Path to Student Rental Success

 

Jared Henderson

Francois: This evening, Jared Henderson who invests in Peterborough and Montreal. He is from Montreal and lives there, but has been investing remotely. And has been doing really well with a student rental. So, I'm really excited to find out more about what's going on during the pandemic. Like how has this affected his business? Welcome, Jared, thank you so much for joining us.

Jared: Thanks, so much Francois. So, delighted to be here. This is a fantastic event as always and I'm really happy to share my experience. 

I started investing in Niagara Falls way back in 2012. We'll get you a little bit of history about me. So, I didn't know what to do in terms of real estate investing. And I invested in a condo conversion where they're converting apartment buildings into condos where I can buy them. And the reason why I did that is, I was always scared of vacancies.

So, if someone else was managing the property and making sure that it was the attendant there, and I was just responsible for collecting the rent. That sounded good to me. It seems I did a little bit of a tour around the golden horseshoe. As I said, I started Niagara Falls, but since then I've invested in multiple markets, including Hamilton, St. Catharine's again at Niagara Falls, of course, for really Windsor which is just this last year and Peterborough's my main stomping ground now. What is somewhat interesting about me is that I live in Montreal, but I choose to invest in Southern Ontario. And this is due to the fact that, there's strong fundamentals that I've seen.

Reading about and listening to so on and so forth over the last almost decade of what's actually happening in the golden horseshoe. And I keep that as my focus, because I believe in the strong long-term fundamentals. And a little bit of all over the map, but I have chosen to concentrate on duplexes and multifamily as well.

I started student rentals and that's why we're here. So, let me dive into a little bit about it. So, how I stumbled upon it. Again, on my tour of the golden horseshoe I was challenged with a couple of vacancies. So, I bought two single family homes at Hamilton and one went vacant. The tenant just didn't give me notice like a midnight move, no chance to collect.

And then the other one was an eviction, unfortunately. Yes, I'm ready to deal with these battles now with multiple properties, but when you're first starting out, they hit your cash flow quite hard. And I overcompensated and said, what sort of strategy can we make sure that I always get paid rent?

I'm always collecting each month, even if I don't collect a hundred percent of the rent. And naturally I thought about student rental. One of my strong brokers, Rob Break, introduced me to Peterborough because I was too afraid of investing in Oshawa as it was just going 20% year over year.

And with my luck, I would start there and fall flat on my face. And I'm sure that the prices would start going down. I became comfortable with Peterborough because it was affordable. Here it achieved the 1% rule, which is basically, the monthly revenue collection would be equal to 1% of the total purchase price of the property.

And that's what a lot of investors go for as a goal in terms of achieving strong cash flow, that stability and a strong, fundamental, and beautiful neighborhood in Peterborough. And I'm cruising the neighborhood with Rob and I'm like looking around it. These are nice raised bungalows in a beautiful neighborhood for 300,000.

And this is in 2017. And look, where else do you find this? Like namely another market. And I know Peterborough is an hour and a half from Toronto. I believe I know I'm from Montreal, but those fundamentals were strong enough to cause me to take action and start to investigate student rentals there.

Especially since I heard that there's strong demand for great universities Fleming College and Trent. And like I said, I was looking to stretch my limited funds as far as possible. Right now, when you hear about a duplex conversion, it's a hundred grand down and then a hundred grand to do the basement while I was putting down like 60 grand as 20% down payment on a $300,000 property, and then maybe investing 15 to $20,000.

To put up some drywall, add a shower to the powder room in the basement in order to make it a decent six bed. So, let's go through some pros and cons with these student rentals. In my mind, they are the least expensive way of maximizing revenue as a single-family home. I'm not counting, perhaps Airbnb here. 

I'm talking about somewhat standard leases where you can get in at a low entry point, rent out the rooms, add rooms at a reasonable cost, and then collect a large monthly amount that should yield you strong cash flow. So, very strong cash flow if you're doing it right. Rents are aligned with the market. As turnover allows landlords to charge market rates.

So, everyone knows. In this day and age with the COVID that there are certain restrictions on raising rents flexibility on, that turnover just isn't there. So, what we don't experience in student rentals with this sort of friction where I can't get this student out of there and you get that turnover.

The turnover is a cost, but you're always able to charge market rent. You don't have to wait 10 years to get paid. So, that's one of the strong advantages as well. Like I say, here, less hassle with minimal LTB. Most of these students have their parents co-signing, they're not looking to get evicted.

They're just looking to pay their 600 bucks a month and move on. They're not looking to stay like a single family would in a normal market. Some cons, a higher turnover cost. Yes, we're collecting a high amount per room and that's fantastic.

You run your numbers. I'm investing in close to Fleming College in Peterborough, and a lot of the programs are two years. So, the maximum someone's staying is like a year or two years. Sometimes it's just months. If the tenant dynamic isn't strong. And so that is a cost, right? I'm paying property managers to manage my property.

It's a cost. And so it hits my bottom line, increased wear and tear. But In terms of worrying about the big party, the keg party look, I was in university too as well. It does happen, but the truth is those stories are usually exaggerated. And most of the wear and tear is simply due to shutting the cupboards extra hard, or just too many people doing human things over the course of a year.

If you've got six people in a house there's going to be more wear and tear than three or four, especially when they're young. So, that to say, students are not as clean as most single families, that's for sure. You become desensitized towards it. So, I never discouraged someone to do it to invest in student rentals because of this, you become desensitized and somewhat accustomed to just a different style of living, tenant dynamics or something else.

It's very different. If you've got a house of three people versus a house of six people, more people, more noise, more chance of things going wrong. And so you just have to deal with these little minor personal disputes at times you have to be all the utilities, right? So, it's just much easier.

You can pay the internet, make it attractive in order to be competitive and the equity trap. In terms of equity, refinancing is not as simple with student rentals. If it's clearly a student rental than a single-family home, most of us know this.

So, where would it begin in terms of evaluation? Anything else from the numbers. So, just take the average price that you expect to get per room, and do it through. Could you do search or networking and find out what people are getting in that market and don't just take what's there. For example, there's so many opportunities. I converted a three bedroom to a five bedroom a year and a half ago in Peterborough where there was space, actually the kitchen and space in the living room to create another two bedrooms and still have living space. So, those are the opportunities you're looking for, right?

Go into houses where you can add bedrooms and really maximize that monthly revenue. And obviously you're looking for a deal, right? Look for places that are on the market for too long, aren't listed correctly in terms of having less bedrooms than are actually on the listing. I made an offer in Peterborough today that had just that guys, I'm going to pounce on that.

As a professional investor, I'm going to eat that up all day long. So, you should be going to these places. If not yourself, having them inspected and understanding the square footage and the layout and understanding how you can create, if we add value to these places and maximize cash flow, that's just a business.

So, I say here, of course, that the existing layout is the focus of going to these places and seeing what you can do. And if you can't do anything and the price is average or slightly above what you're willing to pay, just move on. There's plenty of opportunities, right? One thing that I would strongly suggest is factor in a high amount of turnover.

Of course, especially if you're in college, when you've got shorter program terms of one or two years you really want to understand that as a fundamental cost, right? Everyone hears about the single family that stays here for four years. What, even if they're paying less than market rate, it's offset by the fact that there's no lease up and they're just there and they pay rent every month.

It might be less, but there's no upkeep. So, pros and cons, some of the trends that we're seeing in this new environment on my own. And I'm speaking specifically to my environment in Peterborough, because that's the only market that I'm working in with respect to student rentals. There's an increased demand for international student rentals.

Our smaller groups have the same social circles. So, where before the demand was so high, no one cared about being the fifth or sixth person in the room. Now it's a little different group that wants to be smaller, or if they're bigger, they definitely know each other. And they're like, let's all go in one place because we all know each other and we all got vaccines and we all trust each other. It was a different market a year or two ago. Like I said, students are less willing to move in with strangers in terms of how I've adapted to the market and shared rooms yet the increased demand for shared rooms.

So, what I mean by that is that you don't necessarily even see couples that are looking for shared rooms. You've just got buddies where yeah. If rooms are 600 we'll both go in. And so I'm very careful there because I make sure that I'm getting enough of a lift because of the utilities. Since I'm paying for all the utilities free to an extra person it needs to be worth my while.

So, it's not as though I'm going to accept 750 if the market is 650 for one bedroom. I'm not making any extra money and I'm taking on a lot of extra risk. So, what's going to happen now? Let's try to get a bit current and look, I'm not an expert on this. I rely on my property manager feedback, a little bit of the media, but mainly my property managers.

And let's say full classes do resume fine. That's great. We're going to go back to things that are normal maybe, but I don't know. And I'm not going to say it's a hundred bucks. Strategy moving forward is to look for smaller houses. Like I would encourage this in any market in order to minimize your risk, look for smaller houses, lower purchase prices.

They don't need to necessarily be duplexes. It's nice if they are, because they're usually more conducive to converting to a second suite, but look for those smaller houses where you could have one extra bedroom, the place has been on the market for too long. It's a sweet spot and those are the real strong opportunities I would be looking for. But again, I would stress that, don't jump into this world right now without taking the proper precautions and having that buffering your numbers, make sure you've got a little bit of extra profit margin in your proforma because things happen.

Evergreen strategy. So, this was taught to me by my coach, Kory MacKinnon. And it's fantastic advice. So, what essentially means is don't just take one strategy and if it doesn't work, sell the house. So, an example would be I'm going to buy a student rental and if it doesn't work, COVID hits some vacancy and can't hold it.

I'm going to sell. What you want to do is have multiple exits and multiple alternatives so that if it doesn't work out, then you can rent it to a single family, or then you could perhaps take on a partner if you can finance it yourself and do a second suite and I can say. If it doesn't work as a student rental, I could do single family or a second suite doesn't matter. I'll always have a way of keeping this property and that's why I'm so happy here. So, as I'm saying here, selling should be the very last resort.

That's I believe strong advice, out of the talk two things that most experienced investors regret. This is not me. I'm talking about the real vets. It's not buying more when they were younger and selling anything that. So, please take that advice seriously. There we go. Moving on. So how did I respond to what's going on?

Luckily, I had some appreciation because I started investing in Peterborough in 2017. So, I was able to convert a few of my single families into duplexes. And I'm in the process of doing a few more. And what this does is it's not only increasing the rents, but it's creating stable tenants where I'm going to have less turnover.

I'm able to refinance the place and redeploy that equity into more properties. And that's what I'm looking to do as an investor. I wouldn't say that you necessarily need to have that conversion as an option because I started out with student rentals for a few years without that flexibility. Let's say, in all likelihood, if you bought well in a few years, you'll have built up enough equity through mortgage paydown and appreciation that you can do it, even if it's not a duplex mobile home.

Lastly, what I love about the REITE club is that it really supports all the investors. And the newbies and everyone in between, and for those who are looking to start and they're having trouble because a confused mind does nothing. And this is too much information.

Start with picking a market. They're all good markets. Maybe that's not true in Southern Ontario. There's so many good markets and it's pointless to argue which one is better than the other for this. And for that, if you start with the market, then you're starting to narrow your focus and you're closer to making a decision. I would choose a strategy that aligns with your budget and makes sense to you.

Try to block out the noise. Everyone has an opinion and there's honestly no right or wrong, and we don't all have the crystal ball. So, really start narrowing your focus by picking a market and a strategy, and then use networking as a way of leveraging up and making that decision. So, connect with other investors that are experiencing success in what you'd like to do.

That's what I did for, with respect to other investors and coaches. I picked someone who has what I want, go follow them, connect with them, buy them coffee, lunch, whatever I value in her life. Don't be. And most are looking are fine with lending their time and advice. And I always enjoyed that when there's that opportunity to pick up the phone, build your power team, real estate agents, mortgage brokers, property managers, contractors.

These are the key vital organs of your real estate business. And then once you have all the information you take action, make offers and buy the first place that meets your criteria. And the last thing is the great part about the REITE club. Having a strong network is that if you run into problems with this property, once you buy it, and once you're in a certain position, don't worry about it.

There's always someone here in the community that has an answer to the problem. So, I hope this has been helpful. Thanks, the REITE club for having me.

Francois: Thank you, Jared. That's really insightful. And I love what you've been saying. We do have a few questions for you in the chat. The first one is with Brendan Kelly.

Is it more challenging to find an insurance company that will insure a student rental? And who do you use if you're okay with sharing that?

Jared: No, I'll go to MyCor, Alex Bell.

Francois: Awesome. And do you find it more challenging? Cause you mentioned you got some new properties

Jared: Nope, not at all.

There are several companies that will insure you. I've been a strong partner with Alex since the beginning. And there are companies out there that will finance you not quite easily, but you need to engage in conversation, develop relationships. But surprisingly, it's not that much more to ensure a student rental than a single-family home. It's not twice the price, call it 20% more.

Francois: Perfect. And you work with MyCor. They're a REITE partner. So, if anybody wants the information its on our website thereiteclub.com. And we had another question as well. How have you dealt with students being online versus in class or in person and how has it affected your student rentals? So, you mentioned a few things, but I don't know if there's anything else you could add?

Jared: We'll be upfront at the beginning. Communication is everything. So, what I did last summer, even before we started in March. So, we're in April, May I contact my property manager and I said, Hey, if you see the kids are running, let me know because we're going to do single family, or I'm going to start doing duplexes right away, because what I will not stand is having half my my places rented with three students instead of six.

I've dealt with five instead of six. And I'm actually okay with that because it's just keeping the engine running without going negative cash flow. But like I said, the strategy of long, medium and long-term with these properties is to convert all the bungalows that I have into duplexes.

And another good point to mention is it doesn't mean that I won't rent a student. It's just, I'm going to rent a student as three or four in the upper. And then a couple in the basement, I can still collect those high revenue. Students still need a place to live. It's just, they don't want to live in a six-bedroom house.

If you were a six student, you don't want to be in, you don't want to join a house of five students. And those five students, they don't want six students in there. So, I believe I'm just speaking for people. We're people, we're human, there's uncertainty with the next person coming in with COVID and we're more conducive to smaller groups naturally.

Francois: Yeah, that makes a lot of sense, more separated spaces. And then flexibility, like you mentioned that it is a duplex. So, if students are gone, then it's easy to rent two apartments and that's it. And there's more questions in the chat as well.

Do you recommend putting the lease with one person? So, I assume, especially you're doing two floors, two apart. Do you find like a leader of some kind?

Jared: Yeah. So, if you can always do it's better. We can get into more detail after, but if you can, yes. Get everyone on the same lease. What I have found challenging.

And this is another good point that I should have mentioned is that if you have six students show up and you've got a six bedroom to sign up for May 1st, the heavens have shone upon. This does not happen. It might happen. You might get lucky. Are you willing to go two months waiting for that to shine upon you?

I'm not. I'm looking to collect three students, then four, then six and get a few thousand dollars in rent before May 1st, because my place is ready to go. But if you can, the long and short is if you can. But don't let it stop you from bringing in students and going one lease per student.

Francois: Okay. And then I think we had some more questions. Who do you use for property management?

Jared: I use a few sources, but primarily Diligent in Peterborough. So, that's Martin and Michelle Wind for anyone looking for property management. I'd be happy to recommend them just to hit me up and we'll connect.

Francois: And we have a question from Chris as well. Some cities consider this kind of rental, a rooming house with significantly more regulations. I know Ottawa does. How do you deal with this? So, you mentioned licensing. I assume that there's something else.

Jared: With egress windows, fire alarms, and an inspection from the fire department.

You're okay. Peterborough's fairly conducive to student rentals. There's such high demand that as long as you're providing safe housing, then you're okay. And it is a good point worth mentioning. I don't want to skirt that as not something that's important. But the main thing is to ensure with the city that you're up-to-date with fire code and you're okay.

Francois: Perfect. Thank you so much, Jared. So, if people want to get in touch with you, they can email you. And I know you're also very active on Instagram. So, you're easy to reach. What's your handle there?

Jared: Yeah, I think Jared is 55. So please reach out to me there. If you have any questions, I'm always happy to help and it doesn't just have to be Peterborough. It can be any market. I have a lot of fun talking with investors and strategies in different markets, and I'm happy to connect any investor with any contact that I have that can help them out.

Francois: Excellent. Thank you very much.