Archive for Saturday, August 12, 2006

Student landlords profit despite challenges

August 12, 2006

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Eli Beracha, a Kansas University graduate student, owns a handful of apartments, condominiums and houses in Lawrence. Despite the work it takes, Beracha reports that it's been a successful endeavor.

Eli Beracha, a Kansas University graduate student, owns a handful of apartments, condominiums and houses in Lawrence. Despite the work it takes, Beracha reports that it's been a successful endeavor.

What began as a way to have a decent place to live and a small income seven years ago led then-Kansas University undergraduate Eli Beracha on the path to a new career and a doctoral program for which he is "passionate": finance investment real estate.

Beracha is one of a number of student-landlords at KU.

"I now have eight condominiums and three houses," said Beracha, who since has married and plans to complete his doctoral work this year. "I bought them and manage them myself."

Beracha, an Israeli native, bought his first home while a sophomore computer engineering student. He used money he had saved from a stint in the military to get started. He rented out rooms to fellow students to help meet his mortgage payments and have a little income.

He credits some of his success with property management to good timing and dumb luck.

"I made some decisions that back then I didn't know were great decisions," Beracha said. "Now I've gotten my master's in economics and am about to finish my Ph.D. in finance investment real estate. Now I understand much more about why things I did happened the way they did."

Many student-landlords live in homes purchased by their parents and rent rooms to friends while they - and sometimes younger siblings - complete their education. Often parents view it not only as an investment, but also as a chance to teach their child some responsibility.

"We recently had a house listed for $195,000 like that," said Brooke Anderton, leasing agent and administrative assistant for Gage Management, a local property management firm. "The parents were actually considering purchasing a home while their children were in college and, as soon as their kids graduated, they would be interested in selling it. But they were wanting to wait a lot longer than we wanted to leave it vacant, so it went to someone else."

Doug Stephens of Stephens Real Estate said there have been a number of parents interested in properties for their KU students in the past decade.

"It's not uncommon, but we haven't seen as much of it lately," Stephens said. He blamed a city ordinance that limited the number of unrelated people living in residential neighborhoods zoned for single-family homes for curbing some interest in student rental properties "in the last year or two."

Family troubles

One Lawrence mother, who asked not to be named, said she and her husband bought a home for their son last year as he was nearing the end of his freshman year.

"We thought it's not going to cost us any more than the dorm plan, when you include the meal plan," she recalled. "We thought it would be good for taxes. We could write off the depreciation. (Our son) seemed very enthusiastic about the idea at the time. He had two friends who he thought would be very interested" in renting the other rooms.

But the arrangement quickly turned sour.

"One of the first problems is we bought a house that was too nice," she recalled. "It was close to campus, and we saw it as a longtime investment. So we spent more than we meant to."

Then one of the friends backed out of the deal, leaving her son to find a stranger as the third roommate. It wasn't long before her son remained the only full-time KU student of the three, and the family was squabbling with him about the upkeep of the house, the social climate with the roommates and the rent payments one of the three failed to make.

"We learned then, it's just really, really hard," she said. "Unless your child is a really dedicated student who has proven to be responsible and always holding up their end of things, then it's a mistake.

"I guess we underestimated the responsibility of taking care of a house for three 18-year-old boys," she said. "We envisioned a higher level of maturity than there was."

Now the house is for sale, and the son is mending his relationship with the parents and taking a break from school.

"Thankfully our son was always wanting us to be happy with him," she said. "If he really didn't care, it would have turned into a sty. As it it was, there were a lot of hurt feelings with him because we held him responsible."

In other cases, parents have been held liable for injuries suffered by students who have attended parties at their child's house or are being asked to evict their child after repeated complaints from neighbors for having a "disorderly house" under city codes.

Still, Stephens said, "there will always be interest in investment property in a university town. There's always competition for good homes, particularly around campus."

Smart investment

Beracha said Lawrence still offers a good investment for property owners, but he said he was fortunate to begin his student rentals when prices were lower and the risks not as great.

"Right now, I think it's not as attractive as it was," Beracha said. "It's not bad, but not as good as seven years ago. The interest rates are higher, but the rental prices are staying the same."

Currently, he said, Lawrence has "about a 7 percent vacancy rate. That's the highest we've had in a long time. You're really taking a chance that your property will be rented. It's good for the renter because they have a lot of options."

Like most student-landlords, Beracha began by leasing rooms to friends and fellow students.

"Most of my properties are occupied by students," Beracha said. "Most are people I knew from school. They needed a place to live, and I hooked them up. I do treat people fairly and have nice properties, and people refer to me to their friends. The rest I do through (advertising in) the paper."

Still, Beracha said he has learned that property management has its headaches.

"It takes time," Beracha said. "A lot of people think if you're a landlord, you just sit at home and wait for the checks to come in, but that's not how it is."

Over the years, he has handled many calls for repairs and established a stable of trustworthy plumbers, electricians and handymen. He has learned to make decisions about purchasing appliances, fixtures, paint and carpeting while maintaining his properties. Most importantly, he has learned when, where and what to buy to ensure steady, reliable renters.

"I don't fix things myself. It's not worth my time," Beracha said. "So I hire someone to do the repairs, but I have to make sure they do the job right.

"I do finances myself," he said. "There is marketing. There are investment decisions: Should I put in new carpet? Should I buy a new or a used refrigerator? These will definitely affect my property and whether I can rent it. I learned a lot about marketing."

Able to relate

Beracha said he thought one of his biggest assets as an owner is that he is "about the same age as the students. That really helps me to know what to do to make them more comfy and attractive to students: getting appliances, renovating this or that. Other people say, 'It's just a rental and it's students and they don't care.'

"Living with the students helps me to see what the students want and need," Beracha said. While it used to be that students just wanted a place for a bed and their computer, he said today's "students often become very spoiled. Now they ask how many bathrooms there are" because everyone wants his own. They're concerned about having washers, dryers, dishwashers and central heat and air, he said.

"They've really become really, really picky, because they can get all of that and pay little money," Beracha said.

Beracha said he opted to buy "newer houses" - most of which have three bedrooms and full appliances. He said he has learned what people want.

"When the market is good, there is no problem," Beracha said. "When the market is bad, that's when only the good stuff is going." Keeping the property maintained ensures that they will be rented even when the market is tight, he said.

Over the years, Beracha has had several jobs including teaching positions at the university. With his earnings and scholarships, he will be leaving KU debt-free, he said.

"With my degree, it is very likely that I will find a job somewhere else," Beracha said, indicating a career in academia. "I'm very passionate about teaching what I'm teaching and being a professor in investment."

Yet he plans to keep his rental properties in Lawrence.

"I probably will keep them if the people who will manage them for me do a good job," Beracha said. "I'm not very passionate about getting phone calls about the toilet overflowing. I'm more passionate about finding a good property and finding a good investment."

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