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Does Student Housing Fit Into Your Rental Portfolio?

Published on Wednesday - August 05, 2015

The student housing market is one of the most popular buy and hold additions to rental portfolios at the moment. An off campus property located by a college or university can yield quite a return in the right location. As attractive as the returns may be, however, the amount of attention required will be equally as high. Like anything else in the real estate world, the risk should equal the rewards. When looking at student housing, the returns will typically be much higher, but they will come with an increased amount of work. Before deciding whether or not a student rental works for you, here are a few of the pros and cons to consider:

PROS

Higher Rental Rates: For many colleges and universities, there is a shortage of housing available on campus. Some schools will only allow you to stay on campus for your first two years. After that, they mandate that you live off campus. Even if there is an abundance of on campus housing, many upperclassmen prefer to live off campus anyways. Not only do they enjoy the freedom, but the cost of living is much less. As a result, local landlords are able to increase rents by 10-20 percent over what they would get for a non-student. At the end of a typical nine month lease, the extra rent can very easily be thousands of dollars. This extra cash flow makes student housing rentals an attractive proposition.

Rent Collection: The average number of tenants typically depends on the number of bedrooms in the property. If you are looking at a three-family house, you can typically get four tenants in the property. Under this scenario, you will receive your rent checks from four different people every month. What may appear to be a hassle is actually a blessing in disguise. If one tenant has a short-term problem and can’t pay, you still have three other checks coming in. If a family had the same problem and couldn’t pay, you would be out for the full months’ rent. Additionally, the lease is usually backed by their parents; meaning that even if something does happen their name is on the lease. This doesn’t guarantee rent collection, but it does offer you some protection.

Property Presentation: You do not need to treat student rental housing the same as you would your other rental properties. A higher end rental away from campus may require you to spend money on appliances or amenities that are in line with the area. Instead of using stainless steel appliances in a student rental, you can go with less expensive models. The quality of the paint or rugs does not have to be as high. Any rental property must be maintained but with a student rental the location and layout are the most important qualities.

CONS

Increased Turnover: Unless you are very fortunate with your tenants, odds are they will only be in the house for nine months. This means that every seven months or so you need to find new tenants. In some areas, this can be as easy as posting a few flyers around campus or putting the property on Craigslist. In other areas, where competition is fierce, you need to sell yourself and the property. This often means showing the property multiple times until you get a group that you are comfortable with. One of the main hurdles is that the house may not show in the best light with four college kids living in it. Unless your prospective tenants can envision the property without all their stuff in it, you may have to work to find new tenants.

Property Damage: The odds of your property looking like Animal House are greatly exaggerated. That being said, college kids are still young and inexperienced when it comes to living on their own. They will cause damage to your property. This damage will need to be repaired or replaced every nine months. Depending on the state the property is in, you may be able to hold two months of security deposit to offset this risk. Even if there are no holes in the walls, you should expect many little odds and ends that add up. Scuffed hard wood floors, clogged toilets and furniture damage are some of the usual offenders. Most every college renter will tell you they don’t party and like to study. Even if this is true, they will still cause damage to your property.

Local Restrictions: Before you consider renting your property out to students, you need to know the rules and guidelines for the area. Some towns require an application and an annual fee to be considered. If you do have a good standing application, most student housing properties are watched more closely than other properties in the area. If there are complaints for noise, parking problems or excessive garbage, the town may have the right to pull your permit. This means that you need to be as selective as possible with who you rent to and not let problems slide as they come your way.

With student tenants, you can expect many more phone calls than you would with a regular family. Items as basic as turning on the heat may be a struggle for some. A student rental is largely based on your personal preference and your proximity to the property. If you have the time and patience for a student rental, it can be a major addition to your portfolio.

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