Priced a 96 bed management contract with a make-ready cap I had no business agreeing to

Two questions before I understand this. Was the $250 a bed a number you proposed or one the owner handed you in their form agreement? And was the cap per turn or per lease year, because if a bed turned mid-year you'd hit it twice and never recover.

I ask because I'm slow about signing anything and I want to know which side wrote the clause that cost you.

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 owner built the by-the-bed program? If the units were only ever supposed to hold three, you 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. I've been circling student housing for exactly the boring income reason and this thread is the first thing that made the paperwork load concrete for me. Thank you for the numbers.

Smaller version of this at a regional school in a county of 40k people. Twelve beds, three houses, and I still lost most of an August because the one drywall guy in town was already promised to somebody. Scale didn't cause your problem, the calendar did.

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.

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

Is a single four bedroom house self-manageable for someone with one property, or does the same August compression just show up in miniature? I'm planning one purchase and I don't want to discover the answer 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?

@juniper 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.

@trellis 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.

@compass because the demand only exists in August. A bed that comes empty in December sits until the next fall in most markets, so you've traded a labor crunch for four to eight months of vacancy per bed. That's why everybody accepts the sprint.

@trellis I think you're blaming the wrong clause though. The cap cost you $34.5k, which hurt. The $38k of unrecoverable damage is what lost you the account, and that came from a move-out process built for whole-unit rentals. The cap was survivable. The photo file wasn't.

I still don't understand what a parental guarantee is as a document. Is it a surety, a co-signature on the lease, or a separate instrument? Because those three behave differently when you try to enforce them and I can't tell which one people mean.

@vellum in the student leases I've read it's usually a separate one page guaranty attached to the lease, signed by the parent, promising performance of that resident's obligations. Sometimes it's a co-signature line inside the lease instead. What it covers depends entirely on the wording, and I've seen guaranties that cover rent only and say nothing about damage or utility charges, which makes them useless for exactly the situation @trellis had. Whether a given guaranty is enforceable and against what runs on state contract law, so that one goes to a lawyer in the state the property sits in before you rely on it.

@trellis the other clause I'd look at is whether your leases made residents jointly and severally liable for common area damage, or only individually liable for their own bedroom. If it's individual only, you were never going to charge back a torn-up living room to anyone, no matter how good your photos were.

So the two year cost, from your side, is $34.5k of eaten labor in year one, whatever you ate in year two, plus a $32k annual contract you no longer have. Call it $100k of gross fee over the next three years that walked out the door. Against that, the fix costs maybe $4k a year in a proper move-in and move-out inspection app and one part-time person in July. That's the ratio that gets me. 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 @trellis 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.

Turned 40 beds last August and it nearly ate me. What worked was booking three separate paint crews in March with a deposit each, and telling them the money was theirs on July 28 whether I needed all three or not. Two showed. That $1,800 of wasted deposit was the cheapest insurance I bought all year.

The part I never solved 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's an emergency, which it is.

@quarry has it. Labor in the last week of July in a college town is priced like a hurricane. I run a service business and I'll tell you plainly what happens on my side: we quote student turn work at 1.5x our normal rate for that window, we take deposits, and we don't move for a caller in July. @trellis you weren't 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 aren't ready on move-in day. Then the owner is buying a result and you're pricing a job you control. 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.

@tally 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.

@trellis 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.

@meridian's question is the one I'd want answered too. When I underwrite these, make-ready per bed goes in as a hard number tested against actual invoices for the last two summers, and I raise it if the leases all expire the same day. What I'd add 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, and 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 is at a school with a shrinking applicant pool, the next manager is going to lose money on that contract too.

Looking at this from the debt side of the paperwork, the thing lenders ask me about by-the-bed product is the rent roll's fragility. 96 leases signed by 19 year olds with guaranties of varying quality is not the same credit as 24 family leases, even at the same gross rent. Terms and how a given lender treats it are worth confirming in writing with the lender, because I've seen the same asset underwritten two very different ways.