever maintenance may be needed on the properties.

For a short period I had a condo managed by someone else, but it cost so much money I stopped. The condo, even tho it is farthest from my home, it still between where I work and where I live, and is also the least maintenance, since I only have to deal with issues inside the unit. On my pink house, I did not want anyone else hiring contractors or making repairs without being able to oversee the 'quality control." I have pretty high standards - my rent property is as nice as my own home and I think that is one reason I have had good tenants.

I will also note that it is very difficult to manage properties 'long distance' -- the 'pink house' is about 3 miles from the farm my husband and now have.

I find the renters for our garage apt and for the pink house - since it's 40 minutes away from the farm I hire a real estate agent to find tenants for the condo. I quit buying ads in the local papers - I've had great luck with craigslist and thatrentalsite.com and the very best luck with professionally made corofoam signs that I have put up around the property and around town. it helped IMMENSELY when I built a website for the farm -- by the time someone actually calls me, they've seen it, know everything about it, and are serious. Saves me a lot of itme.

I will warn you that you will probably have many people who want to lease the horse property - but 75% of them don't have the income to afford it, don't have good landlord references or have too many animals for the property. I used to run credit checks on prospective tenants but stopped -- the majority of people looking to rent do not have great credit - it's WHY they rent -- but generally people will pay their rent FIRST and Visa/MC, etc. last. I make sure they have the INCOME to afford the rent, and also look hard at how long they have had their job. Those factors have proven more important than credit scores for me.

Good luck! I am seriously thinking about selling my condo in Houston and using the $ to buy another small house on small acreage near where we live -- it's appreciating faster and it's super easy to rent.

[JanM]

I confess I'm an HGTV addict. There was a recent episode of "My First Sale" (usually fools who are trying to sell a perfectly suitable house to upgrade to some McMansion they buy before they sell the first house). After trying to sell the first house unsuccessfully in a down market they decided to rent. They rented to (I think it was four) four college students who all had excellent references from their previous landlords. A year or so later the rental agent called to tell them to go see the house after the renters move out, and it was as bad as you can imagine. Everything was trashed, including appliances, walls, and hardwood floors. They even had stolen a street sign from the neighborhood (it said Beach Drive) to go with the beach party including sand they held in the basement. References aren't everything, but huge security deposits are. If you rent it keep you eye on Craigslist or other ads to see if they are offering lessons or boarding to outsiders-this could avoid a nasty insurance or contract dispute later. And make sure you have a quick termination clause for the landlord in case of nonpayment or other problems-according to state law of course.

[Chall]

An upstate NY farmer rented his land to college age kids. It was in a town called Woodstock. Sorry, but that was my first thought.

[JanM]

Good one Chall!!!

I'm sure a great majority of leases work out just fine, but the 1% is the part we hear about. And another caution--I just moved into a house with a septic tank, and it's been a real education about the rules for care and precautions. If you rent a place with different utilities you may need to educate the renters, and probably put different items in the contract in case.

[ReSomething]

I watched that episode JanM! And sad to say I wouldn't have called that house trashed. Family members invested in real estate in the '80's and one of my jobs was to clean up. I won't even tell you about the worst one but it was several thousands of dollars to repair, had to have a contractor reconstruct it. I will tell you about the one where they took all the household garbage for the last month or two at least and shoved it into the crawlspace under the home - I have NO idea how they stood living there with the stench coming up into the house but cleaning that up made me vomit. And the three foot tall dead grass in the backyard. After that I advised my Aunt to include water and garbage in the rental fee.

Anyway I've thought often about buying a triplex and keeping part for family use and renting the rest, yes, to the ISHA students at UK. As I investigated though, the prospect seemed less appealing. UK doesn't offer even remotely enough on-campus housing so neighborhoods close to campus have turned into ghettos of the young and unfortunately irresponsible.
Red Mile racetrack is surrounded by apartments catering to students and the pressure to close the track and build out is absolutely enormous.

Anyway I am just not seeing the mix of family and student housing that I would like for something I would want for myself. When I rented in college the house was owned by the father of the principal, who rented out rooms and handled the day to day, being a student himself and new to the game the place went through assorted tenants even when I was there. Rent was priced high enough to offset a 50% summer rate, which worked for them.

In the OP's case before I leapt into renting to a group I might consider renting out a room in my own home to one of the target group and purchasing the other farm with rental to a family type instead using Cyndi's excellent advice. As you observe the habits of the college aged non-family you could form a better opinion of what works and what doesn't.

Also during the late '80's the common wisdom was that you could pay for your investment with Other People's Money, and then housing prices zoomed up past rental prices and people still bought rentals, paying out of pocket every month but having million dollar net worth - Hah! Don't do that, in '95 my first home and the house next door sold for 25% less than what the guy paid for them after he couldn't keep up with that out of pocket expense, yes, they were sad little foreclosed ex-rentals. If the market rate won't give you the mortgage/property tax/insurance plus a little extra think very hard about it. Very, VERY hard.

[Trixie]

I used to run credit checks on prospective tenants but stopped -- the majority of people looking to rent do not have great credit - it's WHY they rent -- but generally people will pay their rent FIRST and Visa/MC, etc. last. I make sure they have the INCOME to afford the rent, and also look hard at how long they have had their job. Those factors have proven more important than credit scores for me.

Sometimes I find that the reaction to being asked if a credit check is okay is all Iv'e needed. I've run them on renters for my house, but generally those that balk at the question have been those I don't want living here for numerous other reasons.

That being said, I've been a renter with excellent credit. Of course, when you live in an area where the median home price is around half a million dollars, a lot of renters have good credit but just can't afford to buy anything decent or well-located. It's also a fairly transient city (Washington DC) so not everyone wants to make an investment in a short term commitment.

I imagine in more rural areas, though, that isn't necessarily the case.