Now more than ever, kids are going to college. With so many students, it’s no surprise that colleges and universities across the country are filling up and students are on the hunt for off-campus or privately-owned housing.
For real estate investors, there’s often a negative association with renting to students — we think of loud house parties, irresponsible tenants and property damage. While, no doubt, there are some risks involved with renting to this unique demographic, it can also be very profitable.
The fact is, the demand is there. The question is if we as investors are going to do anything about it.
The State of Student Housing
Right now, developers of privately owned student housing are experiencing a boom like never before. While these developers create housing with the sole purpose of marketing to students, you don’t have to own one of these complexes to get in on investing in student housing. All you really need is to find an investment property that’s close to a college campus—and the closer, the better!
Before you go house-hunting, however, there are a few pros and cons to consider:
The Benefits of Renting to Students
Rentals in a college town are, at the end of the day, competing with the college’s room and board price tag. That means that rent is often higher than it would be in a comparable market without a college. This is beneficial not only for cash flow, but for covering an increased frequency of vacancies due to a shorter term lease that will coincide more on a semester-by-semester basis. Students also often team up with each other and split the cost of rent. In the end, they pay less than they would somewhere else, and you reap extra profits. It’s a win-win!
(Generally) Reliable Payments
Most undergrads don’t have the capital to cover rental payments as full-time students. This means that many renters have their expenses covered by their parents, who are generally consistent and reliable with ensuring rent gets paid. Some parents may even choose to pay for an entire semester in advance!
Most students are, well. Students. Back in your college days, did you really care about the state of your first apartment? Students tend to be far less picky about having state-of-the-art appliances and amenities. As long as the property is clean and safe, they tend to be pretty content. While that doesn’t give us room to slack, it does decrease complaints and demands for updates.
The Risks of Renting to Students
Shorter Term Leases
Most students need to rent semester-by-semester as opposed to yearly. Even if you rent on a yearly basis, chances are students will be gone during the summer. Even if they’re paying, the physical vacancy of the property can pose risks. Either way, student housing experiences higher turnover when graduations roll around. When you design your lease, be sure to keep the school schedule in mind to prevent awkward breaks. The best time to get new tenants will be towards the beginning of each term (Fall and Spring).
This is the horror most owners fear when it comes to renting to college students. They picture property damages from wild parties and a lot of noise and disruption. You can mitigate the risk, however, by working in occupancy limits and noise clauses into your lease agreement.
There are plenty of other risks and rewards when it comes to renting to students, but for many investors, it’s worth it. Student housing is just one of the many ways to invest in real estate.
Do you have experience renting to students? Share your experiences in the comments.
image credit: Pink Sherbet Photography