Lots of people consider buying investment properties -- and in Harrisonburg many people start by investigating college housing. Some don't end up buying, and here is why . . .

Limited Choices

Most of the student housing that exists in Harrisonburg today is corporately owned --- each unit isn't owned by one or more people, the entire complex is owned by a corporation. Thus, if we look just at housing for JMU students, where individual housing units can be purchased, the choices quickly become boiled down to:

1. Hunters Ridge (condominium or townhouse, on Port Republic Road)
2. Madison Manor (condominiums or townhouses, on Blue Ridge Drive)
3. Townhouses close to campus (Liberty Square, Stonewall Heights, Avalon Woods, etc)
   
4. Single family homes close to campus (Mason St, Main St, Liberty St, High St, etc)

However, the properties that JMU students, JMU parents, JMU alumni, and investors as a whole are most interested in are at Hunters Ridge, because of its close proximity to campus.

Limited Monthly Cash Flow

Many investors aim to at least break even on a monthly basis -- they don't want to be losing money each month that they own an investment property. With this assumption, let's take a look at how the cash flow might work on a monthly basis for 1346-D Hunters Road, one example of a Hunters Ridge condominium for sale as of 12/20/2007.

Price of $105k, 80% financed at 7.25%, self-managed
Rental Income + $770
Mortgage (Principal & Interest) - $573
Condo Association Fee - $155
Real Estate Taxes - $45
Insurance - $35
Monthly Profit - $38 (a small loss)

However, many potential investors call and indicate that they only want to use a 10% down payment, and that they plan to have a property management company take care of the property. Things get worse . . .

Price of $105k, 90% financed at 7.25%, property management
Rental Income + $770
Mortgage (Principal & Interest) - $645
Condo Association Fee - $155
Property Management - $77
Real Estate Taxes - $45
Insurance - $35
Monthly Profit - $225 (a big loss)

Then Why???

With these monthly losses, you might wonder why someone would buy an investment property. There are a lot of possible reasons why someone might buy, or why the numbers might work differently for them:

• If an investor is financing less than 80% (and thus has more than a 20% down payment), cash flow will improve.
• Losses on investment property can be good from a tax perspective.
• Some investors are comfortable with some losses, in order to take advantage of future appreciation of property values.

Lots of people have become very wealthy investing in real estate --- however, as explained here --- every investment is not necessarily a good one for every investor. Check the cash flow!