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.
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.
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.
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.
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.
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.