Landlording & Rental Properties

Student Housing Is My Best-Performing Investment (But Yes, There Are Some Drawbacks)

Expertise: Landlording & Rental Properties, Real Estate Investing Basics
18 Articles Written
Property assessment. Wooden house with magnifier and calculator.

I used to have parties with 100 people at my college rental house. We were making a good profit charging $5 at the door, which paid for all the kegs, plus some. I am glad I do not rent to my college self.

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We have all heard stories like this. We have all heard about the destruction that can ensue at a college party where naiveté meets alcohol. I even know a landlord that fully budgets to completely renovate the entirety of the inside of his rentals every single year. He replaces all furniture, TVs (yes he provides those), and sheetrock. I believe he actually uses every single bit of that budget each year.

For me, I have had the exact opposite experience. It has been nearly all great—but of course with some drawbacks.

Pros of Investing in Student Housing

Collecting rent on time has been much easier than with a non-student rental. Much of the time, the parents will co-sign the lease and/or just pay the rent themselves. If not, in my experience, these students do not have the time or patience to not pay the rent. If they are enrolled in school, the last thing they want is for me to be knocking on their door, threatening eviction or other recourses.

Close up photo of young happy students with books and notes outdoors. Smart young guy and girl in University campus. Learning and education for young people.

If they find a place they like that is well managed and close to campus, there may not be a need to ever find a different place during their school career. I have retained 60 to 70 percent of my students in one of my properties since I bought it in 2017. There has been another maybe 20 percent that left because they graduated, and the remaining number has left for a variety of reasons, including transferring to a different school and finding a different place to rent.

Related: Student Housing: What Investors Should Know About Pros, Cons & Profitability

On that same vein, the off-season can be tricky. If you are retaining your students like I am, winter and summer is great. There is virtually nobody at the house, so utilities are low. But tenants continue paying rent, so that when they come back, their housing is still secured.

Personally, I rent out everything by the room. This strategy has become synonymous with college rentals, although I also do it with non-college rentals. Either way, it is true that it is quite easy to utilize this method with college students.

With this system in place, you are able to drastically increase your cash flow. For example, one unit of mine is bringing in $1,575 where if I rented the whole unit to one person I would be looking at $1,000 to maybe $1.100. If you start to do this across multiple units, you will quickly see what it does to your overall cash flow.

Lastly, colleges rarely shut down permanently. When was the last time you heard of a college needing to shut its doors due to low enrollment and lack of funds to continue operating? Yes, it happens. No, it is not common.

Therefore, this fact may give you added peace of mind that your rents will continue to come in well into the future.

Cons of Investing in Student Housing

As I alluded to in my intro, destruction is a major concern. While I have not ever experienced this (knock on wood), I understand it is very possible. When I am taking applications and going back and forth in conversations with students, I am as clear as possible about what I expect from them (without being that lame, boring landlord that is going to be a total buzzkill). I tell them: This is a not a party house. I say, if you want to have people over, that is fine. But please be very cognizant of the drinking laws. I also say, I take great pride in the property I am providing, with the goal of giving everyone a safe and comfortable place to live.

student-housing

This talk has seemingly limited basically all destruction and partying.

Do not forget: Your college rental is, more than likely, not the only one in town. Thus, if your students are well-behaved, that doesn’t mean that your neighbors’ students are. I have had incidents of damage where, when a party let out down the street and everyone was walking back to their respective houses, students have caused damage to cars sitting in my driveway.

Related: 4 Vital Tips for Tapping Into the Lucrative Niche of Student Housing

For a lot of these students, this is their first time living on their own. Because of this, they are going to make a lot of newbie mistakes. For example, I have had frantic calls about the heat not working in the middle of winter. Come to find out, someone had accidentally hit the bright red “Furnace Off” switch at the top of the basement stairs instead of the switch to turn off the lights. I have also had a fire in the kitchen because someone was heating something on the stove and then laid down on their bed and fell asleep.

In general, these issues will start to phase themselves out as the years go by and as these tenants become more “experienced” in terms of living away from home.

This last one is the biggest con for me. It is frustrating being bound by the school year schedule. Yes, people are going to move in and out of your student rental. Problem is, if someone moves out in May, you may get a new renter to sign a lease in June. However, they are not going to move in until the last week in August, and that’s the next time you are going to receive any rent for that space. They are going to be living at home for free during their time off. Unless they do not have a home to go to, these months are going to yield $0 for you.

The Bottom Line

Overall, my student property is the best performing one I have in my portfolio. I highly recommend that you look into student housing if you know of a college that might have properties around it that are available. Between the added assurance with rent payments to the ability to rent out by the room, these properties can be true cash cows if operated correctly.

What’s your take on investing in student housing? 

Let’s talk in the comment section below. 

Ryan Deasy, of Deasy Property Group and RentReddy, is a long-distance landlord currently residing in Houston, Texas. Originally from Connecticut, Ryan has employed various strategies and studied unique niches in order to grow and manage his portfolio. In 2012, Ryan purchased his first duplex. Little did he know, he had stumbled into house hacking and, from there, never looked back. In 2016, he moved to Houston and left all of his rentals behind with no property manager. Through many trials and tribulations, he discovered the best way to manage his portfolio was, simply, by himself at a distance. After employing rock solid systems and an all-encompassing team, he has been able to scale his portfolio without missing a beat. Not only is his entire portfolio managed from out-of-state but it is also comprised entirely of rent-by-the-room arrangements. With the appropriate systems and teams in place, Ryan has taken a group of small multifamily rental properties and made them into an exceedingly profitable income source.

    Cameron Van Winkle from Fall City, Washington
    Replied 3 months ago
    Awesome write up. I am currently looking at a 34 unit apartment unit that would be a great investment. The only draw back we have been running into has been who would manage the property. I've seen with student housing that sometimes you will have one of the tenants manage the property but then have seen issues with that has in different loyalty to the other students and then having to retrain a new landlord once they move out. Do you have any suggestions on property management for these type of properties?
    Ryan Deasy Rental Property Investor from Houston, TX
    Replied 3 months ago
    Thanks for reading Cameron! i manage everything i have from about 1500 miles away. i would not recommend relying on a student there. i have students/tenants that i can count on, but i do not expect them to manage anything. you have to decide if you want to self manage or hire a company to do it for you. i am big on self managing. However, maybe your 9-5 job does not really allow for that. if not, find a PM in your area. if you can self manage, then build a team around you. have a contractor, a handyman for smaller jobs, a showing person, someone to mow the lawn, etc. in essence, build your own PM team. i recommend the latter.
    Patrick Liska Investor from Verona, New Jersey
    Replied 3 months ago
    Ryan, Nice article, I own a few student rentals myself, and looking at buying another 2 family ( 6 bedroom) right now. I agree they can be a good source of income and the difference in what you can get per month for student rental vs regular rental. My only comment is your biggest CON. I have a PM that mages all my properties and they are responsible for filling them, they will actually start around now seeing who is going to stay next year and what units they may have to fill. All Leases are a one year lease June to May, as long as you can fill the unit, you do not lose a months rent, students may or may not live in the unit in July, but their rent is due, our leases are never school year, you may want to change your lease to a full year if you are missing out on that month.
    Ryan Deasy Rental Property Investor from Houston, TX
    Replied 3 months ago
    Hi Patrick, thanks for reading and commenting. i do a year lease now just like you do. i never understood why some people do some weird 10-11 month thing. i guess my point was if i have someone move out in may, nobody is paying me until school starts in august despite what they sign and when. there is enough other housing where if i have demanded they sign right away and start paying right away, they would walk away.
    Ryan S. Rental Property Investor from Enterprise AL / Manhattan, KS
    Replied 3 months ago
    I’m in the same boat! Student rentals are great opportunities for cash flow if you can buy them in the right location and for the right price! A big factor to pay attention to, however, is the declining enrollments. It will be interesting to see where we go as a country with the ever growing student debt issues. Most students are choosing not to go to college because its cheaper (and arguably a better education) going to a trade school. Great post Ryan!
    Ryan Deasy Rental Property Investor from Houston, TX
    Replied 3 months ago
    Ryan, thanks for reading and leaving a comment. i do agree very much about enrollment. i went to a state school and the tuition was not obscene. i am a little bearish on buying rentals focused around expensive schools. quick story: i passed on THE cash cow. this property was printing money basically. problem was it was a 70k per year school in a crappy town. they also were private which allowed them to allow or not allow off campus housing. for me, with all this student debt talk, it would seem that schools like this one that have such a crazy high cost and are not Princeton or Yale will be the first to go. i do not think it will happen soon, but i think its something to watch.
    Pantaleon C. from Atlanta
    Replied 3 months ago
    Hi Ryan, We are planning to go the student housing niche route. On the per room rental, do you mind spelling out any special terms and conditions in the contract?
    Deanna Opgenort Rental Property Investor from San Diego, CA
    Replied 3 months ago
    I live near San Diego State University. I think a lot of the student rentals around here simply charge enough per month during the school year that it covers the vacant months, which is when the landlords do any rehab. I think some also do a lower rate if it's a 12 month lease (and few if any of them allow month-to-month). I suppose you could see if there are any summer programs you could work with, or allow the student to Airbnb their places out during the summer (for a mature student being Airbnb room wrangler might be a lot more rewarding than "how would you like your latte" or "would you like fries with that' - I came across one of the airbnb's that I stayed at near USC in Los Angeles that was one of the grad students wrangling open rooms for several of the Victorian mansions in the area that were student housing, coordinating the rooms when students were out of town for a month (gone to Thailand, etc). It was a nice little cottage industry for him, worked well for the students, & the landlord had someone organized in charge. These were off-campus homes with 10-12 bedrooms, usually rented to groups of students with a year lease. I
    Ralph Poirier Rental Property Investor from Wrentham, MA
    Replied 3 months ago
    Love the post! We are reading from the same playbook. I currently manage three properties from 1500 miles away and looking to add more. I haven’t perfected the turnover process yet. I usually end up a screaming maniac mostly because I try to do to much of the work myself. I’ve tried to incentivize the renters to move out early and have met with varying success. Any ideas would be welcome.
    Nicole Butler
    Replied 3 months ago
    I would also like more specifics on renting by the room.
    Adam D Rinehart
    Replied 2 months ago
    Great article and I’m glad I’m not alone in this line of thinking! I’m just starting out and I specifically targeted student housing for my first deal. I bought a foreclosed 4/2 2 story SFR in a neighborhood less than 1/4 mile from a campus about 25 miles from my house. The size and floor plan gave me the opportunity to convert a front living into a 5th bedroom while also adding a 3rd full bathroom due to a shared wall with an oversized second closet for the master bedroom. There is currently a huge shortage of housing here due to the rural location and recent enrollment boom as the University is taking steps to hone their “brand” within the Historically Black College/University network of schools. No new development is on the horizon out here to fill this housing void. Supply will continue to drop and rents will increase above the current rate of $700/room. Since the city ordinance allows for 5 non-related people to live in a SFR before its deemed group housing, my renovation will allow me to maximize gross rent and cash flow. I’m also converting the garage to conditioned space in order to increase the square footage so that my purchase of a 4/2 1,740 sf gets appraised as a 5/3 2,300 sf which should hopefully increase my forced equity and cash out amount at refinance. The former garage will be used as a common area and laundry room so that I can put amenities (weights/pool table/etc) in there so I can compete with new apartments as they inevitably pop up. I’m stoked to have this ready to rent out for the spring semester!
    Laura Dalton
    Replied 20 days ago
    I also, have a good feeling about renting to students. Although, does your lease require periodic inspections? These young people will most likely not have former landlords from which to seek references. Their parents may have a high credit score but really...how are we able to tell if the students themselves are total pigs who are damaging the property? Do you have a radius around the college that you will not buy beyond? For example, you'll find a student will walk 1 1/2 miles but not 1 3/4 miles? Obviously, I'd think being on a bus route or nice bike route would help.. Finally, do you find these apts are selected first over nonfurnished apts? Thanks for your insights.