I Want to Acquire Student Housing for My First Hold, But I Don't Know How

19 Replies

I really want to get into student housing for my first hold. I've done as much undirected research as I possibly can. Based upon what I'm reading I really think this is an effective strategy and would like pointers on how to get started.

Basically, I'd like to set a respectable property up within 1-2 miles of a University pre-furnished, with made service 2-3 times per week, on site laundry, utilities (including Internet access) covered by me and charge a premium. Ideally I'd dorm two students per room and extract $1,000+ per student in rent.

My biggest open questions are:

  • What are the logistics involved in getting something like this set up?
  • To what degree to I have to work with / be beholden to the local university to be considered student housing?
  • What are the added liability issues?

I've asked some local wholesalers in the area to put me on their buyers list for anything within 1-2 miles of a college or university as a first step. But, that's step one. I'm not sure of step 2. Frankly, I'd almost certainly need a funding partner too, but I think that's further down the check-list than step 2. It's spring now, and I'd like to have something in place for autumn if it's not too late.

Has anyone else done this on BP who might be able to help me get a workable action plan together?

First you have to run your numbers.  You've listed several expensive services.

$1000 per student sounds good, unless you've just paid $350,000 for a 2 bed SFH. But if you've just purchased a 4 family with 8 bedrooms for the same $350k, you should do quite well with your purchase.

Run a cost analysis.  There is a solid tool here at BP.  But creating your own is good practice for down the road.

In addition to the maid service you'll need to look at:

Taxes

Sewer and Water

Trash

Heat/Utilities

HOA

Cap Ex and Ops (my personal minimum is $150/roof/month)

Insurance

Mgmt Fee - as a % (general consensus here on BP is 10%. include it even if you think you are going to self manage)

Vacancy- as a %. (8% represents 1 vacant month/unit/year)

For each property.

Student housing is a highly profitable enterprise if done correctly.

In terms of vacancy  - keep in mind, they will likely be gone for the summer!

Originally posted by @Jason Mak :

In terms of vacancy  - keep in mind, they will likely be gone for the summer!

Make the leases 12 months.  This solves the vacancy problem.  Be ready and willing to accept subletters.  They need to follow the same procedures as the normal tenants.

@Aaron Montague

Yes, I already thought about some clauses in the lease.

  • A 12 month lease, absolutely.
  • A joint and several liability clause, legal speak for "you're all collectively responsible for the rent especially when one or more of you shirks that responsibility."
  • Parents (who must have good credit) as co-signers, on the lease.
  • Mandatory renters insurance for all occupants.

I'm afraid I don't quite follow that last part. I know what a sublet is, of course. But, in context what do you mean "be prepared for sublets?" I can always have a no-sublet clause in the contract. That is, unless you're about to tell me that there is some compelling reason I should not.

Some open questions I have, while I'm thinking about the fine points of the lease:

  • If I were in their shoes, I'd sure as heck want a lock on my dorm room door. I hear this can cause legal complications for the landlord if he installs them. In practical terms there is little I can do to prevent the tenants themselves from doing so. I've never been clear on why this is problematic. Can someone speak to this?
  • How to fair housing laws interact with student housing? More specifically... 
  • Can student housing be segregated by sex? Either as a males/females only building for purposes of tenancy. Or, keeping the individual dorms non-coed, at least on paper. Put plainly, I'm not sure what to do to limit liability as a landlord if things get out of hand sexually between tenants or guests. Any thoughts?

12 month leases are certainly the way to go, but keep in mind of what your competition and market is doing.  

@Jason Mak

It's my understanding that 12 month leases are normal. Even if they're not in a specific area there are always creative ways I can out-fox someone with a shorter lease with various benifits.

Originally posted by @Jeff G. :

@Aaron Montague

Yes, I already thought about some clauses in the lease.

  • A 12 month lease, absolutely.
  • A joint and several liability clause, legal speak for "you're all collectively responsible for the rent especially when one or more of you shirks that responsibility."
  • Parents (who must have good credit) as co-signers, on the lease.
  • Mandatory renters insurance for all occupants.

I'm afraid I don't quite follow that last part. I know what a sublet is, of course. But, in context what do you mean "be prepared for sublets?" I can always have a no-sublet clause in the contract. That is, unless you're about to tell me that there is some compelling reason I should not.

Some open questions I have, while I'm thinking about the fine points of the lease:

  • If I were in their shoes, I'd sure as heck want a lock on my dorm room door. I hear this can cause legal complications for the landlord if he installs them. In practical terms there is little I can do to prevent the tenants themselves from doing so. I've never been clear on why this is problematic. Can someone speak to this?
  • How to fair housing laws interact with student housing? More specifically... 
  • Can student housing be segregated by sex? Either as a males/females only building for purposes of tenancy. Or, keeping the individual dorms non-coed, at least on paper. Put plainly, I'm not sure what to do to limit liability as a landlord if things get out of hand sexually between tenants or guests. Any thoughts?

 I'm not sure mandatory insurance is legal, but that varies state to state.

"Be prepared for subletters."  Even if you don't allow it, they are going to do it any way.  I would have the same rental process ready for subletters as you do for normal tenants.  Just put all the leg work on them.

A normal interior door may have a lock on it.  So there is no reason an individual room may not. (NY/VT)

Discriminating by sex is generally illegal.  Don't do it and let the students/parents fight it out.

Nothing is hard and fast in the RE world, so check with local ordinances.  They might be different in each target area for your investments.

If you plan on owning dorms, that is a VERY different animal than student housing.  If you have that level of cash available, start talking to the schools directly.

@Jeff G.

I believe @Aaron Montague is recommending that you do allow for subletting when he said "Be ready and willing to accept subletters." Not that you put a no-sublet clause in the contract.

@Aaron Montague

I think I introduced confusion here: I used "dorms" to refer to individual rooms occupied by the tenants as sleeping quarters within the larger student-house itself. That is, as opposed to a common area such as the kitchen. I did not mean "dorms" as in multi-b'gillion dollar stone edifices used to house students two-by-two. I do have access to some capital, sure, but not that kind of capital!

I have no intention of being discriminatory I'm just trying to understand certain things. One is how to limit liability is one in the context of student housing. The other is how university off-campus housing policies (which may or may not permit co-ed dorms) interact with fair housing law.

Am I making a little bit more sense now?

~Jeff

@Jeff G.

I would be more worried about the laws than the campus policies.  If a college REALLY doesn't want women and men to live together, they will force the to live in a dorm controlled by the school for the entire time on campus.  Off campus they have little reach.  I would not handcuff myself by worrying about what the local college thinks.  

In my experience guys live with guys and women live with women.  Even senior year I don't remember any co-ed apartments other than married student housing which was on campus and controlled by the university.

I don't know the CT differences on fair housing, or if fair housing applies to college kids.  I wouldn't even go there in your advertising or thinking.  My philosophy for my college rentals was X bedrooms get X college kids, with parental co-signers, for $Y per month.  Across ~30 applicant pools, I think I had 1 male/female mix.

@Aaron Montague

These issues are on my "check list" to make sure I understand correctly and don't create a problem for myself through ignorance. 

I'll stick to describing the property not the tenants in my advertising. And, yes, established law beats university wishes every time.

How did you get started in student housing yourself?

While it may sound good to house two students per room for $1000 each, keep in mind that students usually share rooms in on-campus housing and one of the reasons why they want to move off campus is so they can have their own room.  At those prices, I think I'd want my own room too - although you may be in a particularly expensive part of the country....

As far as allowing sub-leases, yes, you can prohibit them in the lease, but for most students that simply means you just jacked up the price by 25% because they have to pay for the whole year while they only use 9 months.  So, as someone else said: depends on what your competition is.  Someone also already mentioned that it will be pretty difficult to police sub-leasing and they will try it anyway, regardless of what the lease says.

@Andrew Challenger

Okay, now I see why sub-leasing might be desirable to have: to let someone else burn-off the remaining 3 months.

I hadn't considered that the students might want to have their own room without a roommate. But, when you put it that way I see your point. $1,000+ per head, one per room, is still a lot of rent.

Originally posted by @Jeff G. :

@Aaron Montague

How did you get started in student housing yourself?

I was in grad school and hooked up with a few other grad students.  We weren't broke, but didn't have big cash.  Between the 4 of us we had enough to buy 2 Up and Down duplexes. 

I, too, am about to purchase my first property with the intention of renting specifically to university students... beginning w/my son & his friends.  The above information [particularly that of @Aaron Montague is right on the money [so to speak!].  

What I have found, is that the students look at the house and how much it is asking for and then determine how many of their friends they need in order to make it affordable [as some are paying on their own - not getting help from Mom & Dad].  If that means 2 in a room, they are willing to do it in order to live where they want at a price they want.  Just make sure all original renters are on the lease.

Here is a clause in someone else's contract that addresses the sublet part [that I think is good]:  SUBLEASING:  Tenant agrees not to sub-let the premises nor assigns this lease agreement without the express consent of this Owner.  Should approval be granted, sublessors must fill out the applications and be vetted in the same manner as tenants. 

It goes on to discuss the violation of this stipulation and how money will be collected.

Dealing with students is a whole different animal than regular families. A few things to keep in mind. Neighborhoods around schools can be VERY competitive marketplaces with other investors. Make sure you are actually buying in a neighborhood where students want to live. Drive the areas when school is in session and look for college stickers on cars, lots of garbage cans, roving bands of party goers etc. Forget 1000 per head especially in shared bedrooms. Unless you're renting in NYC you'll never get that. You can still do well. A lot of people moving off campus are doing so to save money. What does the school charge for room and board? Make sure you are under that. More importantly make sure you are competitive with neighboring student housing. Forget having a maid service. It's a waste of your time and money to clean up after kids until you are at the end of the year and they are moving out. Forget college policy for housing. You're off campus not a dorm. City/ Town laws are the only thing that matter to you. Make sure you are in FULL compliance with city regulations. Most (especially college towns) will have limits on the number of unrelated people living in one unit. Do try to connect with the school. Some schools have lists of off campus landlords that they compile for their students. Absolutely 12 month leases. Be prepared for kids failing out and needing to find a replacement (hence the sublet thing above). Be prepared for them to do really stupid things like climbing on your roof in full gladiator garb while mooning passers by on the street. Make good friends with any neighbors who are full time residents. They will be much more likely to call you instead of the cops when something inevitably gets out of hand with your tenants. You can generally make more money renting a house to students than to a family but be prepared for extra hassle. Good luck!

I don't know which university has students independently wealthy (or parents naïve enough) to pay $1000/ month in rent.   I would recommend you research your local demographics to see what college students are literally paying currently. 
One marketing and R/D approach you could take is drive down to the local universities with a clipboard a piece of paper.  Talk to 300 students (this should take you about an hour) located in the commons or around the activity centers, dinning commons, gym, etc... ask them HOW MUCH they are paying for rent.  Use that as your market analysis and go from there.  I would expect you'll see between $250-$500 / month is about average.  

What folks are paying in rent is relative to where their school is located.  There are plenty of places getting well above $1000/month/student at their rentals.  The universities themselves are the best cultivators of this:

Sort this by Room and Board

So $1000/head isn't unrealistic in certain places.  Jacksonville has them.  That is REALLY high for Jacksonville, but they are there.  $650 seems to be closer to the norm.

Places like Boston, NYC, Austin, Berkeley, San Francisco and LA are all going to have several areas where $1000/head will be a treat for the paying parents.  I went to school in Troy, NY.  I paid $160/month for my share of a 3/1 my sophomore year.  I lived at my fraternity Junior and Senior year for ~$700/month room and board included.  Prices vary a huge amount.  There is money to be made everywhere.

Students are a different game up front, but they aren't much different than other renters.  They want to be left alone, they want issues dealt with quickly and they want to be the masters of their own domain.  My basic, and mutable, rules for student housing:

1. 1 lease with parental co-signers

2. Allow sub leases

3. Monthly inspections

4. Don't mow the lawn before noon on the weekends :)

@Jeff G. You're jumping into a great market and seem to have a good grasp on the direction you're headed.  @Aaron Montague and the other posters are tossing around invaluable advice.  I particularly agree with @Andrew S. about students wanting a room to themselves if they are choosing to live off campus.  

You mentioned buying now for this coming Fall.  Each university has its own timeline for students beginning to seek housing for the coming year.  Timing the purchase is crucial to sync with leasing in the right season without paying too unrented many mortgage payments.

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