In Episode #52 of The Morales Show, I spoke with Carlos Delherra about how owning a student rental property was the start of his real estate portfolio’s journey from $0 to $100 million. Having been born and raised in Compton by poor immigrant parents from Mexico, Delherra used his hatred of poverty as fuel for a mindset of personal growth and a dedicated work ethic.
In 2001 he began a meteoric rise in real estate, accumulating $25 million in real estate in just a few years. However, because he was overleveraged with an investment strategy focused on equity appreciation, after the 2008 crash he found himself almost half-a-million dollars in debt. Tenants had stopped paying rent, his properties were worth well below their purchase price.
In 2009, Delherra decided to liquidate his holdings and start over again with a new strategy that took into account this experience, focusing this time on tangible cash-flow rather than speculative equity appreciation. He was ready to make $200 a month on residential rental properties to rebuild his wealth, but then he talked to a friend who had a student rental property that was clearing $2000 a month due to the premium students are willing to pay and the market inelasticity of student housing needs. He then bought his first student rental property and hasn’t looked back, now being worth 4 times what he was in 2008.
How to Optimize Cash Flow from a Student Rental Property
Delherra told me that the most important part of maximizing cashflow from a student rental property you own is increasing the number of units that can be rented out. With the 2018 changes to California’s ADU laws, Delherra put almost every dollar he made back into his properties, building 7 ADUs, converting junior ADUs to regular ADUs, building ground-up duplexes on his properties’ large lots, and otherwise expanding the number of units that he had on the market.
As his holdings increased, he also been buying land to develop apartments, with a 53-unit, 7-story building finishing later this year. Scale, it turns out, is hugely profitable to the student rental market: an apartment building still has only one roof and four walls, just like a residential home, but it services dozens more units. In addition, the due diligence of a multi-unit investment takes about the same amount of time as a single-family home, yet its profit margin is orders of magnitude larger.
Importance of Having a Mentor in Student Rental Property Real Estate
Delherra attributes much of his success to the help he has gotten along the way -- and his mindset of knowing that he should be seeking out opportunities with mentors in order to further his education. As an example, Delherra told me that, though he knew little about ADU zoning regulations, an architect he had long worked with walked him through the 2018 changes well before they ever became law. This allowed Delherra to make smart investments on properties that he knew he would be able to expand in just a few years time. Similarly, Delherra said he knows his local council members and stays on top of local regulations so that he can keep abreast of how things will change in the future.
How to Find Student Rental Properties to Buy
While some people go wide, Delherra’s belief is that going deep is the best strategy in student rental real estate. He has spent the last 10 years working exclusively around the USC campus, and at this point he knows exactly where students like to live (and will pay a premium for), which houses are over-valued, which are under-valued, and he has reached out to nearly every homeowner in the area such that when a home does come up for sale, he’s likely to get an off-market deal without competing with other bids on MLS listings. Delherra says that often out-of-town investors will come in and buy over-valued properties or homes on streets students don’t like to live, only to lose big on their investment.
Throughout our conversation Carlos exuded this mindset of working hard, learning hard, and keeping a laser-like focus on what matters, and it has clearly paid off for him. If you want to ask him questions, reach out to him at https://facebook.com/carlos.delgado.100, on his website https://www.livewithmosaic.com, or email him at carlos@livewithmosaic.com. And if his story has inspired you as much as it has me, check out his book Success Habits of Super Achievers, available on Amazon.
