411: Successful Student Housing for Beginners

SHOW NOTES FOR EPISODE 411: SUCCESSFUL STUDENT HOUSING FOR BEGINNERS

Would you like to know how to take a 3 bed 2 bath home that rents for $1,700 a month and make it generate $3,100 a month?  And would you like to know how to automate the management of that property (plus 3 others) so you can continue to work your full-time job?  In today’s podcast, full-time pharmacist, student housing investor and educator Ryan Chaw shares his secrets for generating $10,755 a month from 4 houses that he will own mortgage-free in just 4 years.

What You Will Learn

• Why 3 bedroom, 2 bath homes are the best houses for student housing
• Innovative way to add an extra room for only $1,500
• How to know exactly how much to charge student tenants
• Preventative maintenance tips that can save you thousands
• Who are the best prospective student tenants and where do you find them?
• How to completely pay off your student rental property’s mortgage in only 4 years
• Creating systems and processes that automate your rentals to run almost without you
• A home inspection technique that can save you thousands

About Our Guest

Ryan Chaw

Ryan Chaw is a full-time pharmacist, who graduated with a Doctor of Pharmacy degree in 2015 at age 23.  Early on, Ryan was inspired by his grandpa who bought 3 properties in the Northern California Bay Area and later achieved financial independence for himself, as well as being able to help cover college tuition for his grandchildren.  Ryan bought his first property in 2016.  It was a single family home at his local college.  He rented out the house, per bedroom, and renovated the house to add extra bedrooms, thereby increasing his rental profit.  He later repeated the same process for each property he purchased, buying 1 property each year.   All while working full-time.  He then optimized his portfolio by creating a system for getting consistently high quality tenants, managing the tenants, and decreasing expenses through preventative maintenance.  Today, he is generating $10,755 per month in rental income.

More About Ryan

• Born and raised in California
• He was inspired by his grandfather who purchased rental property
• His grandfather used his rental property to help pay the college tuition for Ryan and his brothers
• Attended the University of the Pacific (UOP)
• Had a friend in school that house hacked – had a house across from the campus that he lived in for free
• This inspired Ryan to do the same

Becoming a Value-Add Landlord

• Ryan started looking for single family homes, in Stockton, California,  right across the street from the campus, where he could buy and rent by the room to students
• His ideal house is a single story 3 bedroom two bath home.
  • He has found that two story houses are not as energy efficient and the tenants complain about the high energy bills
• He also makes sure there is able parking for the residents, whether on-street or off-street
• The property has to be within a 5 minute walking distance from campus
• He usually will find 3-4 properties that meet his criteria each year.  If the numbers make sense, he’ll buy it
• He prices his rents to be less expensive than on-campus house, which is generally $1,100 per month (the dorms)
• He provides something that’s more private, with  a lot more space AND is only $620 per month
• Typical off-campus rent around the country averages $500-700
• If he has 2 people in a room, they only pay$450 each, but he still ends up making $900 per month for that room as opposed to just $620 for single student private room
• There is a strong market.  He usually gets 3 interested tenants for every room vacancy
• In 2016, he found his first student rental property – a 3 bedroom, 2 bath home for $262,000.  Today, the same house will cost around $315,000
• That home would have only generated $1,860 in gross rents, but by adding another bedroom, he could generate $2,480.  If he added a 5th bedroom, he could generate $3,100
• Homes in the area generally rent for $1,700 per month, assuming a person or family rents the whole house.  He can almost double that amount
• When Ryan would buy a house, he would always add at least on more bedroom WITHOUT adding square footage to the home
• He would convert a den or family room into an extra bedroom just by adding another wall and door.  It might only cost $1,000 to $1,500 to convert
• In his first house, he split the living room in half, making half a bedroom and the other half stayed a living room
• With rental income by the room, he can generate $3,100 per month, minus $1,500 in expenses, mortgage PITI, leaving him with $1,600 per month in cashflow
• He has 1o and 15-year mortgages, which have a lower interest rate, better terms and lower closing costs, on all his properties
• Ryan is not house hacking but he wished he would have because he could have bought/lived-in a house every year, when home prices were lower
• To buy the house, he puts 20% down and finances the rest
• In 2016, he bought his first house for $262,000 (it has appreciated to $315,000 today)
• He then took a HELOC (Home Equity Line of Credit) on the first property to put a down payment on his fourth house (he used his own cash for the first three)
• The fourth house was a little larger than the others at 2,700 square feet.  His smallest house was 1,900 sq ft
• Ryan is looking at generating generational wealth for his kids one day

Good Prospective Student Tenant Targets

• When he advertises vacancies, he purposely does not target Freshmen or Sophomores
• He usually targets third or forth year students or “professional students”  in the Pharmacy, Dental or Medical programs
  • These students have reached a certain level of maturity
  • They are more responsible
  • Take better care of the house
  • They are higher quality tenants
• He targets his advertising to those students
  • He usually uses Facebook
    • Marketplace
    • University Facebook Groups
      • Textbook Exchange Group
      • Off-campus Housing Group
      • Class of 2020 and Class of 2021 Groups
  • He usually gets tenants after no more than one month of advertising
  • Lots of times, he doesn’t even have to advertise because he gets lots of referrals from his existing 18 tenants
• He also has a “no pets” policy
• He has never had to evict a tenant mainly because the parents are mostly the ones responsible

Out-of-State Student Housing

• Because California home prices have gone up so high in the last 4 years (from the low $200,000’s to low $300,000’s) , Ryan is considering going out-of-state where he can get better ROIs
• He can still buy nice 3-4 bedroom homes, 5 minutes from campus, in other states for low $200,000s but that would rent for $500-700 per room
• The challenge is the fact that he self-manages

Automating and Streamlining Management Responsibilities

• When he first started out with student housing rentals, because he worked more than 40 hours per week, he set up systems and processes, that made it easy for him to self-manage, because it’s pretty much automated
• Student Problems with Other Tenant Students
  • If tenants, for example, are having problems with other tenants, he has a pre-written text he sends to the complaining student that empowers the students to resolve their issues face-to-face
    • He tells them, they are adults now and they need to resolve their own problems
  • When he used to call the tenant that was causing issues and tell him/her that the other tenants were complaining, the accused student would get more upset because he/she felt the other tenants were going behind their back.  The problem would usually escalate and got worse
  • He found that by simply asking them to resolve the issue face-to-face, it usually gets resolved
  • If it doesn’t get resolved, he follows up with a call and/or goes through the kid’s parents, which almost always resolves the issue.  He only had to go through a parent one time
    • He often requires parents to co-sign the lease because they are often paying the rent
    • He asks tenant applicants asks for two months of bank statements and checks their FICO scores to see who should sign the lease
• Repairs and Maintenance
  • If some needs something to be fixed, he forward their text message to his contractor team
    • He has a team of three contractors he can reach out to for repairs
    • There is an electric code on the door that the contractors have
    • They let themselves in, does the repair and leaves
    • He gets the students to verify the work was done properly
    • The contractor sends Ryan the bill and Ryan sends a check
• Tenant Showings
  • When he has a vacancy, he asks a students who is already living at the house and is responsible to show the house to prospective tenants
    • He hasn’t had to offer an incentive
    • At one time, however, he had a $100 incentive for good tenant leads from his tenants but he hasn’t had the need for a while
  • When people respond to the ads, he gives the person’s phone number to the student tenant who lives in the house to coordinate the showing
  • He schedules the showings all at the same time on the same day, for example, for 5 prospective tenants.  That way, they only have to show the room once
    • By having the prospective tenants all showing up at the same time, he creates a “buying frenzy” that motivates prospective tenants to get their applications in quickly, which also increases the demand
• Tenant Screening
  • When the prospects respond, Ryan send them an application by email to fill out
  • He reviews the applications, picks the most qualified, asks for last two month’s bank statements and their FICO score
  • He looks up the students social media profile to see if they look like they are big “partyers”
  • He also evaluates the students by how they respond to him
    • If they are responsive and respectful he can tell they are more mature
    • If they don’t get back to him, he thinks of how they will be with late rent
• Utility Bills
  • All utilities are paid by tenants
  • Ryan recruits one tenant to collect money from the other tenants and pay the utility bills each month
• Ryans only current costs are repairs and maintenance, landscaping, mortgage, insurance and property taxes
• Because of the systems and processes Ryan has in place, he has not had the need to visit his properties for over 7 months

Student Tenant Problem

• During his first year, he had a problem student who was smoking a lot of pot when it was illegal in California
• He was having parties and the other student tenants were getting upset
• Ryan called the tenant and he got upset because he felt the other tenants were going behind his back to talk to Ryan
• The problem got worse
• That’s when he came up with the policy to have the tenants try to resolve the problem among themselves first
• He came up with a “script” that he shared with the other students telling them what they should say to the problem tenant
• Then he told them to come up with an Action Plan that they could all agree upon for the future

Communication and Financial Transactions with Tenants

• He usually uses Facebook Messenger or email for general communication
• For rent payments, Ryan uses Zelle
  • Direct deposit
  • He can always tell when it is sent to tell if its late or not
  • Most banks use Zelle so they can do it through their bank apps or it also has it’s own app
  • Tenants can set it up on autopay/ACH

Biggest Mistake

• When Ryan bought his first house, it was a very old house (over 100 years)
• He didn’t do a sewage line inspection
• After he bought it and had tenants living in the house, he got a call at 11pm, one night, during a weekend
• The tenant said the sewage line was broken and that raw sewage was coming out of the kitchen sink onto the floor
• Ryan had to call 6 different contractors before he found someone who could come and fix the problem and clean and sanitize the place
• It cost him a few thousand dollars
• They used a video probe to go down the line and Ryan saw that the line was broken
• He had to replace the whole old cast iron line with PVC piping.  That cost him $6,000
• Lesson Learned:  Always do a video probe (only costs a couple hundred dollars) as part of your inspection process.  You can then negotiate the price to allow for the capital expenditures required or have the seller fix it before you sign the escrow papers.  He still buys older homes but he always does the video probe

Preventative Maintenance Tips to Reduce Future Costs

• Ryan replaces grass with mulch
  • Reduces water bill
• Get rid of or trim trees that are close to the house
  • Squirrels and rats (which also bring fleas) that can climb up a tree and get into the attic and house
  • Also, prevents roof damage and possible sewer line damage from roots

Biggest Success

• Having the right mindset
• He read a lot of books and watched a lot of YouTube videos on mindset
• Having a vision of your “Future Self” and what you want your life to look like in the future
• If you keep that picture of your vision in your mind everyday, it will keep you motivated and excited about the future
• It’s easy to get discouraged and quit when you have problems but, if you have the right mindset, it will all workout in the long run

Advice for Old Dawgs Looking at Real Estate Investing to Help in Their Retirement Years

• For Ryan, he is building a passive income of $10,755 per month
• He is actually, by reinvesting his cashflow and W2 income, able to have his 4 rental properties totally paid off in just 4 years
• He applies about 20% of his income
• According to Ryan, rental property real estate really starts to pay off by the 7th or 8th year
• For Ryan, he wants to possibly retire at the 8-year mark.  He currently (at the time of this recording) is only 27 years old
• He’s still figuring out whether he wants to just pay off the properties he currently has or apply leverage to acquire more
• With his current properties, he will be making a six figure income by the 8-year mark just on his current properties, which will support him for he rest of his life
• For an older person, you could still do the same thing in 8 years without having to rely on the ups and downs of the stock market or a company pension plan
• This gives you a guaranteed income as long as you have systems and processes in place
• An older person could take some of the equity out of their current home or from savings or retirement accounts to get this started.  For Ryan, he had to save up and work a lot of overtime to get the money he needed for the first down payment

Current Business

• Ryan loves his job but the lack of flexibility has caused him to pursue financial freedom
• He works every other weekend
• He wants financial freedom
• The idea of doing whatever he wants, wherever he wants, whenever he wants, with whomever he wants is the appeal of financial freedom
• Having a sizable steady flow of passive income to
  • Support his family
  • Support his kids
  • Cover large medical bills
• When asked if he is going to stop after these properties or pursue additional properties he said, “If I see a good investment opportunity, he’s not going to just sit on the sidelines.”

Rap-It-Up

• Favorite real estate book: The Millionaire Real Estate Investor by Gary Keller
• Favorite business book: The eMyth by Michael E. Gerber
• Most valuable web site for success (other than your own): TonyRobbins.com
• Favorite app: Zelle and Facebook Messenger
• Favorite quote: “Live each day as if it be your last!” by Marcus Aurelius
• If you had to start all over, knowing what you know, and you only had $1,000, what would you do to launch your real estate investing business? Use the $1,000 or educate yourself or develop a skill that will allow you to make a high income.  Use that high income to save up and put a down payment on a house.  Get an FHA loan and only have to put 3.5% down.  Move into the house (house hack) and rent out the other rooms to students.

How to Reach Ryan

• His Website: NewbieRealEstateInvesting.com

To Get a Free Copy of Ryan Chaw’s Excel Deal Analysis Calculator 3.0

• Click Here: Ryan Chaw’s Deal Analysis Calculator 3.0

DISCLAIMER:  Many of the above strategies take knowledge and have a higher degree of risk.  You need to do your research and/or work with someone who is experienced to reduce your risk.

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Additional Episode Sponsor: Meno Studio – menostudio777@gmail.com