First Deal: SFR or Student Rental?? - Brainstorming

42 Replies

We have a contract on our first deal as of today (see http://www.biggerpockets.com/forums/88/topics/1548... for details).

Our original plan was to rent this out as a SFR. But over the last 24 hours, I started wondering if we should consider positioning this property as a student rental. The house is a 3/2 that is 2.5 miles from Kennesaw State University (third-largest university in Georgia and one of the fastest growing). I have read some threads here on BP about student rentals and I'm aware there are pro's and con's.

I've been brainstorming ideas about this and thought I would turn to the BP community for help.  Here are a few of my thoughts/questions.  Please jump in with any advice, opinions, etc.

  • Rent by the room (individual lease) - pros/cons?
  • If we rent by the room how should we expect a PM to charge fees - based on total rent of all rooms at 100% occupancy, or by the room?  Obviously, the latter would be preferred but I'm not sure of standard practice - or is it negotiable?
  • New Non-university student housing (off campus) for a 3 bed/3bath apartment rents for $650 - $680 PER tenant.  This includes a fully furnished apartment with flat screen TV, sofa/love seat, full kitchen with upgrades, desk/bed in each room with walk-in closets in each room.  Also includes a shuttle to/from KSU, a large swimming pool and a big social scene.  However, having toured one of these with my daughter who goes to the university, they are already in ROUGH shape and are only a few years old.  Management seems to be non-existent and the apartments are party-central, which was big reason we ended up going with a regular apartment for my daughter and her roommate.  These apartments are basically unsupervised dorms.
  • Given the above - to what extent might we model our rental after these apartments - provide some furniture (sofa, love seat, kitchen table), include utilities, TV, etc.?  One appealing aspect of these apartments when we considered them is that they were move in ready and we could sign individual leases.  The negative was that they had horrible reviews online because of the way they are managed, and it was evident from seeing them in person that the reviews were dead-on.
  • Any input on what to charge per room, if we end up going that route?  One room is a master with bath.  The other two rooms/tenants would share the 2nd bathroom (where the washer/dryer is currently located - could be an issue).
  • Co-ed or single sex?  Or do we run in to any fair housing issues if we specify a single gender?
  • City ordinances/codes etc? There is no HOA so that wouldn't be a concern.

I would love to hear feedback.  We are meeting with the contractor tomorrow and how we position this rental could impact our rehab decisions.

Biggest concern is the distance from campus.  Is there close transportation to the school? 2.5miles from campus is a long walk.  With out a convenient way to get to campus you may be at risk of eliminating a large portion of prospective tenants being that having a car in many cases is not something every student has. Are there other college housing units close to your property renting well?

@Shawn M.  - At this particular school, I don't think that's an issue.  Kennesaw State has traditionally been a commuter school, although that has changed in recent years with the addition of some on-campus housing.  The school has over 23,000 students enrolled - 17,000 are full-time students.  On-campus housing is limited, although the new off-campus apartments that I referred to above have been popping up over the last few years.  But having actually gone through the process of looking for a place with my daughter over the summer, if you want to go outside of dorms or the student apartments, you are looking at close to $1000/month for a 2-bedroom apartment less than a mile from campus, plus utilities (including deposits to set up accounts and time involved) and the need to bring all of your own stuff - which, from experience I can assure you is a major pain :)  We just moved my daughter in this past August and found out yesterday that her roommate is breaking the lease at the end of semester, forcing us to do the same ($1000 out the window).  Can't wait to carry all that stuff back down the stairs in two months! :)  Your question is a good one - but around here, driving to campus is no big deal.

What stands out to me in your response is your daughters unit being less then 1 miles from campus.  Less the one mile is a 15 minute walk, not bad at all.  I would imagine most students not taking their car with them to college just because it becomes additional expense on top of the high cost of school.  The student market is a niche market in itself, your situation will be making it even more niche because you will only be able to offer housing to students with cars willing to live farther away from their central location.  I am not an expert in your area or campus housing but in my market I am part of a  real estate team that focusing on find units close to public transportation to NYC because that is what rents.  People want convenience. 

 Best of luck with your daughters housing situation, perhaps she can find a friend at school willing to take over her former roommates lease so she doesn't have to move out.  

Hi, @Shawn M.  I did a little research to make sure I wasn't off in my thinking.  See below.  I want to make sure I'm not glossing over any potential issues, but based on my knowledge of the area (I live 2 miles from campus myself and experience the crazy traffic jams near campus when classes let out) and this information below, I don't think driving/having a car is an issue. But if you see any flaws in my logic, please feel free to share.  That's why I'm asking!

@Julie Kern  

We have several student rentals:  full houses, apartments, and a rooming house.  All three models do work, but there are some differences:

1) Student house (or apartment):  If you rent the entire house/apartment as a single unit, you would be looking to qualify a group of 3-4 housemates on a single lease (all would be signatories to the lease and all would be jointly and severally responsible for the obligations of the lease).  

This is essentially an SFR rental. Where your house is beyond a normal walking commute to campus, I would recommend this approach. Your tenant will have vehicles (car, bicycle) or use public transit. This is the easiest approach to administer and will likely be the cheapest if you are using a PM service. If renting to a group of housemates, ensure that you retain the final say for any sublets or change-up of roommate (changes/additions to the lease) - i.e. they have to go through your screening process.

Additionally, if you are renting the entire house on a single lease, you can put utilities in the hands of the tenants and even pass on the water/sewer costs.  In our student house we use a separate Utilities Budget agreement as a companion to the lease.  In the utilities agreement, the tenants make a monthly payment into the utilities budget (in advance).  We retain the utilities in our own name, but provide the tenants with copies of the utility bills each month.  Every three months we reconcile: if there is a surplus in the utilities budget account, we provide the tenants with the choice of leaving the balance in the account in anticipation of larger bills (i.e. winter) or applying it towards the next month's rent.   We only provide the option of refund at the end of the lease.

If there is a deficit in the utilities budget account, we invoice the tenants with the amount due at the first of the next month.  We set our monthly utility budget contributions large enough that this has only happened to us twice.

2) A rooming house.  We have a large house which is organised as a duplex with 4-bedrooms in each unit.  The house is located 2-blocks from campus (<5-minute walk). We rent this house by the room; rooms are furnished (bed, dresser, desk & chair) and utilities & Internet are included.  Our clientele are primarily international students.  International students are a lot less problematic, most are paying dearly to be here and they do not party and always pay their rent.   Nonetheless, a rooming house works best if you have a trusted individual living on-site.  My sister-in-law lives in one of the units of our rooming house and serves as Den Mother to keep everything running along smoothly and ensure utilities are not wasted (heat on while window open, etc).  It also helps if your "Den Mother" is a little older, and more mature, than the students themselves.

Tenants in a rooming house are more likely to not have a vehicle, making close proximity to the campus a key factor in renting by the room.  Additionally, you will have individual leases with each roomer which creates more administrative overhead.  You will also be unable to avoid inter-roommate dynamics since each roomer has a relationship with you and not necessarily with each other - another reason why having a Den Mother on site is essential IMHO.   If you are using a PM service to manage a rooming house, I would expect your costs to be higher as they will be doing more work.  You will also get to pay lease-up charges on individual rooms (leases) as opposed to a single lease for the property.

On the bright side, you can normally command a higher rent when renting by the room, especially if they are furnished.  If your property is energy efficient and you can keep wasteful behaviour in-check, your bottom line could be a little higher.

1(506) 471-4126

Wow, thanks for all the info @Roy N.  !  I really like the way you handle the utilities in the single lease scenario.  When we moved my daughter into her apartment with her roommate this fall, they had to set up electric and cable/internet in their names (and decide what was going in whose name, get the cable hooked up) and it was a bit of a pain, considering everything else you are having to do to move in, prepare for the upcoming school year, etc..  

You've given me quite a bit to think about.

I do have a question for you - due to the timing of our purchase of this property, we would be offering the house for lease at the beginning of the spring semester.  Do you think it would be more difficult to find tenants?  And how would you structure the lease?  As a 12-month?  Or would I need to do it differently considering we would be starting up halfway into the school year?

I would not do a student rental. Student rentals are generally 1 to 2 bedroom units.  I do not like to put more than two independant adults per unit together.  I would rent as an sfr.  They have lower turnover rates and less keg parties. In addition, you can sell at market rate by offering an option contract.

Originally posted by @Julie Kern :

I do have a question for you - due to the timing of our purchase of this property, we would be offering the house for lease at the beginning of the spring semester.  Do you think it would be more difficult to find tenants?  And how would you structure the lease?  As a 12-month?  Or would I need to do it differently considering we would be starting up halfway into the school year?

If you are going to be renting to the student market, your primary lease-up times of year will typically be May and September.  When we have leases starting in May we usually offer 12-month.  When they start in September we will offer either a 9-month or 12-month lease (or optionally both).  When we lease-up a student property in the middle of winter we either look for a term lease that will take us through to August or offer month-to-month with the understanding we'll be looking for a new lease in May.

When we offer choices in lease terms: Month-to-Month is at a higher rent rate than a 9-month term, which greater than a 12-month.  Rarely will we offer a > 12-month lease to students ... though we recently offered an 18-month lease to a PhD student who needed to move for this month (though this candidate made adequate income to cover the 3x rent requirement).

Another point, when screening student applicants, it will be more common than not for them to have no, or insufficient, credit or rental history to pass our screening.  We advise the applicants of this upfront and have them secure a guarantor - whom we screen - to backstop their obligations.  The guarantor is usually a parent or grandparent, which has the added advantage that if a problem with lease obligations does arise a call to Mom or Grandpa typically gets things resolved instantly.

Finally, I disagree with Clay's assertion that student rentals are usually 1-2 bedroom units.  It will really depend on the local market and what is available.  Here, our "universityville" is populated with post-war Johnny houses (referred to as Cape Cods in the U.S.A. rust belt and mid-west) of 3-5 bedrooms each.  Student prefer renting entire houses as their overall costs are lower (a 4-bedroom house here would rent for $1300 - $1600/month while a 2-bedroom unit would be $800 - $900/month).   Conversely, the universityville surrounding McGill and Concordia universities in Montréal is comprised mostly of tenements and apartment buildings, so you will find predominately 1-3 bdrm units.  

The overriding guideline is students want to rent whatever is closest to campus.

That said, Clay is correct that turnover in student properties will be greater.  Even though we have performed deep retrofits on our student houses and they are by far the most energy efficient in the neighbourhood, students tend to move every year or two regardless - social dynamics fall apart; someone decides to move-in with a boy/girlfriend; or they just want a change of pace.

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@Julie Kern

First congratulate on your purchase.

I do not have experience in student rental in US.

I do have 4 years student rental experience in Canada( 1 unit only) when my daughter went to College.

 She went out of province(state) to carry on with her study. So I decide to buy a 3 BDRM condo to accommodate her. The condo is right across the street from her university. So it was a highly desirable student rental location.

PROS

1) higher rental by renting rooms $600/room verse $1650 for the unit.

CONS

1) first year student tends to be party animals. the whole condo experienced so many false fire alarms; that the fire department started to charge false alarm incidences.( I experienced that in my university years too in the 70's.

2) I only rent to female students ( I think it will be easier to have girls together). But girls fights like cats.

3) House cleaning may not be done according to your requirement & standard.

4) I have a strict policy of not having guest after 11:00PM for the safety of the other roommates. But girls do sneak their boy friends in.( It's hard to control.)

So if you decide to go the student rental route. make sure you have a strong HOUSE policy for everybody to know & follow. Otherwise it is just like BABYSITTING.

@Clay Smith  , your point is a good one and part of why I'm really trying to weigh pros and cons.  

@Roy N.  , thanks for the information about the 2nd term lease-ups.  That makes perfect sense.  Another question for you - let's say you have a student who stays with you for more than one year.  Do you raise rents every year?  Would it ever make sense to lock in rental rates for a student tenant to incent them to stay for longer (knowing that most likely the most they would ever stay is 4 years), thus helping mitigate frequent turnover?  Or does that not really factor in to the student rental market, where other factors are more at play (roommate issues, transfers to other colleges, poor grades = mom and dad forcing them to move back home, etc.)

@Tom Yung    , thanks for sharing your experience with your student rental.  #2 made me laugh and it's very true!  And great advice about having a house policy.

I guess the big question in all of this becomes whether or not the additional cash flow is the worth the extra headache.

@Julie Kern  

We have a policy of not raising rents on our student tenants during their stay with us - and we tell them this upfront.   We are able to do this knowing they will not be staying longer than 4 years at the maximum. 

In our rooming house, we offer lease choices of month-to-month, 9-month term (academic year) or 12-month annual lease).  The 9-month and annual leases bring with them a reduced rent-rate.  If a roomer stays with us beyond the first year, we actually will drop their rent (~10%) going into the second year.

1(506) 471-4126

Hi @Julie Kern  

Tom and Roy have offered some great tips here. I have a 10 bed apartment, which is divided up into 2 units, and have also owned SFR student houses, so can offer some experience also.

I think you're far better off trying to rent to a group of friends, versus individual tenants since you won't have to worry about furnishing the common areas.  When you rent to a group, they don't mind each contributing things like TV's, couches, chairs etc for common use amongst themselves.  If you rent individually, you'll need to furnish to accommodate, and will need to replace every few years since students are hard on things.  There will also be less drama with a group of friends since they will sort out their indifferences, in most cases, rather than call you to mediate.  There is also a good chance that the group will stay for an additional year, or at least some of them might stay and will find other students to replace the ones that leave, saving you time and added lease up fees.  

I would also implement a mandatory cleaning service, minimum of once per month, that the students pay for, or work into the rent.  Students are notorious for not cleaning, and if left untouched for long periods of time, can develop mold in Fridges, bathrooms, etc making it difficult to remove after they move.  This also gives you an excuse to inspect the property at least once a month to stay on top of any damages.  You should also emphasize this in the lease, that they are all jointly responsible for any damages that occur.   This is tougher to impose upon individuals renting.  Another benefit of a group is having one lease that all students are jointly liable for the full amount of rent each month, so if one can't meet rent that month, then the others are forced to chip in for him/her.  

Hope this helps.  

@Joe Fairless  , thanks, I know turnover would be one of the main issues with student rentals.

@Chad Urbshott , really good points. I think at this point, if we choose to go the student rental route, I'm leaning strongly towards a SFR/single lease. I think the added accountability among friends vs. having to be the babysitter as @Tom Yung  mentioned would be a definite advantage.  Are you able to command higher rents (or maybe I should say greater cash flow) with a single lease student rental vs. a traditional tenant?  There would have to be some distinct advantage in going the student rental route.  Honestly, this property could go either way.  The neighborhood is in a great school district (elementary, middle and high school) and nice, quiet neighborhood but is also very convenient to the university.  For your SFR student houses, was renting to students your only option based on location?  Or was there some other reason you chose that option?

We also have student rentals.  The biggest factor here is distance to campus and neighborhood.Students either live close to campus or in certain preferred neighborhoods some of those are more party but some are just preferred even though they are farther away. The key point for you is if there are areas that students prefer, is that where your house is? 

 We always rent the entire unit and they pay utilities. Best I think is a 3 bedroom, 5 is to many,2 is too few. We attract mostly guys and though we are not in the party zone, they tend to be more dirty and lots of alcohol.   We have considered what Roy talks about in terms of rooms but you get the most serious students for those if you are walking distance but along the bus route too.  Most student rentals are furnished here but that may not be typical. In your situation one option is just to put it up for rent and target students in advertising so that you can accept the first good candidate, students or not. 

Students are a different market. They are less well versed in the process, you have to pay more attention upfront, and there are more people to deal with (co-signers, roommate issues) but they are more relaxed then some of my other tenants.  I have been in the parent shoes too with my own son which adds some perspective. I would caution that one thing I have had to tell some tenants and their parents is that I am their landlord.  As a landlord I don't expect to have to tell them things like you have to put out the garbage and I do not manage roommate issues.  If you rent rooms separately, it may be different.

Originally posted by @Colleen F. :

 In your situation one option is just to put it up for rent and target students in advertising so that you can accept the first good candidate, students or not. 

Colleen, that's a great suggestion.  The more I think about this and consider all of the great information I have gleaned from this thread, I think your idea may be our best bet for now. And as I think about it, most ads for rentals in our area that are within a few miles of the college generally focus on both proximity to KSU and the elementary/middle/high school districts so I think if we do the same we'll potentially get some student interest but will also leave ourselves open to other types of tenants.

Thanks!

Congrats on the purchase! I went to KSU (was there when the very first on-campus units came online) and I believe the area will only continue to grow. 

I've never rented to students personally, but the increased income potential from renting by the room seems too good to pass up. I have an investor here in Chattanooga that has done that and receives above market rent without incurring increased maintenance cost. She does this by being VERY diligent in her tenant screening, making sure to only rent to those with excellent rental histories. You CANNOT be too careful when renting to 18-24 year olds!

@Julie Kern My properties were already student rentals, and the apartment was actually purpose-built for students and right near the university, so wasn't really a choice b/w either. You can command about a 30-40% premium for student rentals since you're essentially renting by the room. For instance, in my area, most SFR's rent for approx. $1500/mth, but a 4 bed will rent for a minimum of $2K if it is in excellent condition and near the school. I find that students (or their parents) are willing to pay top dollar for things like granite, SS appliances, tiled flooring, etc. Much different mindset than when I was in school :-)

@Jake Kellerhals   thank you! You are right, this area has been growing like crazy since I moved here over 21 years ago. Thanks for the info about your investor friend in Chattanooga - I'm assuming the students are from UTC?  How close to the school are your friends's rentals?

@Chad Urbshott  , I think it makes perfect sense that college students who possibly have part-time jobs or may have never worked a day in their lives would expect granite, etc. in their student housing :)  But seriously, when you start to compare the cost of on-campus student housing (with the accompanying required meal plans) to $500 per person in a nice apartment/house with full kitchens and upgrades, it really does seem to provide more value.  

SFR! I look for stability and long term tenants. Turnover costs money! If you can find someone that takes care of the place and is likely to stay 2,3 or more years this is less headache and more money in your pocket.

John Thedford, Real Estate Agent in FL (#BK3098153)
239-200-5600

Shared housing is a great way to go and that's our business model...BUT you have to be very careful in how you go about it especially in cobb county or around kennesaw.  KSU is an awesome school but college kids are generally awful tenants and neighbors...so much so that cobb county provides no more the TWO unrelated people in a rental.  One call from a bitchy neighbor and the county will be knocking on your door.  As long as there aren't any complaints...then there is no crime/no foul.  

There is a huge need in the area for affordable shared housing.  We get $550 to $850 a month for decent rooms in that area with MyRENTEDroom.  I would gear your rental towards older renters....either Life college students who are more serious and older or working adults.  Our average renters now are about 30 to 40 years old.  Renting single family in atlanta today is not without its difficulties and shared housing keeps steady income and occupancy.  

If you do it.....go meet the neighbors...I always do and it helps having the handyandy truck.  Don't tell them you are doing a shared housing rental....just let them know that you bought it as an investment to help put your kid through college or introduce yourself as the "manager" which is what i usually do.  If I have  a senior living next to me, I offer them a free repair or discounted repairs for keeping eyes on the property for me.  It works...they get a repair and they aren't calling the county first chance they get!

Happy to network and chat if I can help

Originally posted by @Julie Kern:

 But seriously, when you start to compare the cost of on-campus student housing (with the accompanying required meal plans) to $500 per person in a nice apartment/house with full kitchens and upgrades, it really does seem to provide more value.  

Julie:

That is one of the key factors in pricing student rentals - it is best to be under the cost of campus housing by a 8-10% (enough to allow for a portion of food costs).  Here campus housing (shared room) with meal plan is around $500/month; a private room would put that cost at ~$570/month.  In our student rentals, the per-student cost is >=$450/mth.

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