Real Estate Investing, College Housing Properties

Are you completely new to or just getting your feet wet with real estate investing? I’m a Realtor, my friends and I watch HGTV. Let me tell you, there are so many ways to invest in real estate. I think many would-be real estate investors watch shows on house flipping and mistakenly gauge the process. It’s more work than most investors are up for. Doing your own repairs might save money, but many investors aren’t general contractors.

In conversation, friends and clients interested in real estate investing often ask me where to begin. I ask them if they’ve thought about college housing for rental income.

Some that would don’t have the funds needed for renovations. That can be an issue, but it’s not one that the average person can’t overcome. FHA loans have guidelines and restrictions on lending to investors. You can have two non-investor residential loans in Ohio. The properties must be at least 50 miles apart. There are FHA loans for investors, and a slightly higher interest rate. FHA 203k loans are for distressed properties and include up to $35,000 for repairs.

The great thing about FHA loans, they only require a 3.5% down payment. You should know, loans with less than 20% down payment require PMI, or Private Mortgage Insurance. This is a premium lenders charge and a Federal regulation that protects lenders in the case of borrower default.

Investors need to understand, when you are financing you aren’t allowed to make the repairs yourself. It’s prohibited and Federal Law. This protects markets from decline as many buyers don’t complete needed repairs, dragging down property values. It’s also protects the lenders. If a borrower defaults, the lender would rather have a finished, updated property than a distressed eye-sore on their books.

Now you understand more about financing college housing property investments. Now let me tell you why college housing is hot for real estate investors. Rent is always going to go up. Getting a college education is expensive, not all students want to live in a frat house. Keeping up with current rent rates, but renting rooms for at or a little less than the going rate, will ensure good occupancy.

In Cincinnati, there are numerous universities and college campuses. An investor would have no problem finding potential Cincinnati properties for college housing.

Many students work their way through college, taking jobs near their education center. Some students really want to save on gas and auto insurance. It’s very attractive to them to find affordable housing near both school and work. Even better if they can walk, bike or bus to their destinations.

Advertising your college housing is easy and even free. Just post your rental properties at the schools. Talk to key figures like head of the debate team, the quarterback or university newsletter or blog.

I like to help new real estate investors, I have no problem will small private investors acquiring properties to utilize as college housing for rental income. What I don’t like are large real estate investing companies flush with capital that swoop in, purchase all the properties they can at discount and charge a premium to students.

The Rise in Popularity of the Serviced Apartment

Serviced apartments are a relatively recent phenomenon. They are fully furnished flats that have similar amenities to hotel rooms and can be used for either short-term or longer-term stays, offering a more home-from-home type experience. Some of the main benefits of staying in a serviced apartment as opposed to a hotel room are that they offer on average 30% more space, more privacy, and are more cost-effective in terms of there being no extra hidden costs and fully equipped kitchens reduces meal expenses. According to The Apartment Service, serviced apartments are around 15 – 30% cheaper than hotel rooms, adding to their appeal to businesses and the discerning tourist alike.

In recent years, the serviced apartment – a subsector of the hospitality industry – has grown more than any other temporary accommodation class in Europe. This can in part be attributed to globalisation and the needs for workers to travel more frequently to offices located out of town, and companies looking for less expensive ways to accommodate them. Also, families may have a preference to stay together and require a different set up to what hotels offer, in terms of wanting to keep an elderly relative close, having an office space to catch up on work tasks, or to allow older children more privacy.

The evidence of their popularity lies in occupancy rates. Serviced apartments in the UK averaged an 81% occupancy rate in 2016, and outperformed hotel rooms which stood at 77.2%. Amongst businesses, their usage is also increasing. According to a recent survey carried out by the Business Travel Show in November 2016, four in ten corporate buyers have reported that they would have used serviced apartments more by the end of 2016 than they did in 2015.

As we have mentioned above, serviced apartments are outperforming hotel rooms in terms of occupancy rates. Due to their cost-effective nature, they are becoming popular with companies sending employees on business trips, and those travelling for leisure who require more flexibility in their accommodation than what a hotel can offer.

Serviced apartment companies are relishing their success and are subsequently expanding at a fast pace. SACO are currently one of the largest operators of serviced apartments and over the past few years have made several acquisitions. Since the start of the year SACO have secured additional developments in London, Cambridge and Dublin, and a fourth is in the pipeline in Manchester. This demonstrates a confidence in the market, and indeed, a 2016/17 report by Savills predicted that 2017 would be “record growth” in terms of new developments in the UK.
The distinction between serviced apartments and Airbnb.

Governments have been cracking down on Airbnb rentals, which in part allows for success in the serviced apartment market. Berlin has banned tourists from renting entire flats from Airbnb to protect affordable housing, and Airbnb are banned from listing short term rentals in New York. Serviced apartments differ in that they are not flats owned by individuals looking to achieve a supplementary income, but rather they are owned by a company with the sole purpose of renting them out on either a short-term or long-term basis to individuals who need somewhere to stay. Unlike Airbnb, the apartments are not someone else’s permanent residence.

The crackdown of Airbnb rentals in some locations is allowing serviced apartments the opportunity to accommodate those who would have used Airbnb, further boosting demand for the units.
Serviced apartments as an investment

Investors looking to invest in the serviced apartment sector will be enthused by its fundamentals. In terms of the specific investment, individuals will be looking for buildings with high quality facilities in good, central locations. Keeping in mind that the people who will use the apartments will be either business travellers or leisure travellers (or a combination of both), they will require easy access to transport links and the area’s attractions and amenities. Due to stays being generally longer (research has shown that 91% of stays are of 14 nights+), residents will be reassured of a more stable income as their apartment will be occupied for a more definite period. The longer than average duration of stay, coupled with lower running costs, means that serviced apartments generally achieve higher net operating incomes compared to regular hotels. This helps to allay the worries of individuals considering hotel room investments but are concerned about the possibility of gaps in occupancy.

Sir Thomas House is an excellent example of an attractive investment in Liverpool. It occupies a city centre location close to Liverpool’s bars and restaurants, attractions and transport links. Liverpool itself boasts not only a booming tourism industry but also a growing economy – home to the largest proportion of fast growing new businesses in the country. A report on the hotel industry in 2017 by PwC also identified Liverpool as a place that will experience growth in terms of revenue achieved per room, indicating an increased demand and willingness to spend more in the city. These factors ensure that there will be a sustained requirement for the apartments from tourists and business travelers alike.

Zillow Takes Aim at Small Investors

This is a little different type of article than I typically write but I found this interesting and wanted to share. A few months ago, Zillow announced its Instant Offers program, which basically allows sellers to get offers on their homes within two days from institutional investors. These investors are highly qualified buyers and close with all cash within a week. At this time, Zillow claims that it is not offering this service to broker deals and charge commissions; it is doing it to fill a need in the industry. They claim that it is actually encouraging sellers to use agents, not vise versa.

Many agents are upset. In fact, according to a recent survey, 87 percent of Realtors think that Zillow is trying to become a broker and eliminate agents. Some agents, however, are excited about this shift and want to work more closely with Zillow.

If you have not heard, this is how the Instant Offers program is working in two test markets. A home seller completes an online questionnaire. From there, Zillow passes this information onto a small group of institutional investors who are buying houses in that market and to a qualified Realtor. The Realtor is tasked with providing a detailed comparable market analysis while the investors are tasked with submitting offers. Within just a few days, the sellers should have multiple cash offers and a CMA to compare the offers to. They then decide to go ahead and accept one of the offers where they can work with an agent to help with the transaction, or they can close the transaction without the help of an agent, or they can choose not to accept the offer and sell the house in a more traditional manner. This could include listing with an agent.

There have been several agents that claim to have received a large amount of seller leads under the new program. They submit the CMA and then are encouraged to follow up to try to get the listing.

I don’t see this as a bad thing for agents. Zillow is not charging any fees to the borrowers or the investors for this service, and claims that it is not interested in creating a brokerage or charging commissions. They generate revenue from ads and selling leads, not houses. Although many agents feel this could change because Zillow is not a profitable company. Entering the brokerage business could be a new profit center. I don’t see it that way, at least not yet. I see this more as a marketing ploy to attract seller leads for agents.

Although I am not concerned Zillow will take over the agent’s job, nor do I see this as a big threat to investors, I could see how one could view it that way. Zillow’s mission with the Instant Offers program is to capture every lead from distressed sellers it can and turn them over to cash buyers or their “pay to play” agents, virtually eliminating the small rehab investor. It is our job to be aware of what is going on and to maneuver our business to benefit.

Here is why I am not worried. First, the cash buyers are going to need steep discounts and the agents that just want a listing are going to be offering inflated CMAs. Those two could be so far apart it is going to hurt Zillow and the Zestimate it is so proud of. (Zillow’s opinion of value) This alone could make the program crash before it even gets going. That is not what I think is going to happen however. My guess is most sellers will end up listing the house with the agents providing the inflated CMAs. The agent will likely have trouble selling it because they will be listing it too high. This could be a great thing for a small rehab investor. Here are two ideas that you can implement to take advantage, assuming the Instant Offers program comes to your market.

You can network with the “pay to play” agents. If you can prove you close on your contracts and build a relationship with them, they too will be bringing a cash offer to the table. There are ways to make your offer more attractive than the institutional investor’s offers. This could be a great way to get noticed by sellers before the distressed houses ever go in the MLS.
You can track listings that appear to be too high in the MLS. Once they have been listed for a while, you can start to market to the seller and/or listing agents. Be careful though. You may not be able to market directly to the homeowner of a listed house unless you are unlicensed. Cash offers on distressed houses are attractive after the motivated seller has their house listed for a while with no traction.