Would you invest in a college market?

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Would you invest in a college market?

Carlo Dacanay
Investor · Burlingame, CA · Member since 2020 · 10 posts · 9 votes

Hi BP community,

I've done some research and received an opportunity to buy a property with great cash flow (25-35% CoC ROI), but the property is in a college market and will most likely get student tenants. What are the pros and cons of investing into a college market?

I know long term tenancy/turnover rate will be an issue, but might be willing to overlook it because of the ROI. But is that a safe assumption? Let me know!

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JM Payne
Rental Property Investor · Member since 2018 · 207 posts · 225 votes
5y
Originally posted by @Carlo Dacanay:

@JM Payne thanks for the insight! Really good to know especially with the impact of COVID on the student market. I'll definitely consider having parents as co-worker signers of lease if the tenant isn't a grad student or academic instructor

 No problem.  Also protip; call the college and see if they have an internal housing office/posting board.  Many colleges have an office that helps coordinate housing for new professors and staff.

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  • JM Payne
    Rental Property Investor · Member since 2018 · 207 posts · 225 votes
    5y

    I'm in a college market, cons are as to be expected; late rent, property damage, and noise complaints.  You're dealing with kids who are highly likely to have never been taught how to manage finances, and almost certainly are on their own for the first time.  Local to me, it is common to have parents also sign the lease so that they are liable...helps a lot. Also with covid and the push to remote learning, what was once a guaranteed market is no longer as such.  We aim to rent ours to the professors/professional staff or the grad students, but YMMV.

    Best of luck!

    - jm

    3Reply
  • Carlo Dacanay
    OP
    Investor · Burlingame, CA · Member since 2020 · 10 posts · 9 votes
    5y

    @JM Payne thanks for the insight! Really good to know especially with the impact of COVID on the student market. I'll definitely consider having parents as co-worker signers of lease if the tenant isn't a grad student or academic instructor

    1Reply
  • JM Payne
    Rental Property Investor · Member since 2018 · 207 posts · 225 votes
    5y
    Originally posted by @Carlo Dacanay:

    @JM Payne thanks for the insight! Really good to know especially with the impact of COVID on the student market. I'll definitely consider having parents as co-worker signers of lease if the tenant isn't a grad student or academic instructor

     No problem.  Also protip; call the college and see if they have an internal housing office/posting board.  Many colleges have an office that helps coordinate housing for new professors and staff.

    5Reply
  • Jonathan GreeneBusiness Member
    Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
    5y

    College markets are good, but as was said, have some anomalies. You should always have parents co-sign if they are undergrads. The best college market is one with graduate programs. And, the best pro-tip on college markets, especially now, is to market to adjunct professors instead of students. They often only come for one year and the pay sucks so they rent. Adjuncts are the best option in college markets, then graduate students, then undergrads. Sometimes you do 9-month leases for the school year and then rent monthly for summer school.

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  • Carlo Dacanay
    OP
    Investor · Burlingame, CA · Member since 2020 · 10 posts · 9 votes
    5y

    @JM Payne good call out! I'll reach out to the college to see if they have programs like that

    1Reply
  • Carlo Dacanay
    OP
    Investor · Burlingame, CA · Member since 2020 · 10 posts · 9 votes
    5y

    @Jonathan Greene I'll keep a look out for adjuncts and contact the college as JM mentioned. Thanks for the tip!

    0Reply
  • Luciana W.
    Rental Property Investor · Savannah, GA · Member since 2019 · 66 posts · 30 votes
    5y

    @Carlo Dacanay

    In my experience, a big pro I notice with collage students, specially with units that accommodate roommates is that when one roommate graduates move out, the remaining tenants tend to fill out the roommate spot quickly. Avoiding the turn over of the whole unit on my end.

    I do make clear to them that I’m not renting rooms but a whole apartment and they are responsible for the whole units rent.

    Also, co-signers since they won’t have the necessary credit to rent on their own.

    Best of luck!

    0Reply
  • Joseph Zimlich
    Sacramento, CA · Member since 2020 · 12 posts · 4 votes
    5y

    @JM Payne, @Jonathan Greene thanks for confirming my basic thoughts! I'm looking at an income property down the street from a college and was thinking faculty renters would be ideal.  Besides the internal college housing programs, is there something physical you do with the properties to cater to the faculty over students (different price, trim, etc.?

    1Reply
  • Norm Kopesky
    Investor · Neenah, WI · Member since 2017 · 21 posts · 7 votes
    5y

    I had 9 college rentals with about 40 students. I have converted them all over to family housing now. 
    A couple reasons why,

    1. massive turn over, they all come up empty about the same time. 
    2. managing 40 tenants instead of 9 was time prohibitive, this includes training them to be good tenants. 
    3. I had a hard time finding insurance for those buildings, and it was more expensive than family housing insurance. 
    4. it was hard to get all the rooms filled, cutting into the roi significantly. 
    5. student housing in my market had utilities included, rent was more to cover the utilities. But there is time spent paying more bills by my staff. 
    6. I was unable to find an outside property management company to hire, thought about starting that up...but the above issues talked me out of it. 
    7. They don’t know how to solve the littlest problems.

    The other comments listed the pros well and they are valid, but want you to know what you are getting into. 

    3Reply
  • Derek Lee
    Investor · San Francisco, CA · Member since 2017 · 13 posts · 1 vote
    5y

    Hey @Carlo Dacanay, is this property located in San Luis Obispo? I heard there's an amazing college there. 

    1Reply
  • Carlo Dacanay
    OP
    Investor · Burlingame, CA · Member since 2020 · 10 posts · 9 votes
    5y

    @Derek Lee long time no see! Crazy how you found my post, but no the property is in Indianapolis and I'm doing my due diligence on it. Let's chat one of these days about how you got into real estate!

    0Reply
  • Bonnie LowPro Member
    Lender · Asheville, NC · Member since 2016 · 1k+ posts · 1k+ votes
    5y

    I asked a similar question recently because I've always been interested in college towns. I was worried that distance learning might mean fewer potential renters. One owner mentioned that they're having their best year ever because the University had to reduce the occupancy rate in dorms to meet COVID guidelines so this is pushing students out into the neighborhood rentals instead of student housing. Just one more point of view to consider. 

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  • John Mocker
    Insurance Agent · Norwalk, CT · Member since 2016 · 2k+ posts · 1k+ votes
    5y

    Carlo,

    Contact your Insurance agent about the College Student rentals.  Most Insurance companies do not allow for Student rentals.  Make sure your agent has a market.  If not, contact other Independent agents and have them shop it.  You don't want to find out later that it will be a problem.  

    1Reply
  • Jonathan R McLaughlin
    Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
    5y

    @Carlo Dacanay um...what college? Lots of smaller ones are in financial distress. I’d be careful of a one horse town, even a highly educated horse

    0Reply
  • Daniel E.
    Investor · Member since 2021 · 19 posts · 5 votes
    5y

    Hey Carlo!

    In the past few months I have invested in College Housing with American Housing Communities.  It's a Real Estate Investment Trust that owns portfolios of high quality multi-family housing in college markets.  I have become financially independent and a large part of my portfolio is invested in all kinds of real estate deals and REITs are my favorite, especially at today's valuations, primarily because it's truly passive income and you get to invest with high quality companies run by ivy league investment managers who have access to cheaper capital and better deal flow.  

    Just something to consider!

    0Reply
  • Owen SchwaegerlePro Member
    Real Estate Broker · San Luis Obispo, CA · Member since 2016 · 181 posts · 69 votes
    5y

    Lots of great insight on this post! We manage an investment in a college town, and it definitely helps to have the option for selecting student tenants. Two of the units are occupied by working class professionals and one unit is occupied by a student. Having a diverse tenant pool is a good thing. What successful property management comes down to is selecting the right people to place in your investment. It is so important that you choose the right type of tenant, be they a student or professional because they are going to be making the payments to you at the end of the day. You also want to make sure that they are going to take care of the property so you don't have a ton of maintenance issues.

    I know some people who have made it their business niche to rent solely to students. They are able to get higher rents per house because students tend to split up the rent and pay per bedroom. In San Luis Obispo, a common rule of thumb is that you can get $1000/bedroom close to the campus. That is a pretty good rental income compared to what homes can get elsewhere in SLO county.

    1Reply
  • Ola Dantis
    Multifamily Syndicator · Houston, TX · Member since 2016 · 1k+ posts · 2k+ votes
    5y

    @Carlo Dacanay One thing I don't think anyone has mentioned above is that college markets sometimes also have young professionals too. 

    So, bear in mind when marketing the property, you can target it towards young professionals who may want to live together in a "student housing" type format such as 4 guys or girls living in a single-family residence in 4 separate rooms and share the amenities. 

    This is exactly what I am doing with one of my properties and it works well because the tenants are slightly more mature than college students but I still got their parents to all be co-signers. This is kind of best of both worlds! 

    0Reply
  • Steven M.
    USA · Member since 2012 · 8 posts · 10 votes
    5y

    Looking at the world right now I would not be investing in a college town for the purpose of renting to students or staff. Even if you assume best case that all colleges will survive, the forced online learning experiment is surely going to reduce the demand for college housing. Then factor in risk for a worst case scenarios where many colleges fail and the current model of student learning and/or student loans fails.

    If I had rental properties in a “college town” where the college was the main source of revenue for the population, I would be a seller right now. Cash them out while the market is strong and 1031 into something less likely to fail. For better or worse, Covid is transforming our educational model and we don’t know what it will look it 5 years, but it will not be the same as it was 5 years ago.

    1Reply
  • Kyle S.
    Investor · Indianapolis, IN · Member since 2016 · 3 posts · 0 votes
    5y

    @Carlo Dacanay I am a lifelong resident of Indy and have considered this same market. Let’s talk if you’re looking for someone to partner with or vet local resources

    0Reply
  • Collin Van der Veen
    Investor · Member since 2020 · 31 posts · 25 votes
    5y

    @Carlo Dacanay

    Carlo - in my experience, renting to students can be a very lucrative undertaking. Having multiple students in a house provides opportunities to receive above-market rental income because while each student is paying a fraction of what they would pay if they rented on their own, the sum of their payments is greater than what you would likely receive from renting the space to a single tenant, say a family. Additionally, I view renting to students almost in the same light as multifamily in the sense that since you have multiple families paying each month, eviction risk is reduced because you are not reliant on a single tenant to pay each month. A good rule of thumb to calculate what to charge each student is to look at what they pay to live on campus each semester, and charge them the same amount, just on a monthly basis. Hope this helps - best of luck.

    0Reply
  • Owen SchwaegerlePro Member
    Real Estate Broker · San Luis Obispo, CA · Member since 2016 · 181 posts · 69 votes
    5y

    David A raised a very good point that I overlooked. That is a fantastic Cash on Cash return! Are you 100% confident in those numbers? One tip I've learned over the years is that you can never trust someone else's numbers and you should always verify and check multiple sources.

    0Reply
  • Derek Lee
    Investor · San Francisco, CA · Member since 2017 · 13 posts · 1 vote
    5y
    Originally posted by @Carlo Dacanay:

    @Derek Lee long time no see! Crazy how you found my post, but no the property is in Indianapolis and I'm doing my due diligence on it. Let's chat one of these days about how you got into real estate!

    Let me know a time that works. It would be great to catch up and hear about your journey so far! 

    0Reply
  • Andy RouschPro Member
    Investor · Mt. Arlington NJ · Member since 2018 · 251 posts · 143 votes
    5y

    @Carlo Dacanay I have a rental in a college market and as stated before is just have the parents co-sign. In my case it’s three parents co-signing for three students in the house. Just make sure everyone living there is in the lease agreement along with their parents/guardians co-sign

    0Reply
  • Chris Matthew
    Rental Property Investor · Waterville, NY · Member since 2020 · 26 posts · 26 votes
    5y

    Thinking back to my college days... every apartment I had was rented by the unit all tomatoes on the same lease and shared responsibility.  Move in and move out dates were coordinated with the college schedule.  Rent for the entire semester was due at lease signing.  Month of January often wasn’t an option and only some properties were available during summer months.  

    Looking back on those properties, they were cash cows.  Beaten and battered, rarely cleaned but we didn’t care.  350-400 a room per month and that was 25 yrs ago.  

    I’d love to get my hands on a few of them.  🙂

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