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Student Housing: Is It Right For Your Portfolio?

Published on Friday - October 02, 2015

One of the most important things you can do for your investing business is to develop a niche. Your niche, more or less, will have a lot to do with your specific market. However, it is hard to ignore how popular student housing has become in the real estate investor world. As its name suggests, student housing is located near a college or university. It is primarily rented to students who are attending the nearby campus. While their demand and rent amounts are higher, the time dedicated to them is higher as well. Student rental houses are not for every investor. To help determine if this niche is for you, here are some pros and cons of its ownership.

Pros:

  • Increased rents: In real estate, location means everything. If you take a prospective student rental property and move it five miles away, the demand will be much lower. It is the demand, however, that makes it so appealing. Most colleges and universities are capped at the number of students who can live on campus. This means that many upperclassmen are forced to find local housing. Even if it is not mandatory, it is certainly a preference. This allows you to charge 10-20 percent more than you would in normal circumstances. This increased cash flow alone makes these an attractive investment. In many cases, you can charge much more based solely on your proximity to the school.
  • Increased demand/lower vacancy: Barring a drastic change in university policy, students will constantly need a place to live. Because of this, your property will always hold some demand. As much as it is an inconvenience to deal with tenant turnover, there will always be demand to fill it again. It is also easier to find new tenants through word of mouth. It is not uncommon for landlords to keep their properties rented for years based solely on tenant referrals.
  • Higher resale value: The increased cash flow you receive every month is appealing, but there are also long term benefits. If you ever decide to sell in the future, your property will hold increased value. By putting the documented rental amount on your listing, you give prospective owners a glimpse of what kind of property you have. Higher rental amounts will drive your sales price upwards. If there is a limited supply of homes in the area, this will only serve to increase your value.

Cons:

  • Turnover: As great as it is to have a property that is constantly in demand, dealing with annual turnover is no fun. The nature of student housing is such that in most cases you are renting exclusively to upperclassmen. You will get the occasional junior or set of graduate students, but they are the exception rather than the norm. Dealing with seniors means that they will only stay for one year in the property. Most student housing leases run from May to June, so every nine months you have to search for new tenants. Even though finding tenants is much easier than it was in years past, it is still a headache. If you don’t start early enough, you may miss your renting window and be forced to sweat it out until the end of your current lease. Additionally, you need to spend time showing the property and dealing with student inquiries. Having demand is great, but it is often offset by the constant turnover.
  • Damage/maintenance: The biggest complaint from student housing landlords deals with property damage and maintenance. Think about where you were when you were 20 years old. They may be the nicest set of kids, but the average college student won’t take care of your property like you would. As a result, you need to constantly be on the lookout for property damage and excessive repairs. Your security deposit offers you a large level of protection, but it is often the little things that can cause the biggest problems. Running toilets, cracked windows, clogged drains and neglected appliances are items that you may not be able to see, but are costly to repair.
  • Regulations and guidelines: Most college towns have fairly strict rental rules and guidelines. The first hurdle you may face is even being allowed to rent your property to students. The town may have closed their application window for the year, or – in extreme cases – permanently. If you can apply, your property will need to pass a series of zoning guidelines and regulations. On top of this, there is an annual fee as well as constant town scrutiny. Towns need to protect the living enjoyment for all property owners, not just student rental ones. You need to constantly monitor the condition of your property, as well as noise and parking regulations.

Dealing with a student rental is quite different than dealing with non-student rentals. If you are interested in this niche, you can avoid many of these problems by hiring a property manager. They will handle finding new tenants, as well as taking care of minor property repairs. The bottom line is that you are still the owner, so any problems will fall back on your lap. In the right market and with the right mentality, however, a student rental can be a great addition to your portfolio.

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