A 96 bed management contract with a make ready cap is worth taking apart

Two questions before this fully makes sense. Was the $250 a bed figure proposed by the manager or handed over in the owner's form agreement? And was the cap set per turn or per lease year, because a bed that turned mid-year would hit it twice and never recover. Worth asking because it is usually the side that wrote the clause that ends up eating the cost.

Four unrelated adults per unit is legal in plenty of towns and a code violation in plenty of others, and the occupancy rules on unrelated persons are set municipality by municipality. Did anyone check the ordinance for that submarket before the by-the-bed program was built out? If the units were only ever supposed to hold three, the owner inherited a compliance problem on top of the turn problem.

96 leases instead of 24 means four times the documents, four times the deposits and four times the deadlines, all landing in the same week. That is the boring paperwork math that student housing math tends to hide until someone writes it out like this. Worth remembering before pricing a contract on thin fee margin and assuming the turn is a solved problem.

A smaller version of this shows up at a regional school in a county of 40k people. Twelve beds, three houses, and losing most of an August because the one drywall guy in town is already promised to somebody else is a common outcome. Scale is not usually the cause of that problem, the calendar is.

How hard did you underwrite the guarantors? I'm setting up screening for a first rental and the parental guarantee gets described like it's automatic collateral. Did you pull credit on the guarantor and did you ever actually collect on one?

Running your numbers: $250 cap x 96 = $24k of make-ready allowed inside a $32k fee. So the contract gave you $8k a year of gross margin before you paid yourself, drove to the property, or answered a phone. The turn overrun didn't break it. The signature did.

@jordan_ellis2 put it better than I could. That fee was underwater at signing.

Worth working through for the smallest case. Is a single four bedroom house self manageable for someone with one property, or does the same August compression show up in miniature? Anyone planning a first student rental would rather learn that answer now than in July.

Sorry for the basic question, I'm reading this twice. What exactly is in a "make-ready" and why is it $610 a bed rather than a cleaning fee?

@kevin_lombard make-ready is everything between one resident leaving and the next one moving in. Paint, patching, cleaning, carpet or LVP repair, appliance and blinds and light fixture replacement, rekeying, punch list. In a shared four bedroom you're doing that in four bedrooms plus a kitchen, two baths and a living room, and in student product the wear is heavier than a family rental because eight to twelve people have cycled through the common space over a year.

@tonyv88 the thing I'd want in front of me is the pass-through language. On the deals I've looked at as an LP, turn is a separate line in the operating budget with its own reserve, and management gets a per-unit turn coordination fee on top of the base. Your version made you the insurer of a cost you didn't control. Did you ask for that structure at renewal or was the relationship already gone?

Dumb question I'd be embarrassed to ask out loud: why doesn't anyone stagger the lease end dates? Half in July, half in December, and the turn stops being a nine day sprint.

@jessreyes12 because the demand only exists in August. A bed that comes empty in December sits until the next fall in most student markets, so staggering the turn trades a labor crunch for four to eight months of vacancy per bed. That is why every operator accepts the sprint. @tonyv88 the blame is landing on the wrong clause though. The cap cost $34.5k, which hurt. The $38k of unrecoverable damage is what lost the account, and that came from a move-out process built for whole unit rentals. The cap was survivable. The photo file was not.

Worth pinning down what the parental guarantee is as a document, because the term gets used for three different things. It can be a surety, a co-signature on the lease itself, or a separate guaranty instrument, and those three behave differently when you try to enforce them. Which one was actually in the lease stack changes what recovery looked like.

In student leases, @raj_mehta14, it is usually a separate one page guaranty attached to the lease, signed by the parent, promising performance of that resident's obligations. Sometimes it is a co-signature line inside the lease instead. What it covers depends entirely on the wording. Plenty of guaranties cover rent only and say nothing about damage or utility charges, which makes them useless for exactly the situation @tonyv88 had. Whether a given guaranty is enforceable and against what runs on state contract law, so that question goes to a lawyer in the state the property sits in before anyone relies on it. The other clause worth checking, @tonyv88, is whether the leases made residents jointly and severally liable for common area damage, or only individually liable for their own bedroom. If it is individual only, a torn up living room was never going to be charged back to anyone, no matter how good the photos were.

So the two year cost on your side comes to $34.5k of absorbed labor in year one, whatever year two absorbed, plus a $32k annual contract that is now gone. Call it $100k of gross fee over the next three years that walked out the door. Against that, the fix costs perhaps $4k a year for a proper move-in and move-out inspection app and one part time person in July. That ratio is the lesson of the whole thread. Cheap fix, expensive problem.

Working through licensing right now, and managing 96 beds for a fee is a licensed activity in most states, sometimes under a broker's license and sometimes under a separate property management license. Anyone reading this who's thinking about doing what @tonyv88 did needs to check their own state's rule before they take a fee, because the requirements aren't uniform.

What was the campus? Not the name, the shape of it. Flagship with growing enrollment, or a mid-size public that's been flat? I'm trying to figure out whether the owner's willingness to squeeze the manager on fee was a sign they had no rent growth to work with. A property at a school with a waiting list can afford to pay a manager properly.

Take a 40 bed turn in a single August. The approach that holds up is booking three separate paint crews in March with a deposit each, and telling them the money is theirs on July 28 whether all three are needed or not. Expect two to show. The $1,800 or so of forfeited deposit on the third crew is the cheapest insurance in the whole budget. The part nobody solves cleanly is trash. Ten units of students moving out in one week generates a volume of furniture nobody plans for, and the hauler charges you like it is an emergency, which it is.

@carlos_nunez has it. Labor in the last week of July in a college town is priced like a hurricane. Here is what happens on the vendor side, plainly: a service business quotes student turn work at 1.5x its normal rate for that window and takes deposits up front, and a caller in July does not get moved up the schedule. @tonyv88 you were not overcharged, you bought at spot.

The structural fix is to stop treating the turn as management. Make it its own scope with its own agreement, a per unit price, a delivery date and a liquidated amount if units are not ready on move in day. Then the owner is buying a result and the manager is pricing a job it controls. Bundling a variable physical cost inside a percentage of revenue fee is how the fee ends up funding the property's deferred maintenance.

What did the furniture replacement reserve run per bed? If the units were furnished, that's a whole second cost line that doesn't exist in a normal rental and I never see it in the pro formas I'm shown.

@aliyah_b on the two student houses I own it's about $180 a bed a year and I think that's low because I haven't hit the year where every mattress goes at once.

@tonyv88 the ceiling you hit is the one I keep hitting on a smaller scale. Seasonal labor demand doesn't scale gracefully. Every bed you add makes August worse in a way that nothing you add in February fixes.

Is the summer turn crew a business on its own? Six weeks of guaranteed work at premium rates, booked in March, serving four or five owners in the same submarket. Feels like the sort of thing nobody wants to build because it only earns two months a year.

@stephen_ok9's question is the one that most needs answering. In proper underwriting for by the bed product, make ready per bed goes in as a hard number tested against actual invoices for the last two summers, and it goes up if every lease expires on the same day. What deserves adding is that the owner's fee squeeze reads like a property with no rent growth left. The enrollment trend at the specific school does the work in these deals. A flat or shrinking enrollment shows up first as an inability to push rent, then as concessions, and only later in occupancy. If that portfolio sits at a school with a shrinking applicant pool, the next manager is going to lose money on the contract too.

From the debt side, the first thing lenders raise about by the bed product is the fragility of the rent roll. 96 leases signed by 19 year olds with guaranties of varying quality is a different credit from 24 family leases, even at the same gross rent. Terms, and how a given lender treats that roll, are worth confirming in writing, because the same asset routinely gets underwritten two very different ways depending on who is looking at it.