Have you ever considered renting to college students?
According to the National Center for Education Statistics, nearly 20 million students will attend U.S. colleges and universities in 2019. This is roughly 6 percent of the total U.S. population, a huge market segment that cannot be ignored. However, renting properties to this particular demographic is a niche that you’ll need to determine whether you want to take a part of or not. This guide will help you explore some of the benefits and potential drawbacks of this unique group of renters.
Renting To College Students: Is it Right for You?
Some investors find the thought of renting to college-aged tenants intimidating. These individuals have probably never lived on their own before, and owning and renting a property near a university can lead to legitimate concerns. (One can’t help but dwell on images of fraternity parties.) However, a student housing investment can have significant advantages as well. According to Jonas Bordo, the CEO and Co-Founder of Dwellsy, any investment in a college town will come with a lot of research. “The investor has to do their due diligence on the property and make sure they fully understand both the property and the market for the property before buying,” says Bordo.
Below you will find a debate on some of the advantages and disadvantages of renting to college students to help you decide if this investment strategy is the right pick for you.
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College Student Demographics
Nowadays, up to 74% of college students do not fall into the category we would typically use to describe the “traditional” college student. These “non-traditional” students include one or more of these characteristics: those who are financially independent of their parents, are over 30, are caring for a child, are attending part-time, or are attending after a break between high school and college.
Benefits of Renting to College Students
With millions of new students entering universities across the country every year, college towns represent a goldmine for real estate investors. Campuses consistently provide a source of demand for housing and can help drive higher rents (and higher yields) for property owners.
Renting to college students offers immense benefits for investors looking to expand their investment portfolio, capitalize on passive income opportunities, and create a retirement strategy. It can even represent a key opportunity for investors who have low marketing budgets.
The following benefits highlight why renting to college students can be a smart strategy for any investor:
- College towns have built-in demand
- The costs of student housing can equal high rental yield for investors
- Many college students will have lower expectations compared to traditional renters
- Rental income can be more consistent for a number of reasons
In 2018, The College Board released a study on undergraduate student life and found, on average, 44 percent of undergraduate students live off-campus. The numbers vary slightly between public and private universities, with 46 and 29 percent of students living off-campus, respectively. However, considering the average enrollment at both public and private institutions, these percentages equate to high numbers of students searching for off-campus housing.
The popularity of off-campus housing in college towns is not new information. In fact, according to an Urban Institute study, roughly the same number of students were living off-campus in the early 2010s. This study, along with several others, suggests that the high rental demand seen in college towns has been consistent through time.
While rental demand may see small fluctuations within the academic year, college towns consistently produce a steady housing demand from students, professors, and staff. Barring a drastic change in university policy, students will constantly need a place to live. This built-in demand makes investing in college town rentals highly attractive to investors. As much as it is an inconvenience to deal with tenant turnover, there will always be a 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 Rental Yield
College town real estate is attractive to investors for several reasons, but mainly because it pays. As a result of the high demand, college rental properties can generate higher cash flow than traditional investment properties. It is not uncommon to see student housing generating more income than similar houses in a nearby market. Keep in mind that while the rental prices can be high, on-campus room and board can be even more costly for students. Also, campuses are capped at the number of students who can live on campus. This is why a large number of students will opt to find housing elsewhere.
This allows you to charge more than you typically would. According to a study from Home.com, investors with student housing properties may achieve a return on investment (ROI) upwards of ten percent. To put that statistic into perspective: many real estate investors will consider an ROI above five percent to be a good investment. 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.
When it comes to student housing investment properties, tenant expectations are going to be different. Many students have never lived on their own before; if they have, it has been in a dorm room. Therefore, investors may notice that their properties’ conditions don’t have to be as pristine as their more expensive rental properties when providing for college students. For example, the quality of paint or flooring does not have to be perfect as the property will likely be repainted or the carpet replaced with tenant turnover.
While property maintenance is always crucial as a real estate investor, there is less need to worry about the property’s condition in college markets. Instead of requesting stainless steel appliances or other high-quality amenities, students will likely be more concerned with proximity to campus, parking, and overall layout. This should come as great news for investors hoping to avoid expensive property upgrades, as high demand will remain, even if the property is not home to the latest and greatest features.
One of the biggest concerns about rental properties is tenants not paying rent on time or at all. Luckily, when renting to students, investors will typically encounter extreme consistency for several reasons.
Firstly, many college students receive financial assistance from their parents. According to CNBC, up to 23 percent of college students’ costs are paid for by their parents. While students may not seem like reliable tenants, their parents’ financial backing makes them just as reliable as any other tenant.
Additionally, when investors buy a house to rent out to students, multiple students likely live in the same property. While collecting multiple rent checks may be a hassle at the beginning of the month, this setup can be a blessing in disguise. If one tenant has a short-term problem and cannot pay, the investor will still receive partial rent from the other tenants. In comparison, if a family or single tenant faces short-term problems, investors risk losing their entire rent that month.
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Risks of Renting to College Students
Many people are hesitant to invest in student housing because they fear the worst. How do you know student tenants will be reliable? How do you prevent property damage from parties or high occupancy rates? How do you rent to tenants who have never lived on their own before?
These are all legitimate questions, but the fact of the matter remains: renting to students represents an attractive opportunity. Instead of being scared at the thought of student housing, premeditate the potential risks of these markets. Doing this will help investors minimize risk and prepare for anything that could arise.
The following outlines the potential risks associated with renting to students, and how investors should react:
- College rentals often have an increased risk of damage
- There is high turnover between academic years
- Investors may fear reliability when working with first-time renters
- You may need to deal with additional rules and regulations
Property damage is every investor’s worst nightmare. Investors renting to college students may deal with a combination of noise complaints, increased wear and tear, and a lack of maintenance on the home. However, all hope should not be lost. Investors can prepare for these risks in several ways: saving an emergency fund, screening tenants, requiring parental contact, and more.
One of the most significant ways to prevent issues when renting to students is by keeping the lines of communication open. Tenants should know exactly who to call if there are plumbing problems or electrical issues. By maintaining open communication with tenants, investors can help ensure small problems are caught before they grow into something worse. Investors should also consider requiring renters insurance.
There is always going to be high tenant turnover in student housing markets. Students are often in and out of their university in four years and aren’t likely to live in the same property the entire time. Student rental property investments are also likely to come with short-term leases rather than annual ones. This can leave many investors afraid of potential vacancies.
While there is not much an investor can do to avoid high turnover when operating in college markets, they can avoid the negative impacts associated with this trend. Firstly, investors can offer short-term summer leases or discounted summer rates to avoid vacancies after the academic year has ended. The increased rental yield during the year should more than cover the difference.
Investors can also hire a landlord or property manager to keep track of the property. In many college towns, many property management companies specialize in these markets. They are prepared to organize lease signings, marketing, and more—helping investors keep profits high and vacancies low.
Another worry investors face when renting to students is not receiving rent on time. Although student housing should be approached differently than typical rental properties, the tenant application and screening processes should not change. Students will not have a lengthy credit history or income to report on, but investors can still be thorough.
An example tenant application should ask for references, parental contact, and even information about where the rent will be coming from. Many students have loans or financial aid, while others will receive rent payments from their parents. It only becomes a potential red flag when a candidate leaves these questions blank.
Investors should also prepare themselves in the event a rent check comes in late. They can do this by setting aside a rainy day fund to cover property expenses if income is less than expected. Of course, it is always a smart idea for investors to have an emergency fund in case of surprise maintenance issues or similar problems, but especially when they are working with tenants lacking strong rental histories.
It’s important to note that a student housing real estate investment will be handled differently market to market than typical rental units. In most areas, investors must submit an initial application to see if they can rent to students. These are safety regulations put in place to protect students living in high occupancy areas.
Towns will often measure the windows, count fire alarms, and inspect the overall state of the property. Investors may then be required to get an annual license to continue renting the property to students. While these processes are associated with some fees, many investors find that the increased cash flow offsets the costs.
Investors should also be aware of residential laws that regulate how many tenants can live in one property. It is not uncommon for towns to have maximum occupancy laws. Investors should be prepared to abide by these rules and ensure that their tenants are following the same regulations. Investors should be sure to include the maximum occupancy number in their leases to protect themselves if the student tenants attempt to sidestep these laws.
Can You Refuse To Rent To College Students?
Property owners cannot refuse to rent to college students based on their age. The Fair Housing Act protects certain characteristics to prevent groups from being denied housing, and age is among the protected categories. Furthermore, in certain states, including California, landlords cannot reject a tenant based on an arbitrary characteristic, like being an undergraduate. These guidelines essentially prevent landlords and property owners from rejecting potential tenants simply because they are in college.
How To Minimize Risk When Renting To College Students
If you are worried about the risks associated with renting to college students, there are several steps you can take to protect your investment property. For starters, make sure you have an application process for tenants. While students will not have a lengthy credit history, you can ask for other housing references or proof of income. In addition, many property owners will require a cosigner before renting to college students, typically a parent. This is a great way to mitigate risk and ensure that rent will always be paid — and you can make sure the parents are aware of the lease regulations.
Another important step in minimizing risks is working with an attorney to create a specific lease for college students. This could include procedures in case of property damage, failure to pay rent, or occupancy violations. It is also always recommended to walk through the property with students to document the property condition before and after the lease term. In some cases, landlords can even schedule periodic check-ins while the tenants live in the property — assuming you follow your state’s notice of entry regulations.
A few other ways to minimize the risks when renting to students are setting up the utilities, specifying additional rules for the property (such as no fireworks or grills), and considering renting rooms separately. While not required, these rules can help keep students aware of utility usage, prevent property damage, and make sure each student is held responsible for their portion of the rent. Take care to minimize risks as you set up your investing business in a college town; when done correctly, investors can enjoy the benefits of renting to students while reducing the risks associated with these rental properties.
How To Attract Renters
Renting to college students can be simpler than renting to more long-term tenants as they are generally less critical of a property’s features. In comparison to dorm rooms, most properties will have more attractive qualities than the rooms on campus. That being said, college renters still have many features they desire. Here are a few things your property should have when renting to college students:
- Close To Campus: Proximity to campus is easily the most important factor when renting to college students. With several activities that must be conducted on campus, houses for college students must be within a reasonable distance.
- Walkability: Not every students owns a means of transportation. Because of this, walkability to campus, grocery stores, and school events is a definite plus for a student house rental.
- Affordability: Being in line with fair market rent, your price should be affordable to college renters. Keep in mind that you will likely be renting to multiple students at once. The easiest way to determine what price you should offer is by comparing your property to other rentals in the area.
- In-house Laundry: Going to a laundromat or visiting home to do your laundry is something most students want to avoid. In this case, having an in-house laundry unit is a heavily desired feature for college rental houses.
- Free WiFi: Student life these days is primarily online. From research to turning in assignments, most college students will spend endless hours on the internet and need a reliable WiFi connection. Offering free WiFi in your college rental house will be a huge bonus compared to other properties in the area. If you do offer it, include it within the rental price as it is easier to calculate for those paying the bills.
Advertising Your Rental Online
College students do a lot of their research online, whether it’s for classes, jobs, fun, or even finding a place to live. Listing your rental property for college students online is a great way to reach your target audience right where they are already searching, and it can save you a lot of time and effort when trying to fill vacancies. Popular websites to list your rental property include Zillow, Facebook, Craigslist, and College Pads. If you want to save even more time you can use a property management software to share your listing across multiple websites at the same time. In this day and age, listing your rental property online is a crucial step in finding quality college students to rent your property to.
Although the benefits of renting to college students outweigh the risks, investors should be fully aware of the challenges of undertaking this strategy. Understanding the potential risks is crucial for minimizing their impact. Those who do so may realize consistent, attractive profits through this investing strategy.
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