Thoughts on investing around colleges.

9 Replies

This varies vastly on the college and region, but generally what are your thoughts on investing in multi-families on the periphery of a college campus.  I am thinking about investing in a property near a campus and want to hear if anyone has had experience.  


These are some basic Pro's and Con's that go along with this subject that iv been thinking about:
CON'S 

-There is certain to be damage to the property. 

-Parties, and all the circumstances that trail that situation.

-Often times students dont pay rent on time.  

PRO'S

-There is recurring traffic in the area every year, so there shouldn't be a problem filling vacancies.  

-Tenants shouldn't be to needy or demanding.  

-Generally (At least in my area) the college is not in a fantastic part of town, so the real estate is not expensive.  

Let me know what your experience has been or if I have missed anything (Which I am sure I have).  
All the Best! :) 

Hello Lucian,

We invest in a college area and it has been great for the most part.  

In multi family properties with students, you have to keep in mind that they tend to be less mature and able to deal with the other tenants without getting the landlord involved.  Some pay on time every month, others need to pay a late fee a time or two before they get it.  They are often times messy but not necessarily damaging the place, just be prepared for needing to thoroughly clean after each tenant.  And they leave stuff behind, so have a plan for that- let them know ahead of time what can be picked up by the trash collectors, or other options to get rid of stuff.  You will have a very busy time right before the fall semester starts each year.

I have 3 types of tenants- students (about 50% but dropping), young professionals (about 25% and rising) and the others.  I prefer the young professionals, then grad students, then students, then others.  I have had the  most trouble with the last category, as far as paying on time, being demanding, and leaving the place a mess and/ or destroying things.  

Good luck, and feel free to PM my with any questions!

Kelly

I own a rental in a college town. I agree with the above poster regarding preference for tenants. I would add that I really like nursing students and law students. They study so hard they generally are less wild than other degrees. I'm 5 years in with no damage to speak of from tenants. I would definitely invest again in a college town. 

Now I'm gonna go knock on some wood! 

Although renting to college students does not necessarily mean that the place is bound to be destroyed, I would say that I think there are some measures you can probably take. Invest a little money with an attorney, and have the attorney customize a lease that will make the parents of the students responsible, should they do any type of damage to the property.  I think that if a student knows that their parents will get the brunt of their irresponsible behavior, they may be more likely to think twice about their actions. In addition, I would suggest that you check out the free BP guide on how to screen tenants. There is a wealth of information in that guide. There are also numerous podcasts that goes into the topics of renting and tenant/landlord interactions.

I have been working on the university side of student housing for 6 years (currently overseeing $20MM in annual revenue), but in the last year also took on the role of providing off-campus housing resources for the university community. I work regularly with local property managers and landlords, connecting them to our students using an online portal through a popular vendor (Off-Campus Partners LLC). Many universities use these kinds of specialized listing services, which are excellent resources for scoping out what units are going for. Since I am the administrator for our site, I can run back-end reports for average prices for various types of units, over different time intervals (For instance, I can see how 2-Bed 1-Bath units prices are changing month-to-month).

The student housing business is definitely different in that you are generally working with multiple individuals on the lease (and their parents). Parent management adds an interesting layer. That said, here in the Philly market, students are willing to pay significantly above market rent. For instance, there are large stone houses in our area with 5+ bedrooms. Students generally look to spend $600-$800 per person, so some of these houses will rent at $3500/month for 5-6 students in Philadelphia (despite it being illegal to have more than 3 in one property). Similar houses just across county lines (in one of the best school districts in PA) will rent for closer to $2500/month even though the purchase price is double the Philadelphia student housing property. 

So, local landlords trade the issues mentioned by prior posts for significantly higher returns. I personally will not invest in those kinds of properties because of the local ordinances regarding max occupants, but I have spoken to many investors who have less qualms. 

One of the other perks of renting to students is the predictable cycle. With many leases starting June 1, landlords can often sign up next year's students as early as September (8 months in advance). In our area, we often have "legacy" properties, where seniors pass the lease down to the next class, so there are almost no advertising costs.

Why is no one talking about the Big Student loan Bubble thats about to burst. Doesn't this scare you from all these college towns?

@Lucian Harris-Gallahue

I think you have a good grasp on the general concept.  You mentioned the periphery which I think can be key.  You can help dictate the type of student to which you rent by the location and quality of your property.  One point I would disagree on is the needy tendencies.  Focus on finding a property with a location that would appeal to the older crowd or grad students and make sure the purchase allows you to rehab the home to an appealing condition.  Good luck and be sure to search the forum as this is a very popular topic.

Thanks Kelly, If I have any questions Ill be sure to head back to the BP forums or ill send you a message.  
I like the points about targeting older students, that is a good idea that I hadnt thought about.  
@Peter Dunne , glad to hear you are succeeding with this.  I may come back to this or to you with a question down the road.  
And finally yes, Mohit brings up a good point, anybody worried about that bubble?  What does that mean for the market?  Peter? Kelly? 
Thanks everyone! 

@Lucian Harris-Gallahue

Feel free to reach out. To be clear, I work for the university managing their own housing. Sometime investors will also enter into master lease agreements with the university, whereby the tenant is the school, not the students. Students pay the school, the school pays the investor. We currently have two.

There are several concerning trends in higher education. The student loan "bubble" is one of them, with the primary concern for landlords being that if the government pulls the plug or makes it more difficult for students to qualify for loans there will be less students going to college and/or less easy loans to pay for living expenses (i.e. your rent). This is a deeper conversation, but I don't think this can be defined as a bubble, since there is no asset connected with the lending (like there were houses in 2007, dot come stocks in 1997 or tulips in 1637).

The second concerning factor is the demographic decline in traditional college-age students over the next 10 years. We are already seeing it with greater competition over fewer 18 year-olds, driving down our class sizes and driving up our discount rates (Universities may have a $50k sticker price, but if their discount rate is 42% the average student is actually paying $29k). This decline in enrollment will hit various institutions differently (see Sweetbriar College). If you are buying into an area around a university that cannot compete, you could see the student housing market contract rapidly. I would encourage to invest around established schools that are A. Affordable (state schools) or B. have a strong brand (i.e. Harvard, Dartmouth, Stanford, etc.). Universities have been maintaining by increasing graduate and international enrollement (the first group is pretty well tapped out, but the second shows huge potential with Asian and African students looking for opportunities).

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