How to Invest in Student Rental Properties to Create Cash Flow Machines Not Horror Stories
Tom Karadza: Hey, everyone. It’s Tom Karadza with another episode of The Your Life! Your Terms! Show. And on this show we have Nick Karadza, my brother, and Mike Desormeaux on the call. We’re going to be exploring student rentals, and what I initially thought was going to be, maybe, a casual talk. And we do talk about some stuff. Mike shared some of his story at the beginning, which I think is super interesting. But we get into a pretty deep dive on student rentals, and cover a lot of different topics that Nick and I definitely wish we had heard or we knew of before we started. When we did, we were pretty much clueless. So I think after listening to this, even if you own some student rentals, there’s going to be a tip or two. And if you don’t, you’re definitely in for, I think, a lot of good information on student rentals and student rental investing right across the Ontario area.
This is some of the stuff we talked about applies to everyone in Canada, but we dive in specifically on some of the schools and some of the things to think about different universities and colleges in the greater Toronto and the greater Hamilton area, basically a greater Golden Horseshoe.
You’re in for, I think, a treat on that kind of stuff. And this is our plan, so in this one we’re going to be talking about student rentals. Going forward, we have other real estate topics, but I’m already starting to get requests of some other topics. Some people have heard that we’re launching this podcast and they want to hear about website development, and lead generation on a business, and online marketing and that kind of stuff.
We are going to dip our toes in some of those topics. We’ll see how that goes over the next few weeks and months. So, if you have any ideas for topics that you’d like to hear of, we’re going to set up an email address. Right now, we’re going with firstname.lastname@example.org. So, if you have any ideas or thoughts of topics you want us to cover on this podcast, if you email it to email@example.com, we’ll get that and we’ll get an idea of what you’re looking for.
That’s it for the intro. Let’s get started…
Tom Karadza: I can’t believe we’re doing this. Are you guys ready? Are you ready? Are you there? Mike Desormeaux, are you there?
Mike Desormeaux: I’m here.
Tom Karadza: Nicholas Alexander Karadza, are you there?
Nick Karadza:Yeah. I’m here. Let’s go.
Tom Karadza: This is the student rental edition. We’re going to cover a whole bunch of stuff, student rental scene vastly misunderstood. But before we do, I wanted to introduce Mike Desormeaux.
Tom Karadza:So, Mike, I don’t know, you introduce yourself. Who are you?
Mike Desormeaux: I am someone who way back in the day-
Tom Karadza: You’re super Mike. You’re going to be too humble. You know what? Forget it. I’m just gonna jump in for a second. The way we met Mike was Ruben and I, a friend of mine and a friend of Mike’s who Mike grew up with, we were flipping a property in Oakville, and Ruben turns to me, and says, “Tom, one of my friends wants to learn about flipping properties. He’s willing to cut the grass for us every week if he could just hang out and learn.”
Mike Desormeaux: That, just to-
Tom Karadza: It’s not a true story?
Mike Desormeaux: No. It is, but that’s not how we met.
Tom Karadza: It’s not?
Mike Desormeaux: No.
Tom Karadza: Oh, yeah. I remember how we met. Yeah, yeah, yeah, yeah.
Mike Desormeaux: We met when I was buying homes in Oakville from the builder. I was moving in, and the very first one I moved into I had a mattress and a TV to my name, and that was it. So, my goal was buy from the builder, go in, paint it, stage it, sell it, make a profit, go onto the next property. And I did that, but on the third one, I got sort of caught, where I couldn’t sell the house I was in, and needed to close on another one that I purchased.
Mike Desormeaux: So, that’s how you originally-
Tom Karadza: I remember.
Mike Desormeaux: Yeah. Through Rubin. Yeah. Do you want to continue from there or-
Tom Karadza: Yeah, because Ruben called me, and he said, “Hey, Tom. I have a friend, you’ve never met him before, he needs money. Are you willing to lend him some money?” And I said, “Hey, Ruben. A friend of yours is a friend of mine.”
Nick Karadza: So what I’m laughing about is that Ruben got Mike to buy a house even though he only had a mattress and a TV to his name.
Tom Karadza: Yeah.
Nick Karadza: So, he sold him on that. Then he sold you on lending someone you never know … How much money did you lend him?
Mike Desormeaux: 2,500, I believe.
Tom Karadza: I think it was 2,500. The chequebook’s right there. It was check number one in that chequebook.
Mike Desormeaux: Yeah. Awesome.
Nick Karadza:Well, let’s pretend it’s 25 grand, because it just makes the number-
Mike Desormeaux: No, it was only 2,500, but it’s a better story if it’s 25 grand.
Nick Karadza: At the time-
Tom Karadza: I remember turning to Carol, my wife, and saying, “Carol, we’re gonna lend money to one of Ruben’s friends,” and I think it was 2,500. It might have only been 1,500, but I remember thinking-
Mike Desormeaux:It felt like a lot at the time.
Tom Karadza: Yeah, it was a lot of money. And I remember telling Carol, “Yeah, it’s this guy,” and I had to try to explain who it was. And I had nothing, just a friend of a friend needs some money.
Mike Desormeaux: Yeah. But just to be clear, my staging didn’t involve just that TV and a mattress. I had very good friends that lent me curtains and dining room set. Yeah, so I got lucky. At the time, there was winners…
Tom Karadza: So, you had nothing to your name is…
Mike Desormeaux: Nothing, no. There was Winners, not home since at the time. I went to Winners, bought picture frames. Went to the public library. I photocopied black and white photography, slipped into those picture frames. I have to admit the house did look-
Tom Karadza: Oh my gosh, that’s awesome. That’s smart. That’s a really good tip. I didn’t know that. That’s great.
Mike Desormeaux: And, luckily, I made out well, somehow made out well on all three. But then that was in the 90s, early 2000s. And then from there I just started to buy and accumulate with a profit that was made from those properties.
Tom Karadza:Yeah, another person who didn’t know what he was doing when he started.
Nick Karadza: I think the less you know the better.
Tom Karadza: The less you know the better.
Mike Desormeaux: Yeah.
Tom Karadza: Because if you know everything, you just talk yourself out of everything.
Mike Desormeaux: Yeah.
Nick Karadza: But, hold on. I want to talk about this photocopying pictures and putting them in. Who gave you that idea?
Mike Desormeaux: That was just something I came up with. I had-
Tom Karadza: Mike’s a hustler man. Mike’s a hustler. He figures things out.
Mike Desormeaux: There are those consistent, already preset photos in those picture frames. So, you can only go with so many picture frames before you have to replace.
Tom Karadza: Of like the Eiffel Tower and New York scene.
Nick Karadza: You got a library book of art?
Mike Desormeaux: Yeah, black and white photography. Yeah.
Tom Karadza: I love that. Those are the types of stories that I love. I just think it’s smart.
Mike Desormeaux: Yeah. And I remember this … first house I bought on the fireplace mantel I had photos of young children. And the couple that ended up buying the house, she was a pregnant woman. She walked into the house. They were from B.C. They flew in to look at properties for that weekend, walked through the living room, stopped. She stopped at the fireplace and looked at those young child photos that I had on the-
Tom Karadza: That you had photocopied?
Mike Desormeaux: Yeah. That were clearly-
Nick Karadza:Not yours.
Tom Karadza: Oh my God. What a beautiful family.
Mike Desormeaux: And who knows what she thought?
Tom Karadza:Why is this weird guy got these pictures of these-
Mike Desormeaux:No, but I think she, yeah, from there, she pictured herself being in there with her family. And sure enough, bang, offer came in and it was done that day with that family. It was great.
Tom Karadza: I think I was in the second one that you were in. You staged those very nicely. It’s almost like you didn’t live in them.
Mike Desormeaux: Correct.
Tom Karadza: It was like a model home.
Mike Desormeaux:Yeah, a pain in the butt to keep up with.
Tom Karadza: But I didn’t know the curtains weren’t yours. So, people were lending you curtains?
Mike Desormeaux:Yeah, and curtain rods. Yeah. When I had a TV and a mattress, I mean, I had a TV and a mattress.
Tom Karadza: Wow.
Mike Desormeaux: Yeah, a couple dishes. That was it.
Tom Karadza: With a TV and a mattress to your name, what gave you the guts to buy the house? The first time.
Mike Desormeaux: Yeah. Just seeing what the builder was selling the property for and what the resale market was. Back then, there was almost a gap where you could … I know this sounds unrealistic today, but buy lower than resale.
Nick Karadza: Yeah.
Tom Karadza: There was a window. It was like an eight to … There was a big window like 8 to 10 years where you could do that.
Nick Karadza: Yeah. Then the builders across the board decided they didn’t want that to happen anymore. They’re like, “Why are we giving these guys profit? We should get the profit.” And they all upped their prices. Yeah, I remember that.
Tom Karadza: And how many did you do? You did two like that?
Tom Karadza:And it was in between the second and the third where you got caught with some money.
Mike Desormeaux: I would strategically buy always across from the builder’s model home. So, whoever was going into the builder’s model home would see my home for sale. And it was on that third one I couldn’t close.
Tom Karadza: Why did you even do this, Mike? To make money?
Mike Desormeaux:Yeah. Yeah.
Tom Karadza:That was it. You saw other people doing it.
Mike Desormeaux:Well, and then I heard of rich people, but I never knew these rich people, but the common denominator was finding out who these rich people are.
Tom Karadza: I heard of rich people.
Mike Desormeaux: Yeah, they had real estate. Back in the day, yeah.
Tom Karadza: I’ve heard, yeah, going on right now. That’s how we got started. We started because at some point Nick and I had a discussion like, “Everyone we know who has money owns real estate. We should probably own real estate.” That was the whole kind of thinking.
Mike Desormeaux: Yeah. And the builder was charging me $1,000 every week I couldn’t close. So, I had to make things happen quickly, so that house did sell. I reside in that home, that third home, now. And-
Tom Karadza:Oh, the third home’s the one you’re living in now.
Mike Desormeaux: Yeah. Yeah.
Tom Karadza: Wow.
Mike Desormeaux: Always prepared that, hey, if things change, I’m going to be comfortable in this home.
Tom Karadza: That’s the one I keep telling you you’re going to sell and buy a house double the square footage.
Mike Desormeaux:Yeah, it’s probably going to happen.
Tom Karadza:With two pools, three hot tubs, big screen TVs in every room. That you’re denying will ever happen. Okay, so that’s our intro to student rentals.
Nick Karadza: Yeah. That’s what I was thinking.
Tom Karadza:So, that’s how you do student rentals. Okay, so fast forward a few years-
Mike Desormeaux: Oh, just to finish that, to recap, and then one day I knocked on your door and asked Ruben where you lived. Knocked on your door.
Tom Karadza:You came to my house?
Mike Desormeaux: Yeah. I believe you or Carol answered. And I can’t remember.
Tom Karadza: I wasn’t home.
Nick Karadza: He showed up with cash.
Mike Desormeaux: Okay, it was Carol then. I go, “You don’t know me, and I’ve never met you or your husband, but he lent me some money.”
Tom Karadza: You’re a good person.
Mike Desormeaux: Yeah. Here’s your money, plus some interest, and a bottle of wine or something.
Nick Karadza: She was probably terrified.
Tom Karadza: Wait, no. No. I’m slightly embarrassed on something here. So, I didn’t know this, but I guess I had forgotten this part of the story. In my checkbook, it’s check number one in this new book of checks. It’s written and it’s over there, it says Mike Desormeaux, and then it says the amount. And then it says, “Plus interest.” So, I charged you interest?
Mike Desormeaux: No, no. No, no. I gave you more money. I gave you interest. But no, that was never the deal.
Tom Karadza: I know, but I wrote it in the book.
Mike Desormeaux: Got it. Wow. Okay, well.
Tom Karadza: But I know. You know why I’m embarrassed about that? I’m like why wouldn’t I just-
Mike Desormeaux: It’s how the universe works.
Tom Karadza: No, but I’m like, “Why didn’t I just help Mike out? Why did I write?” I questioned why I wrote plus interest there? I feel like it’s a little cheesy on my part.
Mike Desormeaux: I think we were all in a different place back then.
Tom Karadza: Yeah, so you did that.
Tom Karadza: But then you knocked on our door again. No, then you did the flip where you were cutting the grass on that flip that we were flipping, just to learn.
Tom Karadza: Which also means you’re a freaky person.
Tom Karadza: Just because who does that? Which is the right thing for all of us to do to hustle and learn. And then the other one was even freakier. I’ve totally forgotten about all this. The third one was when you just walked in. Nick was in the back of the office, the first brokerage that we were in.
Nick Karadza: Oh, yeah.
Tom Karadza: Nick was in the back of the office. You set an appointment or something to meet with me. Had we ever met?
Nick Karadza:I don’t know what you guys talked about. But I remember Tom coming back, he’s like, “Nick, there’s this guy here,” but you said who he was.
Mike Desormeaux:Desormeaux. Michael Desormeaux.
Nick Karadza: But I didn’t really know you, right?
Nick Karadza: And he’s like, “He wants to work with us, and I think it’s a good idea, but what should I tell him?” I don’t know. If you think it’s a … I don’t know the guy. But if you do and you think it’s a good idea, I guess yes, because we needed someone like …
Tom Karadza: We were desperate.
Nick Karadza:So, just the timing worked out perfectly.
Mike Desormeaux: Real well, yeah.
Tom Karadza:You walked in like you were an angel from the heavens, Mike. The timing couldn’t be better. The timing couldn’t be better. That was freaky. Wow. And now, 10 years later how many-
Nick Karadza: So, that’s the intro to Mike?
Tom Karadza: Yeah. That’s the intro to Mike. 10 years later you sold I don’t know how many hundreds of millions of dollars of properties. You’ve helped investors with hundreds of properties. You’ve helped hundreds, I don’t know, if not thousands of investors at this point, definitely hundreds. And you are very skilled in identifying good income properties all over the greater Toronto area, but today I think we want to zero in today on student rental housing, which you also have a ton of experience.
Tom Karadza: When Nick and I kind of started our journeys with student rentals, you have a ton of experience with student rentals. I want to just throw this out there, this is the number one question we’re always asked about student rentals, like, “Is it worth it? Won’t the students trash the place? Why should I do student rentals?”
Tom Karadza: How do you guys handle that?
Mike Desormeaux: Yeah. The student rentals, they lead with income. So, is it worth it if cash flow is of a necessity for someone, then definitely student rentals is, if not the best source of-
Tom Karadza: Why? Can you explain why? The cash flow better than any other rental properties?
Mike Desormeaux: Pretty much. I put them up against multi-
Tom Karadza: Break out a sample.
Mike Desormeaux: Yeah, absolutely. OK. I’m doing one today for myself in London. This particular property is a-
Tom Karadza: So, by Western?
Mike Desormeaux: University of Western, yeah. Five bedrooms, five and a half baths. That’s going to cost us about 600, but it’ll rent out for 725 a room. Cash flow after all expenses-
Tom Karadza: What’s the cash flow?
Mike Desormeaux:It’s about 890 a month. That’s even after property management.
Tom Karadza: So, 890 a month, free and clear cash flow?
Mike Desormeaux: Free and clear.
Tom Karadza: So, you’re paying mortgage. Let me get this straight. Mortgage, property tax, insurance, property management fees …
Mike Desormeaux: Yeah.
Tom Karadza: Utilities? You are?
Mike Desormeaux:On this particular one, yes.
Tom Karadza: Okay, because on some we don’t. We can share about that. Yeah, so it’s utilities, you’re paying internet?
Mike Desormeaux: No, I don’t know the students.
Tom Karadza: No internet, okay.
Mike Desormeaux: I have another one out there too, but it’s a rent plus utilities. Yeah, it’s I’d say 50% of your properties, you may be able to get rent-plus and then the other 50 would be inclusive, depends on the year, depends on the property.
Tom Karadza: Okay.
Nick Karadza: The area. What’s in the…that area?
Mike Desormeaux: The area, yeah.
Nick Karadza: But, I mean, it’s really like anytime. Anytime you take a property … I mean, it can be student property or not, but anytime you take a property and you’re going to rent it out by the room, you’re able to generate additional income from the property. It’s no different than anything else. You buy in bulk, and you split it up, and you start selling it in smaller samples. I’ve been watching a lot of-
Mike Desormeaux:I’ve never heard it said like that, but I like that.
Nick Karadza: Why? Maybe, because I’ve been watching so much El Chapo and stuff on Netflix. I’m all about … I’ve watched so much drug cartel and organized crime stuff on Netflix lately.
Tom Karadza: I’ve watched all of Narcos, all of El Chapo. I was telling Nick, Mike, do you watch El Chapo on Netflix?
Mike Desormeaux: No. I do not.
Tom Karadza: El Chapo, four episodes in, I didn’t realize it was all subtitles until four episodes in.
Nick Karadza: That says something about, even now … That says about you, but it says something-
Tom Karadza:I think it just means I reap quickly.
Nick Karadza: But that’s what it is. It’s the same thing. Right? You’re taking a kilo, you’re cutting it up into smaller things, and you’re selling it off. I mean, it’s no different, right? Because if you sold the whole kilo, there might be a middleman, so you might be able … So, if you get the kilo from Mexico to the states, you can sell it for more, just like you can buy a property and you can rent it to someone as a whole property for more than it cost to own it, because they’re not able to buy it. But if you chop off the kilo and you sell it to multiple people, you make more money.
Tom Karadza: Basically, what’s happening on the student rental except we’re not selling kilos of coke to the students.
Nick Karadza: No…
Tom Karadza: We’re renting out beautiful homes where they can reside and study to better their futures.
Mike Desormeaux: Get a good education, yeah.
Nick Karadza: And it’s got to be good … I mean, housing.
Tom Karadza: Good, yeah.
Nick Karadza: No, but there’s got to be demand for it, right? So, if you have a good property, then the demand in these areas, so many landlords let their … They don’t maintain the properties. So, if you maintain the property and you have a quality product or a half-decent product that’s slightly above average, there’s going to be demand for your product.
Tom Karadza: I think that’s the biggest thing. What’s the population of Western … It’s probably like … I know Mac is like 30, Western in London-
Mike Desormeaux: It’s somewhere close to 35,000.
Tom Karadza: Okay, I was going to say 35,000 people, that’s like a city within a city. Let’s face it, 35,000 people, all those people other than the first year people are looking for places to stay.
Nick Karadza:And what’s crazier is the enrollment in most universities is growing.
Tom Karadza:It’s a business. They just want more people.
Nick Karadza: No, I got you. Oh, now, Tom is going to go and rent here. We have to be careful.
Tom Karadza: No, sorry. Good times or bad times people are in school.
Nick Karadza: Yeah, bad times it’s even more, right? They go to school for more degrees and more education. So, yeah.
Mike Desormeaux:If we’re looking at, specifically, the University of Western, so we’re comparing it to hectares available. So, McMaster as you see, they’re not building by the main campus anymore so they built downtown Hamilton. They built off of Appleby, and the 403, that campus. Just because they’re out of real estate there pretty much. But London is on over a 1,000 of hectares of available land.
Tom Karadza: Is that what it is?
Mike Desormeaux: Yeah. Last year … No, sorry. A couple years ago it was the Ivy School of Business that was built. Last year it was an academic building for nursing. This year it’s an academic building for engineering. Next year there’s an academic building being built to double their size of the music program. Every time I go by the University of Western Ontario, there’s a crane up.
Tom Karadza: So, there’s no lack of demand.
Mike Desormeaux: No.
Tom Karadza: Universities, I think, are also better than that than colleges. I mean, we own stuff, Nick, by colleges. The college population size just always seems smaller than a university. It’s kind of why I like university. Look, the college stuff’s good too, but if I had to pick, universities I like better for a couple reasons. Bigger population and the students tend to stay in their programs for longer, so if you do get students in like second year into your property, there’s a good chance they’ll stay second year, third year, and maybe … Nick, we’ve had this sometimes, even a fourth year, which means three years in a row you could have the same group of students. You’re only renting it out once every three years. In colleges, you get less of that.
Nick Karadza: Well, it’s more structured programming as well. In colleges there’s more…, and there’s more.
Tom Karadza: Yeah, so students are more transient, coming and going.
Nick Karadza: So, they’re coming and going, because they’re in like when I was in school I was at school for four months, and then I was working for four months. So, depending on when I’m working. Now, I live at home, but if I was away … So, there’s definitely less demand for these longer term things, but at the same time, I mean, there’s good and bad to everything. At the same you, often, are going to pay a lower price for-
Tom Karadza: Yeah, that’s true.
Nick Karadza: So, if you’re willing to do more management, and you’re willing to do more hands on approach, and fill the property more, well, maybe, it’s an approach that you’re willing to take that could be beneficial for you. So, depending on where you are with your investing. Like Mike’s talking about his property that he’s buying, about what the numbers are after management. A lot of people when they’re getting started they’re not going to look at the additional cost of management, because they’re going to try to save those funds for themselves and manage it themselves. Do you know what I mean? But you’re now … You’ve gone through enough of properties, you’ve reached a different level of investment where you’re like, “You know what? I just want everything to be managed for myself.” So, it’s all over the place, but if I had my choice, I’m with you. I would rather pay more money, because typically a little … depending on area, of course.
Nick Karadza: But in areas where there’s a college and university side by side, typically the ones closer to the university, you’ll pay a little bit more money for the property. But with that I think comes the benefits like you said about there’s management benefits. But to circle back to your question about the students wrecking the property, we haven’t had that. We’ve been lucky. I know, I wouldn’t say that we’ve been lucky. My opinion is managed properly with the right systems, you really mitigate that risk to a great degree. And-
Tom Karadza: What do you mean by that managed properly? Just treating people with respect?
Nick Karadza: That too, but the biggest thing, the number one thing that we learned early on … because the first student property that we had, the first time we had to fill it, it was individual people. So, if there was seven rooms, we had to put a group of two, and group of three, and a couple singles to try to fill this.
Tom Karadza: Yeah. That was a horror show.
Nick Karadza:And it’s just a disaster. No one takes responsibility for anything. So, we quickly learned that one of the number one, for me, the number one thing about renting to students when it’s a property of a specific size is if you can rent to one group, it is so valuable. Your management headaches and the work-
Tom Karadza: With someone acting as the leader of that group, even.
Nick Karadza:Sure, you can force that after. That’ll just naturally happen. But one group changes everything, so you have to be on the ball when you’re renting the property, or you’re going to be left with trying to hit these makeshift groups, and it causes more work for yourself, for sure. So, in this scenario, I don’t know what kind of property this is, but I think you said it’s multiple units. Right?
Mike Desormeaux: Five bed, five and a half bath. It’s a single family home being converted.
Nick Karadza:Okay, but it’s almost like individual units, right? Because if there’s that many baths, everyone’s kind of living by themselves, because they’re going to be responsible for their own bathroom it sounds like.
Mike Desormeaux: Believe it or not. They have their own ensuite.
Nick Karadza:Yeah. That’s nice.
Tom Karadza: That’s a purposed-built.
Mike Desormeaux: This is very rare, though.
Nick Karadza: Yeah, that is rare.
Tom Karadza: That’s with your relationships with builders.
Mike Desormeaux: With some builders, yeah. Those will be off-market, not offered to the public, not listed on a…
Tom Karadza: That’s a Mike Desormeaux special.
Mike Desormeaux:Yeah, we can call it that.
Nick Karadza:But that’s been done. The number one thing. When I see people that are like one foot in, one foot out on their student property, and then they don’t fill it when it needs to be filled, it typically is going to be anywhere from December or January, most university towns, to fill the property then, and they’re trying, they’re like, “Oh, now, you’re going to have two months of vacancy. I’m trying to fill them in the summer.” And you get all the left over people. That’s where you’re creating more work for yourself by not being on the ball.
Tom Karadza: Are you taking ownership of this vacant?
Mike Desormeaux: It will be filled by some property managing companies that I work with out there. One specifically will take care of this one.
Tom Karadza: What are the fees on property management?
Mike Desormeaux: So, this particular management company, it’s four and a half percent of gross rent. They can go all the way up to 8%, but the majority of the property management companies in London will typically go not higher than 6%.
Nick Karadza: But if this is a company that deals with student property.
Mike Desormeaux:Strictly student.
Tom Karadza: Which is what you want.
Nick Karadza: That and there’s a big difference.
Mike Desormeaux: Yeah.
Tom Karadza: And do they try to get groups of students?
Mike Desormeaux: 100% always, yeah. Going back to are these properties are they damaged. So, doing this over a decade now, I haven’t seen it. So, don’t get me wrong, there are trashy homes out there. These are just landlords that don’t care. They’re putting whoever into the property. Property hasn’t been updated in 30, 40, 50 years. They don’t care. There’s a lack of student rentals out there, so unfortunately some students are put into those types of places.
Nick Karadza: They’re hellholes.
Mike Desormeaux: Absolutely, yeah. That’s not stuff that we’d get our investors. We want our investors to have decent properties and-
Tom Karadza: Well, it just makes your life easier. It makes our lives easier working with investors.
Mike Desormeaux: Exactly. So, couple tricks to avoid these parties at your house, and to avoid any damaged properties is go after good sized bedrooms when you’re buying a house. Don’t go after a large common area, because if you buy the house that has the largest bedrooms, which are going to be most attractive to the students, because that’s where they live, in the bedroom and get the small common area. Well, guess where they’re going to party? At that other house. The house with the big common area, yeah.
Tom Karadza: Someone else’s house, and the small bedrooms.
Mike Desormeaux: And the small bedrooms, yeah. Exactly. Parental guarantees is another thing, so get parental guarantees. Unlike a single family home, you may be at best have-
Tom Karadza: So, you always do parental guarantees or the property manager does?
Mike Desormeaux: So, some cities, it’s the norm. Some cities, it’s not. So, yes, whether it’s through me specifically or through the property manager and companies we are trying to get parental guarantees, but in some cities that’s not quite the norm yet.
Tom Karadza: Nick and I literally never have, ever. Right?
Mike Desormeaux: Yeah. It’s a good idea.
Nick Karadza: Yeah. It’s never been a problem, because we get the most-
Tom Karadza: Sure, yeah. It’s another layer of insurance.
Mike Desormeaux: It’s insurance, yeah. Exactly.
Nick Karadza: Most of the checks are being provided by the parents.
Tom Karadza: From the parents, yeah.
Mike Desormeaux:And that’s the nice thing about student rentals too, unlike single family homes-
Tom Karadza: Very few rent bounces, yeah.
Mike Desormeaux: Well, yeah, you got at best, mom and dad … Sorry. Husband, wife paying rent. Two people. When you have a student rental and it’s a five bedroom, which is pretty well the standard student rentals, you have 15 people responsible for rent. Five students plus mom and dad. Your rents coming in.
Tom Karadza:It’s so true. Yeah. Yeah. We’ve seen that very few missed months from rent.
Nick Karadza: Very few parents are going to bounce a rent check on their kids.
Tom Karadza: Let their students.
Mike Desormeaux: They paid six, eight thousand for tuition.
Tom Karadza: Yeah. Ten, twelve thousand.
Mike Desormeaux:Sure. And we have international students paying three to four times that for tuition themselves.
Tom Karadza: Yeah. It’s true. I remember at York University when I had that student rental property up there, the international students would tell me how much they were paying, I almost had a heart attack. What they were paying for school. And their checks for rent were often written from the estate of, you know? So, you knew these families had money to be sending their kids. A lot of times up from the different Caribbean islands. Coming up here as international students with money and paying, but anyway.
Mike Desormeaux: Going back. Property management, I think if you’re not local to that particular property if it’s over an hour away, you might want to consider property management for the 100 bucks you’ll save that in gas. I don’t know if you guys remember, you were in Croatia about two, three years back and you had a hot water tank issue.
Tom Karadza: Did you handle it for us?
Mike Desormeaux: I did, yeah.
Tom Karadza: We don’t remember.
Mike Desormeaux:Okay. So, you guys were brilliant and we teach everybody to do this to put the lockbox on their house, so that in the event that you’re not in the country and you need to get somebody into that house, they have access through the lockbox to keys to get into the house, and get done what needs to be done. In this particular case, the students had no hot water, so I was going over there to meet, I think, it was Reliance. Can’t remember. Meet the contractor over there, we go into the basement where the utility room is, and there was a girl in a bedroom and the door was open and I introduced myself, just say, “Hey, I’m here on behalf of the owners. We’re going to get the hot water issue fixed for you.” She’s like, “Okay.” She’s like once you’re done, can you …
Nick Karadza:Here’s another list of things.
Mike Desormeaux: Yeah. Can you look at the basement here, because my room has no power. So, her computer though … So, her room was dark. Her computer was plugged into the wall, and she was on Skype with her dad. Okay, this sounds a little fishy. So, the contractor is in the utility room. I go to the kitchen. I take a light bulb out from one of the lights. I go into her room and I switch the light bulbs, and miraculously there is power.
Tom Karadza: Light. Light is coming.
Mike Desormeaux:You might want to avoid those types of calls and trips.
Tom Karadza: Oh, my God. You know how many times we’ll get different things like three of the smoke alarms have the little beeping sound, the batteries must be out, and I’m always thinking, “I will tell the property managers if they haven’t.” But I’m always thinking, “Can’t you just take two double A batteries and pop new ones in.” Like how are you even sleeping through the night with that beeping sound.
Mike Desormeaux: Yeah. It’s their first time away from home. And yeah.
Tom Karadza: It’s shocking. Okay. Lesson learned, property management.
Mike Desormeaux: Yeah. I would say if it’s an hour or more away. Yeah.
Tom Karadza:Back to just what Nick saying, I think, Nick, you’ve always done a good job of setting expectations like treating students with respect on the property, but not going over and above what you need to either, but teaching them that if there’s a problem with the property, you always take care of it, and if they sense that from you, they then return the favor and treat the property properly. Right?
Nick Karadza:I mean, I think that’s made a difference. I don’t know how much of a difference it’s made, but it’s more-
Tom Karadza: I think it’s made a huge difference. What Mike’s point earlier of saying how there’s rundown properties and things like that.
Nick Karadza: The other thing, I think, along those same lines that people forget is the communication, because these people have never been out of the house, the majority of like you mentioned. And so, things like the light bulbs, things like the batteries and the smoke alarm, these little things-
Tom Karadza: Furnace filter.
Nick Karadza:Yeah. When we’re down there, we have someone down there doing those types of things. If a handyman goes down … For instance, tenant turnover, we’ll get a handyman in there. Always, we do a walkthrough with the handyman, and there’s always a list of small things for the guy to take care of, maybe one day’s worth of work. And we’ll ask him to take care of that list, and then we’ll email out that whole list of all the things he did, no matter how minor so that the kids know exactly what’s going on. It’s like, “Hey, we changed the batteries in the different smoke alarms. We changed the light bulbs here. We emptied the garbage that was on the porch.” Whatever it is, big stuff as well. But we’d let them know as much as possible so we oversell how much we’re doing at the property, so they’re well aware of what’s going on so they see that somethings happening.
Nick Karadza:I think it’s not just really doing the stuff and treating them with respect, it’s communicating a lot of things that you would take for granted as a property owner, because you think, “Well, I changed the light bulbs, and I put the batteries in. Anyone would do that, of course, we do that just like you were saying.” But they don’t know that stuff. You have to kind of explain that stuff to them, and it I think they all appreciate it. Definitely, seems like you’re doing more than you are, which we try to kind of strive for as well when we’re talking to them.
Tom Karadza: What about lease length? What are you doing, Mike, right now?
Mike Desormeaux:The goal has always been 12 months. Yeah.
Tom Karadza: We always do 12 months, too.
Nick Karadza: What about the number of leases, though?
Mike Desormeaux: One lease, get everyone on one lease.
Nick Karadza:Yeah. That’s a big one. That can be a bylaw thing that people need to know about. Look into your area, but that can make a big difference. Depending on the number of your rooms and the bylaws in place, it can make a big difference on how you’re running that property and what bylaws impact you. So, one lease usually is a lot better way to go if they’re living as a single family unit, it makes a difference.
Tom Karadza: We do one lease, too. And May 1st, April 30th, where you’re doing your one year lease.
Mike Desormeaux:Correct, yeah. May 1st to April 30th.
Tom Karadza: When Nick and I do it, we’re usually finding tenants if we know a group’s going to leave, we’re advertising in December or January for signing a lease that’s going to start May 1st. Students might not even live in the property for May, June, July, and August. They’re moving in September, but it’s a 12 month lease, and we’re collecting first and … Actually, we’re collecting last the time we sign the lease, then we collect first when we’re handing over the keys on May 1st. Certified check at that point, guaranteed funds.
Mike Desormeaux: Often now, the students are even starting a little earlier in some of the different cities, like November now, looking. Last year, I think it was last year, with Teymur when we got a property by McMaster, part of the deal when we bought was before we closed, we negotiated that we’re able to show the property. So, we wanted to show it to perspective students, because the students that were there were leaving. So, we closed, I believe, in November … No, sorry. We were going to close in the new year, but we started showing in November.
Mike Desormeaux: The best part of this was the very first showing that we went to do. So, I get the lockbox code from the listing brokerage. I pull up to the house, there’s already a couple groups of students. I walk up to the lockbox, open the lockbox, there’s no keys in the lockbox. I knock on the door. Nobody’s answering the door. As I’m doing this, trying to call the brokerage, I’m getting no answer. And now there’s about 30 kids, 30 students I should say, in the driveway and Tamar’s standing there.
Mike Desormeaux: So, I stand on top of the steps, and I’m like, “Okay, guys. I got good news and I got bad news. Bad news is we’re not getting into the house today. The good news is you saw the house, you’re here, you’ve seen the photos online. If you’re interested, give us the deposit today, fill out the applications. If you don’t like the property … Because I’m going to get you in next weekend; I’m going to make sure I’m going to get you in. And if you don’t like the property, we’ll give you your deposits back.”
Mike Desormeaux: About half of them left, and two groups gave deposits. Sure enough, following weekend we get them in, and one of the groups that gave that deposit took that property. It’s just the demand.
Tom Karadza:The demand. Just on that note, on the very first one where Nick and I had vacancies on that property where we had individual students, and then it went vacant. We advertised at one point we were going down … We were going down whenever somebody called to show the property, and then we decided that was crazy. We lined everybody up on a Saturday, and we had the same experience. We had over 40 people on the front lawn, and that just puts you … That’s the beauty of student rentals.
Nick Karadza: We rented one this year at the end of November. Right at the end of November, we rented it. Placed an ad and we had, I believe, 32 appointments booked for that weekend to the point where I-
Tom Karadza:That’s 32 appointments?
Nick Karadza: Appointments.
Tom Karadza: So, how many possible people?
Nick Karadza: Not leads. I don’t know. Tons. It was over … I booked them over about two or two and a half hours, because it was just like I tried to spread them out as best possible. And then that was I believe in the first two days of the ad being posted. Then I just stopped booking appointments. I just started kind of archiving the leads, and I was going to followup if we didn’t rent the house, but that’s how many appointments were booked. I mean, the demand is there in a good school. Different area
Tom Karadza: So, the cash flow as we discussed, they don’t beat the houses down. Mike, you said you’ve been doing this for 10 years. We’ve been owning property or student rental properties for over 15 years now. We’ve never seen that. We had one group of kids … I mean, the worst things we’ve seen, if I just have to tell everybody, one group of boys built a mountain bike course in our backyard on one property. It was an awesome mountain bike course, but we told them to take it down. But it was good, because it came off the garage at one point. You would go up the picnic table, around the garage, and went down … We told them to take it down. They did.
Tom Karadza: One time, we had a group of girls in there that drank more vodka than, I think, can be humanly possible, so we had to buy them an extra blue recycle box, because every time we’d go to the property the recycle boxes were full of empty vodka bottles. We had a group of guys in the basement on one property who were really kind of messy, and dirty, and left a bunch of pizza boxes in the corner. That would probably be the dirtiest.
Nick Karadza: I mean, there’s other downside. What’s the downside to the properties to you guys? To student properties.
Mike Desormeaux: Geez.
Tom Karadza: It’s a limited-
Mike Desormeaux: Well, here’s why.
Nick Karadza: I mean, here’s the challenges you face that I look at is so as far as repairs, there’s more repair … You have to constantly do repairs, because the kids are harder on the properties. They don’t destroy the property, but you have seven people coming and going-
Tom Karadza: More people through a single family home.
Nick Karadza: Drinking a bunch of vodka, their friend are coming and going. When they’re walking out the front door, they’re not opening it gently and closing it. They’re just a little bit harder on the property, so there’s nicks and scratches and paint need … There’ll be scratches along the wall, small little stuff. Again, they don’t destroy it, but you have to keep it updated. You have to kind of refresh the place on a regular basis. And then the biggest challenges that I find is always on the tenant turnover, because when you have the parents coming that haven’t had any students moving into student properties-
Tom Karadza: If you have no time to clean the house between groups.
Nick Karadza: If they’re coming in and they’re freaking … You have to have a great property, but it’s in the grand scheme of things. They’re coming. Maybe, they’re paying a lot for tuition and stuff. Maybe, they’re coming from a $2 million house elsewhere, and they’re coming to the student house, so the great property in the student area there is really in their world is not a good property at all, and they’re freaking out. They’re like, “Man, it’s not safe. I watch Mike Holmes and they said this.”
Tom Karadza: We had that last year in a property.
Nick Karadza: There’s black markers somewhere and they think it’s mold, and they’re calling the city health official. There’s that crazy stuff, but there are ways to mitigate that, which, I mean, we do a number of ways. But if you’re-
Tom Karadza: You’re setting the expectations, and giving everybody the plan that we’re going to do.
Nick Karadza: Totally, you’re setting the expectations. Exactly. All in the communication and having someone decent there when the turnover. You get the wrong person there…
Tom Karadza: We had a poor property manager one time, and the turnover went really bad.
Nick Karadza: Yeah, and it created way more work than there has to be, but that’s something you have to be aware of. That turnover weekend, day or whatever-
Tom Karadza: That’s the hardest part.
Nick Karadza: It’s a key day that you have to kind of be prepared for. Or it doesn’t have to be you. It’s whoever’s going there for that time has to be prepared for that.
Tom Karadza: What about location? What do you guys think about location?
Mike Desormeaux: You have to know your zones, because each particular university has different preferential areas that the students want to be in, and they’re completely different in regards to McMaster. It’s, pretty well, you want to be within one kilometer of the campus, but University of Western Ontario, the majority of the students want to be downtown. They don’t want to be close to the campus. And the reason for that is there’s no amenities near the campus, so you have the more studious students by the campus. That’s where I have one property. But then I have another property closer to the downtown. Believe it or not-
Tom Karadza: The partiers are there?
Mike Desormeaux:Well, Richmond and Oxford is where the partiers are, so it’s not right down there, but believe it or not, you get more rent being downtown for the University of Western than you do when you’re closer to the campus. But yes, you’re right. The restaurants, the grocery stores, the bars are in the downtown there. And then Hamilton, yeah, it’s pretty well within a one kilometer radius is where the students want to be. You go outside of that and you might not fill as quickly as the properties that are closer.
Tom Karadza: It’s all different in Brock and St. Catherine’s.
Mike Desormeaux: Brock is another one, yeah. The students want to bus in. They don’t want to be close to the campus, because, again, there’s nothing there. So, they want to be close to what’s called the village, which is close to the Pen Centre. They want to be close to where they can get food and just major amenities like restaurants and bars, again.
Tom Karadza: Everyone seems to be different, because York University everybody wanted to be … there was something called a student ghetto that was, I guess, all the rundown properties-
Nick Karadza: That’s where wanted to be.
Tom Karadza:That’s where they did not want to be, but when all those new homes went up on the land that York sold to Tribute Homes that turned into a lot of student rentals. All the students wanted to be there that was immediately close to York University, because one kilometer away were areas that were less desirable. So, everybody wanted to be right immediately close to the university. Yeah. That’s a good point. All the schools are going to have different zones that’s the intel that you want to know about. And I think Nicks done a good job than the past. You would stop students on the side of the road when we were looking at a new university or college to buy by, and ask them questions.
Nick Karadza: Yeah. Totally, I mean, I’ve pulled in people’s driveways that they were sitting on the porch, and drinking a beer, smoking a cigarette, whatever. They were just hanging out there, and I’d just walk up. They would be looking at me like what’s this guy doing. Who’s coming up here?
Tom Karadza: You knocked on the door of one student rental after seeing a student go into it.
Nick Karadza:Did I? I don’t even remember that.
Tom Karadza: Yeah. I was outside in the car.
Nick Karadza:Yeah, I mean, we just … When you need answers, you have to get answers. And I think just looking online and stuff doesn’t give you the answers you need. So, if it’s a local place where you can kind of scope out the area, go scope it out yourself. Book appointments to go look at the properties. If you’re a parent of kids, you’re scoping out for them. If you’re younger … I used to pretend that I was a kid going to school when I was investing, when I was younger. I was checking out the properties, because I want to see firsthand what my competition was. I wanted to know what they were asking if it would rent. I’d followup with the guy, and be like, “Hey, did it rent?” And if a crappy place rented for top dollar, and I called them a week ago, and he says sorry, it’s no longer available. That’s the information I want to know when I’m investing. It’s like, “Man, I can compete against that place, and I’m going to beat it.”
Tom Karadza: You know who was … Sometimes they’re helpful. Sometimes they’re not. I’m not sure all university or colleges have them, but the off-campus housing department, we used to get a lot of good intel. Actually, it was hit or miss. Hit or miss on that.
Nick Karadza:It depends. Some are good like you said, because-
Tom Karadza: One was horrible to me up at York. They were like, “You’re going to charge students how much per room?” Because I think the biggest room on the top floor we were going to charge $600, and she made me feel like a criminal. She couldn’t believe I was going to charge that. Not only did we get 600, we got 650 on that room on the very first time. Yeah. So, they can be beneficial.
Mike Desormeaux:Because they lead by numbers, it’s important to know one street over and rents can change. We know that with McMaster. You go on the south side of Main and you’re down 50 bucks per room, typically.
Tom Karadza: Totally different. Okay.
Mike Desormeaux: North side to Westdale and you’re up $50.
Tom Karadza:Okay, what about advertising? I know you’re using property management, so they’re finding the tenants, but-
Mike Desormeaux: But still, yeah. A lot of our investors that are buying near McMaster because it’s more local, they’re on Kijiji and potentially may use the students that are currently in the house, because those students have key groups that we don’t have access to. For instance, a Facebook group. So, they have access to thousands of other students, and they could advertise your home for you.
Tom Karadza:And if you’ve been a good landlord, they’re telling their friends who might be a bit younger about you.
Mike Desormeaux:Absolutely, 100%.
Nick Karadza: We offer finder fees for the students. Right? We’re just like … But what about are they really just on Kijiji?
Mike Desormeaux: Potentially, off campus housing.
Nick Karadza: If there’s off campus housing?
Nick Karadza: For McMaster’s specifically, we don’t advertise off campus housing. Sorry, on Kijiji at all. Just off campus housing.
Mike Desormeaux: Oh, no? Got it.
Nick Karadza: But at other ones, we’re on Kijiji because we get more leads from there. Like you mentioned, it’ll depend on the area and the school.
Tom Karadza:And what about any schools coming to mind around bylaws? Like I was thinking about Waterloo whenever I hear about bylaws I think Waterloo, but-
Mike Desormeaux: Yeah, has the most stringent bylaws for any rentals, and a lot of towers have been built there, which is very popular with international students, but tough place to be making money as an investor.
Tom Karadza:You mean like a condo?
Mike Desormeaux: Exactly, yeah.
Tom Karadza: So many investors want condo student rentals. We always talked them out of it. Why do you talk them out of it?
Mike Desormeaux: Big time, yeah. So, typically, the type of student that enrolled into a condo like that is an international student, because their parents just see ‘new’ a secure and safe place to live. The student will go in there, but after the first year they don’t want to be there. And often, it’s because they’re policed as opposed to a single family home where you are in that house with a group of friends. Yeah, if you want to, maybe, have some kind of little social thing together one night, you’re not interrupting somebody above you, across the hall, to your left, to your right. But in these condos, you will.
Tom Karadza: And then what about cash flow on the condos? Because we always have this rule of thumb. I tell people, “Look, without even knowing about the school or the property if you’re talking to me about less than six bedrooms, stop.” Now, I know you’re talking about Western that has the cap of five … Is it five bedrooms at Western?
Mike Desormeaux: It’s five. Unless, I believe, it’s in 2008 if you had a preexisting six or seven bed and-
Tom Karadza: It’s grandfathered.
Mike Desormeaux: Yeah, a continuous six or seven over those years it can get grandfathered in, yeah.
Tom Karadza: Yeah. So, unless you’re limited, I’m always like, “Hey, the more bedrooms legally, the better.”
Mike Desormeaux: Yeah, absolutely. So, McMaster’s pretty well a free for all, just have to abide by fire. Western is five; Guelph is four, however we’ve done for the University of Guelph is we’ll go out, and we’ll find a single family home, usually it’s a three bedroom home. We’ll take the dining room, turn that into the fourth bedroom.
Tom Karadza: So, build walls.
Mike Desormeaux: Usually, it’s one wall, believe it or not.
Tom Karadza: Close it off.
Mike Desormeaux: And put a door, yeah. And then we’ll go to the city, and do a second suite. So, now, we’ve turned a three bedroom home into a six bedroom student rental. That home-
Tom Karadza: Can you describe what a second suite is?
Mike Desormeaux: Yeah. It’s legal second self-contained unit where it would have two bedrooms, a kitchen, and a bath.
Tom Karadza: So, usually in the basement.
Mike Desormeaux: In the basement, sorry. Yes. And now, you’ve turned a three bedroom home that probably as it was would have rented out for 1800 a month. And you’ve turned it into a six bedroom student rental, and it’s probably renting a little north of 3,000 a month.
Tom Karadza: Yeah, that’s a winner. Okay, so bylaws. We talked about types of properties, property management fees, college over universities. Any trends that you’re seeing? Preferences that you’re seeing? What about … Go ahead.
Mike Desormeaux: We’re just so fortunate being here in the greater GTA to be close to some of the top universities in the world. Yeah, we have McMaster, Western, Guelph.
Tom Karadza:We haven’t even talked about … I mean, you’re going up way on this-
Mike Desormeaux: Sure, Queen’s McGill.
Tom Karadza: Yeah, but there’s so much around us.
Nick Karadza: There’s a big selection. Even downtown where you can go to Ryerson, U of T.
Tom Karadza: We didn’t talk about U of T.
Mike Desormeaux:Sure, yeah.
Nick Karadza: Well, I mean-
Mike Desormeaux:Tough to make money in Toronto, I notice. Yeah.
Nick Karadza: But even Erindale. I mean, we have investors and guys in the office that are doing very well at UTM, so University of Toronto Mississauga campus, they found a little niche place where they’ve now, kind of, scooped up a few properties that are serving them really well. So, there’s opportunity everywhere once you kind of look into it a little bit more.
Mike Desormeaux: That’s great. Yeah.
Tom Karadza: It’s the most misunderstood investment type, because of the negative connotations around students and parties, which basically just get from the movies. Nothing really kind of in real life. Okay, we talked about the lease, but I just want to be clear. It’s a standard Ontario … Nick, you were saying everybody’s on the same lease, ideally. But it’s not a complicated lease either. This is the standard Ontario lease agreement.
Nick Karadza: Yeah. I mean, we use it. It’s slightly different, but, yeah, overall, all the terms are the same. There’s nothing to fancy in there. You can put whatever you want in a lease agreement. You just can’t hold them to it after if it goes to the tenant board. You can’t hold them to it.
Tom Karadza: Which is what most people don’t understand.
Nick Karadza: No, they don’t. I mean, they don’t. You can put in the lease agreement that they have to wake up and do 10 jumping jacks every morning, and if they agree to it, you can’t evict them because they don’t do it. It would be great though if they sent you a video every day of 10 jumping jacks.
Tom Karadza: Yeah. It took us a long time to understand that it doesn’t matter how complicated and beautiful your magical lease might look like. We’re guaranteed by the Tenant Act in Ontario, and if money is being exchanged for a place of residence, well, we’re all governed by that act. So, it really doesn’t matter what your lease says if you ever go to an adjudicator to the tenant board, you’re going to bound by that act, not really what’s in the lease.
Nick Karadza: You know an issue that’s coming up. This will affect student properties, actually, with marijuana being legalized. Right now, you can’t change a lease halfway through the lease. So, if you’ve signed a lease … Anyone that signed a lease now for, let’s say, starting May. Let’s say student properties, if we’re using that example. But it’s any lease. They can’t go now and change a lease. Once it’s legalized, they’re actually able to smoke marijuana in the property, because it’s not in the lease that they can’t. And you can’t go and change a lease halfway through to say that they can’t smoke marijuana in the property. So, when it’s legalized on July 1st, officially, anyone’s going to be able to smoke marijuana in the properties, even in apartment buildings. So, there’s a big push-
Tom Karadza: This is going to be so much fun to see what happens.
Nick Karadza: But there’s a big push now to try to get the provincial government to go and say, “Hey.” So, you can put it in new leases but there’s a big push to the provincial government, saying, “Hey, once it’s legalized, we have to be allowed to go and change these leases that are currently in place.” Because they’re talking, especially in apartment building. But if someone’s smoking, you know how thick marijuana smoke is? If someone’s smoking a bunch of marijuana in one unit, it’s going into the next unit above, below, whatever, and it’s going to stink. So, they’re like, “This is a…”
Tom Karadza:No, Nick, Mike and I don’t know how thick it is. I don’t know where you’re at, but apparently it’s very thick. Yeah.
Mike Desormeaux: Yeah. That’s what I was going to say. So, how thick is it Nick?
Nick Karadza: Look, come outside, I’ll show you. So, it’s a big thing that’s going to impact everyone. I would think they’re going to be smart enough to allow those changes to happen, but this whole marijuana thing is going to create some … There’s going to some road bumps along the way.
Tom Karadza: But like everything you get through it.
Nick Karadza: Oh, it’s not a big deal, yeah.
Tom Karadza: The investors who are looking for a reason not to proceed will use that as yet another reason not to buy an investment property, and wait for the right time and the perfect condition.
Nick Karadza: Because I can’t rent it out before July 1st, because I don’t want … because if I rent it out June 28th … So, I need to make sure I’m not buying for another six months, and in six months there’s going to be another reason why they can’t buy-
Tom Karadza:Excuses people feed themselves are-
Nick Karadza: Well, because then if in six months now they’re going to have to fill the unit in the summer instead of for the following year with a group or something like that. So, that gives them another reason to postpone it. It’s not ready.
Tom Karadza: You know what? Having said that, you know how we talked about filling with groups in properties? It’s never stopped us from grabbing a property that we thought was a good property, even if we were out of the cycle of getting a group. We know the first year we might have to just fill it with individual students here and there, but eventually we would get to that group cycle.
Nick Karadza:And you can mitigate any issues with that too. I mean, just over … I mean, you can dive into so much detail as you want, but you can mitigate anything just through lessons. So, just talk to some experienced people that have done it, and then go from there. Learn those lessons.
Tom Karadza: Like everything. Not like that one … Remember that one guy who sold us a property, shook our hand, and said, “Properties never go down. You guys will be fine,” and walked away?
Tom Karadza: Financing and insurance, quickly. One thing for everyone to be aware of when you’re looking at student rental properties. Not all the banks play nice with student rental properties. I’m trying to think off the top of my head who does right now. I want to say Royal Bank. Royal Bank likes student rentals and will do financing. CIBC; those are the two main ones that come to mind.
Mike Desormeaux: Pretty helpful.
Nick Karadza: For now, but that can change. I mean, tomorrow. It can open up and close.
Tom Karadza:Anytime, yeah. If you’re listening to this, you always have to be working. Basically, you need a good mortgage broker who’s going to navigate those waters for you.
Tom Karadza: And insurance. A lot people, to my shock and horror, get regular rental insurance on a student rental property. Student rental properties should have student rental insurance like declared student rental insurance that should anything, God forbid, happen, you have the proper insurance. And I think people are trying to save a few bucks. It’s the silliest thing you can do.
Mike Desormeaux: Not worth it, yeah.
Tom Karadza: Yeah, and not all insurance companies like student rentals. I mean, Rock Star, we know some of the student insurance companies that are dealing with them. So, just be aware that your insurance company who you have now likely does not insure student rentals. You’re going to have to go outside of that company.
Nick Karadza:Yeah. There’s a number of them that do, but, yeah, definitely not all of them. But it’s not hard to find.
Tom Karadza:Not hard to find.
Nick Karadza: You don’t have to be scared off by that, for sure.
Tom Karadza: Yeah. You can dig it out. Anything else on student rentals coming to mind for you guys?
Mike Desormeaux: I think just when purchasing you really have to know your zones. Go after the larger bedrooms. Ideally, a 10 x 10 is the ideal bedroom size, and then go after the small common area.
Tom Karadza: Not like that one house that we have an 8 x 9 bedroom size in?
Mike Desormeaux:The smallest room will always be the last to be filled.
Tom Karadza: Yeah, always is. Maybe it’s not quite 8 x 9. 9 x 10?
Nick Karadza: You rent to groups, but we give them a secondary as their own walk-in closet so we sell.
Tom Karadza: We sell it.
Mike Desormeaux: Sometimes people ask, hey … I think over the weekend, somebody was asking should they furnish the bedrooms, and the answer is no. No need to furnish the bedrooms. The students do not want to use somebody else’s bed.
Tom Karadza:You know what’s funny? Up at York, they always expected furnished bedrooms, but we never did it. And a couple times I broke down, and we’d get a bed from IKEA just to get it done. That was the only school or university that expected furnished bedrooms. But you’re right. In general, nothing.
Mike Desormeaux: If anything, we may furnish the common area. Throw a coach, a coffee table. Even the dining room.
Nick Karadza:We used to do it more regularly, the common area, because it was asked. People always liked it. It was like a little bonus, and then we found that there was just a collection of couches, because they’d end up having a couch, and we’d have to get rid of them. So, now we just never do it, although they ask, and at first their like, “Oh, Okay, it would have been nice.” It’s never ended up creating a problem, and it’s made our lives easier. We used to take the same approach with that.
Tom Karadza: And common area … I’m just realizing we didn’t really explain common area. If you have no concept of a student rental, a common area is a basically the family room area that’s left over after the rest the house has been kind of put into bedrooms. There’s one, usually, room left that one refers to as the common area.
Nick Karadza: It’s where they play beer pong. It’s the beer pong room.
Tom Karadza:Beer pong, drink vodka, play PS4, have a Christmas tree with beer cans.
Nick Karadza: Actually, we had one group of girls that did Christmas presents. They kept the place. I mean, they had a Christmas tree and I think there was like pine set throughout the house. They did an Easter egg hunt in Easter. It was crazy; they were awesome. And the current group that we have in another property right now it’s immaculate as well.
Tom Karadza: You can never guess who’s going to keep the properties great. We have a great group of guys in a property right now too who are-
Nick Karadza: Oh, yeah. The guys versus girls, everyone thinks that one go for girls-
Tom Karadza: Guys actually, overall, be slightly cleaner I would find.
Nick Karadza: I think it’s a … If you have a mix of guys and girls, that’s the best. They want to be on their best behavior.
Mike Desormeaux: And then just going by how easy are these to fill in bed-bath ratios, a three bedroom student rental is the easiest to fill, however those types of properties are hard to get where they’ll cash flow. Hard to make…
Tom Karadza: They’re the worst cash flow, but easiest to fill because people love them.
Mike Desormeaux: Well, a small group of three people, three friends. That’s quick and easy. And so, a four bedroom if you’re going to … So, you can get away with if you go in a three bedroom, one bath, one kitchen. If you go to four bedrooms, you should go two baths, one kitchen. Five bedrooms, two baths, one kitchen. Six, two baths, one kitchen. You may want to go with a second kitchen, especially if it’s a bungler.
Tom Karadza: A second kitchen.
Nick Karadza: If even a little kitchen added.
Mike Desormeaux: Exactly.
Tom Karadza:Seven, definitely.
Mike Desormeaux: Seven, definitely two kitchens.
Nick Karadza:But even if you’re doing one kitchen in those earlier numbers, you still need a second fridge, otherwise the fridge won’t-
Mike Desormeaux: Good point.
Nick Karadza: Or they love that, because some people don’t have them. As an investor, it’s a cheap thing to have that makes your property stand out above everyone else’s.
Mike Desormeaux:Or if you go in utilities and you don’t have that second fridge, you’re going to have five bar fridges, one in each room plus that main fridge.
Tom Karadza: Oh my gosh. Yeah, we try not to allow … to gently persuade people out of that idea. And definitely, insurance companies will make you sign off that nobody has hot plates or anything in their room, and that kind of stuff. Just on that note, when you mentioned Guelph where you were carving out a house from a three bedroom. You turned it into like a four with a two-
Mike Desormeaux: Four plus two, yeah.
Tom Karadza: Those are the best if you’re going to go over four, fix, six bedrooms if you can separate the house into two units that way then you-
Mike Desormeaux: Got options.
Tom Karadza: Yeah. Because if you can’t find six or seven students as a group to rent it, you can rent the top as a four bedroom, and the bottom as a three bedroom or whatever it is.
Mike Desormeaux: Possibly a young professional.
Tom Karadza: Yeah, it’s much easier. So, we always did that. And any houses with separate entrances are also gold mines on student rentals, because then the basement can be truly a self-contained separate unit.
Nick Karadza: Something to be aware just with all these things some people do … I’ve seen people do the craziest things, and they put … they ask people to live in these crazy kind of traps. Abide by fire is not expensive to abide by fire code and have safety for everyone. I can’t stress that enough. People sometimes they want to cut corners for a couple hundred bucks that can really kind of cost-
Tom Karadza: Not worth it.
Nick Karadza: It’s not worth it. And the other thing we’ve learned, I mean, there’s so much you can talk about this for hours. But the other thing we learned is just renovations materials. The first time that we ever did a student property renovation, we got really cheap on everything, because we had said it’s a student property. They don’t care; everything’s going to be new. So, what does it matter?
Tom Karadza:Also, we had no money.
Nick Karadza:Yeah. But would it matter at the time whereas if we just … the labour would have been the same cost if we just spent 10% more materials, it lifted up the property to another level. So, don’t go super cheap just because it’s student rental. It doesn’t cost a lot more just to renovate it a little bit nicer, because you’re just buying slightly nicer materials. And it just makes the property stand out that much more, and last longer as well so you don’t have to do any work again.
Tom Karadza: A couple other notes then on that, on renovations. We’ve done some renovations in the summer. So, on a 12 month lease, we will ask the students, and say, “Hey, look, while you’re not here in the summer, is it okay if we renovate a bathroom.” Or Nick, you did that one time where you renovated a whole basement where we assigned people on a 12 month lease, but the basement we got it to the studs. They couldn’t live in it.
Nick Karadza: … Rip out the wall….
Tom Karadza: Ripped out everything. They were excited.
Nick Karadza: So they said … Yes. They were, but first they asked at one point during the renovation, they’re like, “Hey guys, since there’s actually no rooms there we don’t want to pay rent. Do we have to pay rent?” And then I just explained it like, “Well, you guys were happy about this. The rent is one lease. The rent is the house as a whole.” And actually it doesn’t-
Tom Karadza: That was the current one that we did? Most recent?
Nick Karadza: No. This was a few years ago. So it doesn’t really change anything. You guys are going to be happy with the end product. Right? So, that’s another-
Tom Karadza: Which is a nice benefit of student rentals that you have tenants that are not there. You can actually do work on the property.
Nick Karadza: Oh, totally. It’s another benefit of one lease though, because if one student doesn’t pay, you can hold the others accountable.
Tom Karadza: To the whole lease.
Nick Karadza: Yeah. Just because they split up the payment it doesn’t mean that-
Tom Karadza: That’s one thing, some students because the payment is split up will assume they’re on a separate lease, which you kind of have to remind them that they’re owning the whole house. That’s another point. How do you guys handle … Or what do you guys think about vacant bedroom in the middle of a year? So, six students, or Mike in your case, five students have signed the whole house. One goes vacant, whose responsibility it is to fill that vacant room?
Mike Desormeaux: Back to what Nick was saying. It’s typically on the students or they make up for the difference. One of the five bedrooms that I have in London it’s a five bedroom. All five bedrooms are the same size, but only four girls wanted the house this particular year. All four girls are paying for five-
Tom Karadza: For the fifth bedroom.
Mike Desormeaux: Yeah. Exactly.
Nick Karadza: We have that with the seven bedroom and six people are taking it.
Mike Desormeaux: Back to the students to find that fifth or to make up the difference.
Nick Karadza:How do you sell it to … What do you explain? I’m just curious because I know what I say, so I’m just curious what you say. How do explain it to them when they’re like, “Hey, this person’s leaving. I don’t know what you want to do.”
Mike Desormeaux: Yeah. I’ve been fortunate. I haven’t had that, but if it were to happen, just put it back to them, saying, “Hey guys, you have to do me a huge favor. You have to find someone to take that room, or you guys are going to have to split up that room.”
Nick Karadza: I’ve always found that I tell them that it’s like, “Hey, no problem. We can find someone to fill it.” Because, officially, when someone even cancels the lease we … This is weird because it’s one lease and all this stuff, so I won’t get down to all the technicalities.
Nick Karadza: But I explain: Hey guys, we can’t find someone to fill it. It’s not going to be a problem, however, we’re just going to find a stranger that you guys might not know. It’s substantially better for you from a safety standpoint, and from a living standard standpoint, if you guys know this person and you feel comfortable with them. So, you probably want to kind of get involved, and you guys think about it. Let me know what you think?
Nick Karadza:And I’d say 90% of the time they’re like, “You know what? We’re going to find someone.” And they go about interviewing the people, and finding someone, and then we just put a deadline on it, and figure out responsibility and stuff like that.
Mike Desormeaux: Yeah. Often, they can be your best source of filling a property for you.
Tom Karadza:Okay, what about parking and lawn maintenance kind of stuff?
Mike Desormeaux:Lawn maintenance-
Tom Karadza: Property management handling.
Mike Desormeaux: Yeah. Or you get a local hand person or other student.
Tom Karadza:So, you’re taking ownership of lawn maintenance.
Mike Desormeaux: Yes. Snow shoveling is on the students. If they don’t shovel, it’s a well-worn path from them walking back and forth out of a house.
Tom Karadza: That’s how the shovel sometimes.
Mike Desormeaux: And you asked something else there.
Mike Desormeaux: Parking. Yeah.
Tom Karadza: It hasn’t been an issue. Usually, we have two spots on a driveway and that seems to be more than enough, and they figure out the rest.
Mike Desormeaux: Agreed.
Tom Karadza:Up at York, we actually rented out the garage as an extra cost to different students who needed day pass … They wanted parking just because they were driving in, so the students in the house got no parking at all on that property.
Mike Desormeaux: Onto McMaster, we’re often renting out those garages too, guys, with cars. They just want to store the cars in winter.
Tom Karadza: Yeah. If you’re lucky enough to have a garage, it could be another source of income, increasing-
Mike Desormeaux: Don’t give it to the students.
Tom Karadza: Ideally, not. Nick and I have in the past we’ve done that. One year we had garbage. It was too cold to go, I guess, to the curb. They literally threw … And this garage was separate from the house, so I don’t know how much warmer it was to do this. They filled the single car garage that was separate from the house, filled with garbage all winter. When we found out, we made them pay to empty it out…
Nick Karadza: We had one guy leave everything. Do you remember?
Tom Karadza: Yeah that’s right.
Nick Karadza: He left everything.
Tom Karadza: His Halloween costume even.
Nick Karadza: This happened twice.
Tom Karadza: He dressed up as Facebook, I remember.
Nick Karadza:He came back, so we got a dumpster. This is right before renovated, so we had to start renovating. They had moved out. This was probably about three days, four days after the lease ended. Communication, we let them know. We never knew the guy was coming back.
Tom Karadza: He disappeared.
Nick Karadza: We threw out all his stuff. When we demoed the basement, everything. And he came back for his … he had a signed Oilers jersey.
Tom Karadza: Yeah, signed Oilers jersey that I guess we threw out.
Nick Karadza: Yeah. I’m like, “I’m sorry man, but it’s gone.” One other time, in another property we had the guys that were living, they were there for a couple of years. There was really no issues. They didn’t keep the place very clean, but they left everything. I mean, there was like 30 pairs of shoes left, all their clothes; they left thousands of dollars worth of stuff, Leaf jersey.
Tom Karadza: Couches, furniture. Was that the one that … there was like two dump boxes full of stuff.
Nick Karadza: Yeah. The company that came to kind of clean it all out. They’re like, “Hey, do you mind if we go through some of this and we keep some of this. It’s good stuff.” I’m like, “No problem. Let’s just negotiate on the price.” So, we got a great price for them clearing out the house, because they got a bunch of stuff that we didn’t want anyways. So, it worked out well, but they left a ton of stuff. I couldn’t believe it.
Tom Karadza: It’s amazing what you’ll find.
Nick Karadza: So, anyway fun times.
Tom Karadza:Okay, one other thing. Subleasing during the summer? Allow it, don’t allow?
Nick Karadza: We had a guy growing pot, remember?
Tom Karadza: Yeah. That’s the story that came to mind. One guy … So, Mike, let me share this and I’ll … just before I forget this thing. We let somebody … No. I don’t know if we let them. They told us, I think, they had subleased without our approval or whatever. I go down to the property to check out who had moved in through the summer months. I open the bedroom door and there’s a plywood box about 3 foot wide by … Like 3 x 3, and maybe about 4 feet off the ground with an extension cord coming from it. I go to the door of this little box. I open it. There’s one marijuana plant in there with a light bulb over it. This guy was trying to grow this one little plant. So, I remember taking that box outside. I smashed it on the driveway, told the tenant, “Hey, you don’t have our permission to sublease out.” But, generally, with permission we’ve allowed.
Nick Karadza: Yeah. I scare them out of it.
Tom Karadza: We scare people out of it.
Mike Desormeaux: Yeah. I found most students not subleasing. Don’t get me wrong; they definitely are.
Tom Karadza: Yeah. They don’t want to.
Mike Desormeaux: But if I was to call it as a percentage, 10, 15 percent.
Nick Karadza: That’s small, for sure.
Mike Desormeaux: Yeah. Will want to sublease. After this the parents paying for rent. What do they care?
Tom Karadza: Yeah. Agreed.
Mike Desormeaux: And then others are sticking around for summer, and they don’t want any strangers in the house.
Tom Karadza: And we always tell them that they’re responsible for the rent still, so that any rent you’re getting goes to you. We’re expecting full rent payment from you guys.
Nick Karadza: That’s a security issue. You get someone in there that wants to start opening doors and looking at people’s computers, taking stuff. I mean, you’re on it. The only time we’ve had people do it if it’s been a friend or someone they know. Then we’re like, “Yeah. That’s fine.” Because that’s fine for us too, but generally I give people all the horror stories that could happen. And they generally shy away from it.
Tom Karadza: And scares them off.
Mike Desormeaux: And then across the board, unlike how regular rentals work with the increase in rent every year. So, we don’t do that with student rentals. However, in saying that, student rentals in southern Ontario on an overall basis they’ve pretty well increased almost $50 a room this year. So, everybody that I know that’s filling, including the property managing companies are seeking at least a premium of $50 this year on signing of leases, which is nice. The leases have been pretty standard per room for the past three, four, five years.
Nick Karadza: It’s nice if it’s six or seven rooms, three or more … 250 to 400 dollars extra a month, which is kind of nice.
Tom Karadza: Most people who we know who dive into student rentals end up deciding to keep them like their lifelong-
Mike Desormeaux: Very seldom flip hands.
Nick Karadza: Once they’re up and running.
Tom Karadza: Yeah. Once people understand the processes and they look at the cash flow numbers. Because as that mortgage starts to get paid down … I mean, Nick and I have had multiple student rentals where we’ve dipped and refinanced, pulled out money multiple times on several properties that have been beautiful. So, they can finance the purchase of other properties that you go and buy. So, yeah. Okay.
Nick Karadza: One of the best properties I’ve ever owned is a student property. I mean, we bought it. It was that power of sale that we’ve spoken about before, I think the last show.
Tom Karadza: Also known as the shoebox.
Nick Karadza: The shoebox because the grades high too. It looks pretty rough, but the basement’s high-
Tom Karadza: It’s actually nice inside. Just outside you wouldn’t imagine there’s seven bedrooms.
Nick Karadza: Oh, it looks rough outside, but everyone that … Listen, some students have said when they walked up they weren’t even going to come in. But then when they go in, they’re pleasantly surprised. And it was bought … I forget the exact numbers. I think it was like 140 or something as a power of sale. It was a dump. It was a number of years ago, now I don’t know how long ago we bought that. Maybe 15 years ago or so. And we did a bunch of work. We refinanced it, took all our money out, the place still cash flowed like 800 bucks at that time. 800 or 1,000 bucks of cash flow after we took all our money out, and then it’s been paid down. It’s worth probably double or more of what we paid for it. It’s just been like the most valuable thing. There’s no money in it. It took us about six months to get it up and running, so for six months of our time this thing’s generated hundreds of thousands of dollars for us. It’s been awesome.
Tom Karadza:Yeah. They’re winners. Cool. Mike, thank you so much.
Mike Desormeaux: Awesome, thanks guys.
Tom Karadza: If you ever need money again, you just let me know. Next time we won’t do the interest thing to make up for the last time.
Nick Karadza: Oh, no. I’m charging interest.
Tom Karadza: Thanks, Mike, I appreciate you doing this.
Mike Desormeaux: Awesome. Thanks guys.
Tom Karadza: All right.
Tom Karadza: Hey everyone it’s Tom again. So, thanks for listening. If that’s the first you’re hearing Mike Desormeaux, Mike’s been part of the team here at Rock Star pretty much since day one as you heard. And if you’re looking to get a hold of him or really anyone on the team, if you send it to that email address that we mentioned at the beginning of the show, we’ll send on your message. So, if you just use firstname.lastname@example.org, we’ll make sure your email gets over to Mike if you have any questions for him, or you want to followup with him and anything. And I think that’s how we’re going to do it going forward as well. So, that email address is email@example.com.
Tom Karadza: Stay tuned for some future episodes. We’re getting pretty excited about all this, and we have what we think are some pretty good ideas. In the meantime, you can check out more about us at rockstarinnercircle.com. So that’s www.rockstarinnercircle.com and if you haven’t subscribed to this podcast yet on iTunes, please look up The Your Life! Your Terms! Show with Tom and Nick Karadza and subscribe. That will be of great help to us. So, hope you’re having a great day, a great week. And we’ll talk to you soon guys until next time. Your Life! Your Terms!