Investor Tip: Student Housing Rentals
March 10, 2020
In the world of real estate, you never know where your next big opportunity will come from. You may invest a certain way for years and then out of the blue be presented with something more appealing, and profitable. It is important to keep an open mind and be willing to at least explore every option.
If you are like most investors a student housing rental was not a consideration for your portfolio. In fact, you probably heard horror stories of bad tenants and wanted nothing to do with these properties. The reality is while some of these stories may be true, they are often highly exaggerated. A student rental is no worse than any other property you rent to strangers. In fact, with parents signing the lease it may offer even greater protection than you are used to. Student rentals come with their share of potential problems and pitfalls, but they also carry an enormous upside. Before blindly balking at a student housing rental here are four reasons you should reconsider.
- Increased Rental ROI: As it sounds a student housing rental is a rental property located near a college or university rented to students. The initial reaction to a student rental is almost always an immediate “no”. But the main reason you would deal with a student rental is for the massive return on investment. Rental properties near schools are often in high demand. Most schools mandate that upperclassman must live off campus, thus putting a premium on off campus housing. Because of this, rentals go for 25-30% more than the average single-family rental across town. This ROI added up over a decade or more makes these properties tremendously appealing, and very profitable.
- Increased Demand: Demand and price often go hand in hand. As we stated, off campus housing is almost always at a premium. Unless the school is a primary commuter school, students need somewhere to live. Even if they aren’t forced off campus by Junior year it is usually much more desirable and even cheaper than living in a dorm or university housing. With increased demand you can run your due diligence to find the best tenants for the property. Instead of only screening the tenants you can screen the parents as well. In almost all cases the parents are going to pay the rent every month. They usually have no problem with any credit check or anything else you ask for in the application process. It really is a financial benefit for them for their child to live off campus, regardless of how high the rent is. In a four-bedroom house with four tenants, the costs are greatly reduced. They often don’t even consider the full monthly amount, only the per student cost. If the university remains strong you should have no trouble finding tenants every lease.
- Simple Designs:There is a difference in how you would update a rental property where the target market are families and what you would do with a student rental. This doesn’t mean you should go cheap on a student rental and let them do whatever they want. It means that students have different tastes and frankly, aren’t into the cut of countertop or the type of flooring in the kitchen. You can go with products and materials that are more durable for everyday use. These can be far less expensive than top of the line kitchen, flooring and bathroom updates. Like anything else in a rental property, you get what you pay for, but a rental does not need to have top of the line updates.
- Security Deposit/ Parent’s Guarantor:One of the main reasons for avoiding student rentals is prospective damage to the property. The thought of Animal House goes through the brain prior to making an offer. The truth is that student rentals have much more security than even the average rental. For starters, you may be able to secure two months of the monthly rent for security depending on the state the property is located in. This alone is more than enough to cover wear and tear and general property damage. What is more powerful is that the parents sign the lease as a guarantor. This doesn’t necessarily guarantee there will be no damage, but if so the parents are on the hook for it. You can bet that the parents will check in throughout the lease and come lease end make sure the property is returned how it was received. They want their security back and won’t let the property turn into a movie set.
Student rentals come with their share of phone calls and seemingly ridiculous questions. You are renting to 19-21-year old’s who have never lived away from home before. The reality is that answering or dealing with these issues doesn’t take more than a few minutes and for the increased rent is well worth it. If you have the opportunity to pursue a property near a college or university don’t ignore it based on perception. A good student housing rental can be a great addition to your portfolio.