5 Reasons To Consider Investing In College Rentals
By JD Esajian on February 16, 2018
There are dozens of ways to get involved in real estate. You could dive into the world of rehabs, find a partner to invest with, wholesale or develop a rental property portfolio. Regardless of your niche it is always important to think outside the box for your next investing opportunity. On the surface investing in student housing rentals may seem like a daunting task but upon closer inspection the reward greatly exceeds the risk. For every horror story of dealing with a 19-year-old tenant there is a landlord who has increased their rent 25% over the past decade. Owning and managing student rentals can be challenging at times but once you find your groove it is usually worth it. Here are five reasons to consider investing in student housing rentals.
- Higher rents. The biggest, and most common, reason you would consider a student housing rental is because of the potential for higher rents. Student housing is similar, but in many ways very different, to an average rental. For starters, your target market is 19-22 year-old kids who are in constant need for a place to live. Most colleges and universities have policies where upperclassman are forced to live off campus. Even without a policy most want to, at least for their senior year. This creates a stream of demand which directly impacts the rent you can charge. If your property is near the school and has at least 3 or 4 bedrooms it is not uncommon to charge 25-30% more than you would to a traditional renter. This is usually a win-win for both sides. You get an increased rental spread while the parents may actually pay less for an off-campus house then they would for anything on campus. An extra $500 a month or more in rent increases your cash flow and greatly accelerates how quickly you can pay down any mortgage you may have on the property.
- Constant demand. Assuming there is no change to the school or in their off-campus policy, your property will be in constant demand. For the right property, you should have multiple tenants to choose from every year or two. This type of turnover does present it’s share of problems, but it also can give you confidence knowing that you shouldn’t have to try too hard to fill a vacancy. Even if you are currently having a rough time with a group of tenants you know that there will be a new group just a few months later. Instead of having to pay a real estate agent to find tenants you can usually do it yourself on-line, at the campus or in the neighborhood. You can also typically find tenants from referrals of current renters or just by positive word of mouth. If you take care of the property and treat your tenants right, there is no reason you should ever face a potential vacancy with a student rental.
- Secured by parents. There is the natural perception that renting to students is a risky proposition. You may remember how you were in college and wouldn’t want someone like you living in your house. While renting to 20 year olds who have never lived anywhere other than home or a dorm presents challenges it is not as risky as it may appear. Every lease you offer should be co-signed by a parent or guardian. This gives you confidence that should something happen in the house they are on the hook for the damage. It also gives you an adult to reach out to if the rent is late or if you are having a tough time. Being on the lease means that they are liable in the event of damage or default. Instead of chasing around the tenant for the rent the parents typically send the check out. All you have to do is worry about managing the property instead of chasing the rent.
- School affiliation/behavior policy. Your lease and security deposit are the foremost items you have to protect yourself and the property. Depending on state specific rules you may be able to hold two months of security. In addition, many towns and universities have potential tenants sign a behavior code prior to moving in. This states that any complaints regarding excessive noise, parking, garbage or other disturbances can be dealt with by the town or the school. If the complaints continue they have the right to terminate the lease and possibly pay a small fine. This does help deter tenants who may want to use the house exclusively to party.
- Competition. There is a good amount of luck in finding the perfect student housing rental. Off-campus rentals have only really taken off in the past decade as the cost of living has soared. Many student housing owners lived in the property and after running the numbers decided it was too attractive not to rent. If you are looking for a property you need to focus on proximity to the school. A nice house fifteen minutes from campus is not viewed the same as one five minutes away. To get the best bang for your buck you also need at least three bedrooms. Kids like to move in packs of three or four. Anything under three bedrooms won’t be appealing to students. Once you locate the right property you should look to make improvements that balance practicality and durability. There are many landlords who haven’t upgraded their property in years and are old and stale. If you can showcase a modern, clean property you will be able to charge a higher price and realize a higher return.
Just one off campus rental can completely elevate your portfolio. If you see a property by a college or university don’t be afraid to give it a chance.