A well performing rental property can do wonders for your portfolio. One area of the rental market that has seen tremendous growth over the past few years is with student housing rentals. These are properties that are located in close proximity to a college or university. Many colleges cannot handle the overflow of students or have rules permitting upperclassman from living on campus. This makes local rental property in high demand. Increased demand can lead to higher cash flow but it can also create headaches. Determining if a student housing rental is for you may not be as easy as you think. Here are a few pros and cons of owning a student housing rental.
- Higher Cash Flow. One of the reasons investors are interested in rental properties is for cash flow. Appreciation & tax benefits are nice but cash flow is the prize with rental property ownership. Because of the high demand for rentals near colleges and universities higher cash flow can be created. It is no uncommon to see a 20% increase in rent price for a student housing rental. Increased price comes with increased demand and rental properties near universities can almost name their rental amount.
- Built In Demand. With student rentals you know who your target market is year in and year out. This helps you focus your marketing and make it easier to find tenants every year. In today’s day and age of increased technology you can quickly reach hundreds of potential tenants with a few well-placed posts. You can also take advantage of your existing tenants and use their resources to find the next tenant.
- Condition. Student rentals do not need to be in pristine condition. This isn’t to say that you don’t have to stay on top of maintenance but the general condition doesn’t need to be perfect. You can get away cleaning and updating as opposed to replacing big ticket items every few years. Hardwood floors do not need to be stained every year and you can squeeze a few extra years out of aging appliances. Unlike with most rental properties you are not solely judged on the condition.
- Property Condition. As much as property condition can be a pro it can also be a con. Regardless of the tenant they want to live in a place that feels like home. Your rental doesn’t need to be shiny and new but it can’t be sloppy and outdated. Even your best student tenants will not treat the property like their own. It is important to remember you are dealing with 19 to 22 year old kids. They will scuff the floors, get the walls dirty and clog the toilets on occasion. You will need to update the property after every lease. Some landlords do not have the desire or the cash flow to stay on top of this every nine months or so.
- Town Regulations. With a student housing rental you need to follow strict town rules and regulations. With most towns you need to submit an initial application to even see if you are allowed to rent to students. The town will measure the windows, count fire alarms and inspect the overall safety of the property. Once you get approved you will have to pay an annual fee to keep your license. These fees cut into the bottom line which may not make the property look as appealing as it did before.
- Student Tenants. Kids are going to be kids. Most prospective tenants will tell you they never party and take their studies very seriously. Even if they do they are also college aged kids. They are going to have parties from time to time. This means you are going to get the occasional call from an angry neighbor, town representative or even local police. In addition to parties you are going to deal with kids that have never lived on their own before. They will either call you every time a lightbulb needs to be changed or never call you at all. Neither option is very appealing. Increased cash flow is great but remember that you are renting to kids.
- Short Window To Rent. With student rentals you are dealing with a short window to fill your vacancies. Most of your lease terms will be one year with a very small percentage two years. This means that you only have a few months to relax and catch your breath. Students do now think about what they are going to do for dinner let alone think about where they will live next year. Because of this there is usually only a 30 day window to attract tenants for the following year. If you miss this you will be left scrambling for tenants and may have to consider renting to someone not as qualified.
Student tenants are not much different than the average tenants you may rented to in the past. For every good tenant you will have a bad one at some point down the road. It is advisable to price in the cost of a property manager as you run your numbers. Student rentals often take more time and can become a burden to run. Like any other property you look at there will be pros and cons. Student rentals offer substantially increased rental amounts but a greater time commitment. Only you can decide if these properties make sense for you and your business.