First Deal: SFR or Student Rental?? - Brainstorming

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First Deal: SFR or Student Rental?? - Brainstorming

Julie Kern
Investor · Taylorsville, GA · Member since 2014 · 352 posts · 540 votes

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.

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Rachelle S.
Smyrna, GA · Member since 2013 · 16 posts · 14 votes
11y

Hi Julie, 

I have a house in Kennesaw that is 4 miles from the school and I was planning on doing the student housing idea. Mine is a 2bd/2bath with a common area/kitchen/laundry along with an upstairs loft. As a recent Kennesaw State grad, it seemed like the ideal situation for student housing. As for the distance from campus, I wouldn't worry about it at all. Since KSU has always been a commuter school, most students drive, which is why there are now those multiple decks and shuttle services. It is a little different than a traditional college campus and most students have vehicles, especially with most working part or full time.

That being said, I never even got to list my place before it was picked up from word of mouth. It was rented as a SFH but priced as if it were "by the room" by 2 young men who work full time. I have learned a lot from this rental and since they are the ages of college students, I have a few words of advice.

Most students and young people do not have the equipment nor any desire to do yard work. HOA provides the lawn maintenance for the front lawn and I include lawn care for the back in my rent price. I also provide a washer and dryer for the home which they "rent" and pay with their rent each month. They jumped at the opportunity to rent the washer/dryer from me.

Also, don't over rehab with renting to a younger demographic. They could care less about granite, stainless steel, etc. Mine just want everything to work.

I offered a 12 month lease and the clause that if they stay and re-sign 60 days prior to their lease ending, the rent won't increase. If they don't, it becomes a month to month at a higher rate. After reviewing that clause, they said they were going to be sure to re-sign to avoid an increase.  

For payment, I opened a Bank of America account and got a deposit only card for them. Because they each wanted to pay half to me (all cash) at their own pace, this was the easiest thing to do. They can deposit their portions whenever they want at the local branch, (<.1 mile away) on their own schedule and I just check to be sure it is all there by the due date. This gives them a receipt for cash deposit, and me not traveling to pick it up or having to worry about a cash payment and disputes.

Finally, I sat down with them to review the lease, read every paragraph, had them initial every page and answered all questions and discussed my expectations so they knew exactly what they were in for. So far, so good. No late payments and the place is always in great condition when I do a check up (quarterly). 

Good luck and no matter which approach you use, I know you will have it rented quickly. You may end up with students or families because of how desirable the area is.


Rachelle

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  • Andy Luick
    Real Estate Investor · atlanta, GA · Member since 2013 · 456 posts · 237 votes
    11y

    It's not the easiest of models but the returns are worth the efforts.  We video market across 20 sites to attract the best renters and offer most free credit repair if they pay on time..which allows us to turn them into buyers of our flips down the road.  I've toured those units as well....it's just party central.  We get 200 to 600 hits per day for our shared housing units and it's a nightmare keeping up.  A ton of good people have washed out in this economy and it leaves a lot of good people with bad credit who can't rent an apartment or a house.  We get some older renters who just want to save money and we are tied into a number of HR departments who feed us workers here on contract.  We have rooms from 300 a month to $2,500 a month and everything in between....some furnished some not....just depends.

    We've rescued quite a few atlanta landlords over the past couple of years and helped a lot of homeowners to stay in their homes by renting a room or two or a basement.  We don't run rooming houses or boarding houses...those owners simply slam people into a property and expect it to work.  We have a process and we involved our roommates in the selection process.  Just be very careful with whatever you are doing in cobb!  You might "partner" with your daughter to run this first house...she'll certainly get an education. Much of what we do and how we do it is counter intuitive but it comes from over 26 years of trail and error. 

    1Reply
  • Julie Kern
    OP
    Investor · Taylorsville, GA · Member since 2014 · 352 posts · 540 votes
    11y

    That's a very cool model, @Andy Luick , and I love the fact that your investment philosophy is a win-win for your business and the tenants.  I would love to be able to do the same!  And I'll heed your warnings about Cobb - I've lived in Cobb for over 20 years so I know we're just a wee-bit conservative up here :)

    0Reply
  • Andy Luick
    Real Estate Investor · atlanta, GA · Member since 2013 · 456 posts · 237 votes
    11y

    It's not just that....it's that college campuses attract investors and most don't care who they put into a property....which became a problem with KSU in particular.  That's partially why college investors tend to do townhouses so they can hide a bit and not draw attention.  Every investor should try to be a good neighbor on the front end....having a well known contracting company helps me in a lot of ways.  I've done this for so many years that I can usually pick who my problem neighbor is going to be and address it from the start.  We have shared housing in some extremely highend neighborhoods and we've never had any problems.....so far.  Just don't advertise what you are doing if you go the shared housing route.

    We have on house in Tucker where the neighbors LOVE us and the shared housing.  The property was an investor rescue where each tenant he got was worse than the last and the neighbors were constantly calling the county to complain.  One elderly lady actually baked cookies for my tenants just to say thanks for being such an improvement.  The lady had gone out of town for a bit and forgot about her yard and newspapers.  One of my renters mowed her yard a couple of times and collected her papers for her.  Huge improvement in relations that was noted by everyone on the block.

    0Reply
  • Julie Kern
    OP
    Investor · Taylorsville, GA · Member since 2014 · 352 posts · 540 votes
    11y

    That's a great story @Andy Luick !  I checked out your website - very cool concept.  I wish we had known about it when my stepson was trying to find a place to live right out of college!  There are plenty of places where you can rent a room from individuals around here, but you never know what sort of situation you'll find yourself in.

    0Reply
  • Danielle Shulman
    Frankfort, IL · Member since 2014 · 17 posts · 8 votes
    11y

    Julie,

    I think that is a great idea! Check rental comps and find out what amenities if any, other rentals in the area have to offer. If you can cover taxes, utilities, maintenance and make a nice profit with potential to get a great ROI if you sell, go ahead! But, you also want to be VERY considerate of the area you are renting in.

    I went to school in Chicago and rented in a condo complex that was mixed into a SFR area. My landlord rented to all students but then made the mistake of letting a family rent the first floor unit. EVERY resident got complained on by the family. I think that is their fault for moving into an ALL COLLEGE building but I couldn't even have my dance cleaning sessions without a complaint.

    Even the sweetest looking tenants may want friends over so make sure the neighborhood is open to college kids living there.

    1Reply
  • Rachelle S.
    Smyrna, GA · Member since 2013 · 16 posts · 14 votes
    11y

    Hi Julie, 

    I have a house in Kennesaw that is 4 miles from the school and I was planning on doing the student housing idea. Mine is a 2bd/2bath with a common area/kitchen/laundry along with an upstairs loft. As a recent Kennesaw State grad, it seemed like the ideal situation for student housing. As for the distance from campus, I wouldn't worry about it at all. Since KSU has always been a commuter school, most students drive, which is why there are now those multiple decks and shuttle services. It is a little different than a traditional college campus and most students have vehicles, especially with most working part or full time.

    That being said, I never even got to list my place before it was picked up from word of mouth. It was rented as a SFH but priced as if it were "by the room" by 2 young men who work full time. I have learned a lot from this rental and since they are the ages of college students, I have a few words of advice.

    Most students and young people do not have the equipment nor any desire to do yard work. HOA provides the lawn maintenance for the front lawn and I include lawn care for the back in my rent price. I also provide a washer and dryer for the home which they "rent" and pay with their rent each month. They jumped at the opportunity to rent the washer/dryer from me.

    Also, don't over rehab with renting to a younger demographic. They could care less about granite, stainless steel, etc. Mine just want everything to work.

    I offered a 12 month lease and the clause that if they stay and re-sign 60 days prior to their lease ending, the rent won't increase. If they don't, it becomes a month to month at a higher rate. After reviewing that clause, they said they were going to be sure to re-sign to avoid an increase.  

    For payment, I opened a Bank of America account and got a deposit only card for them. Because they each wanted to pay half to me (all cash) at their own pace, this was the easiest thing to do. They can deposit their portions whenever they want at the local branch, (<.1 mile away) on their own schedule and I just check to be sure it is all there by the due date. This gives them a receipt for cash deposit, and me not traveling to pick it up or having to worry about a cash payment and disputes.

    Finally, I sat down with them to review the lease, read every paragraph, had them initial every page and answered all questions and discussed my expectations so they knew exactly what they were in for. So far, so good. No late payments and the place is always in great condition when I do a check up (quarterly). 

    Good luck and no matter which approach you use, I know you will have it rented quickly. You may end up with students or families because of how desirable the area is.


    Rachelle

    4Reply
  • Julie Kern
    OP
    Investor · Taylorsville, GA · Member since 2014 · 352 posts · 540 votes
    11y

    Hi, @Rachelle S. . You rock!! I only wish I had gotten started in REI at your age.

    Your post is extremely helpful.  You confirmed much of what I already thought from living in the area and having just gone through the process of finding a place for my daughter this past summer, but it's great hear from someone who has actual experience in this market.  

    I wouldn't have even thought of "renting" a washer and dryer. Great idea, especially since the house we are buying comes with the W/D. Thanks for the advice about not over-rehabbing. Our plan is to update the place so that it looks fresh and clean, but no granite/SS/hardwoods, etc. That's our plan whether it's a student or SFR. I like the way you have your lease structured and that's a great idea about the BOA card. You have a lot of great ideas - did you have a mentor as you developed your leasing strategy?

    0Reply
  • Account Closed
    Investor · San Francisco, CA · Member since 2014 · 577 posts · 203 votes
    11y

    @Julie Kern 

    I would suggest testing the market and seeing how many calls you get.  If you get more calls and students are willing to pay higher rents (because usually their parents are paying) then renting it to students might be better.  But, sometimes students are more flighty (increased turnover costs), so they will virtually always be more work on turnovers.

    When I faced this choice, I decided not to go the student route, but I have contacts (mostly multifamily) who have gone the student housing route and are profitable. 

    I also believe that students generally prefer apartment communities or college/dorm culture with amenities (wifi, lounges, meeting rooms, pools, etc.), so most are not suited for SFR living.

    1Reply
  • Account Closed
    Investor · San Francisco, CA · Member since 2014 · 577 posts · 203 votes
    11y

    @Julie Kern 

    Also, don't expect college students to help fix problems with the house when they occur. Many of my tenants are long-time SFR renters who are "handy". That means they're not scared to make minor repairs when they come up or work proactively with my handyman to get repairs addressed.

    I think college students are better suited to apartment communities or condo complexes, where there are onsite repairmen and amenities.  They may pay more in rents, but they will definitely be more costly when it comes to property management.

    1Reply
  • Rachelle S.
    Smyrna, GA · Member since 2013 · 16 posts · 14 votes
    11y

    Thanks @Julie Kern, 

    I never had a mentor and its been a learning curve to get to a smooth system. Some stuff I took from when I was a student, ie. renting appliances. When I was in school, appliances were never included (dorm or apartments) and in rental homes sometimes just a fridge was a part of the lease. I can charge $10 a month for each and know that it's still cheaper than a laundry mat or renting from a company. They would just be sitting in a garage or sold cheap, so I figured it was worth a shot. Like I said earlier, these tenants didn't have all the appliances or equipment and I know they are willing to pay for convenience. You may or may not have as much luck with more established tenants. 

    Also, when I rented I was a bad tenant, not doing yard work and letting the home I rented look like crap! I didn't own a lawn mover and didn't want to spend money on one! 

    My parents were not paying for my housing, so I would take a cheaper non-updated house over an expensive fancy one any day. Also, I knew many students that would get a cheaper place and have a little extra from their parents for beer and running around money. 

    The one thing I did do when I got started was a lot of reading. Mostly from people who had the problems I knew I would eventually encounter. I took a lot of the advice and combined and customized it and eventually, I came up with a strategy and a lease that worked for me and what I wanted to accomplish. I have heard all the horror stories and determined I would learn from other people's mistakes and try to prevent them on my end.

    The bank card thing was just an idea that I had. I thought, why does this not exist already? I went to several banks and finally figured out I could do a deposit only with a business account. I can order as many cards as needed and I plan to extend this payment option to my other rental property at the time of the new lease. My renters love it. I hold the deposits in that account can make transfers out every month after rent is paid in full.

    Please let me know if you have any other questions. I may ask you several myself, as I consider myself a newbie still and I know there is always something to learn from everyone and every situation. 

    Congrats again on the first deal! I look forward to hearing about how everything comes along.

    Rachelle

    1Reply
  • Andy Luick
    Real Estate Investor · atlanta, GA · Member since 2013 · 456 posts · 237 votes
    11y

    @Rachelle S. - great stuff thanks for sharing.  I've been looking at doing something different with my renters....collecting rent is a nightmare for us.  Chase is also supposed to have a decent service for landlords and rental payments but haven't had a chance to check into it yet.  BP is awesome for sharing and networking though!

    0Reply
  • Paul Timmins
    Specialist · Rockland, MA · Member since 2010 · 7k+ posts · 2k+ votes
    11y

    @Julie Kern 

    A buddy does student housing has 130 beds she told me

    Get the parents to guarantee, use auto deduct for rent she reconciles 130 rents in 5 minutes every month. Keep them out of the basement they will trash it. She has a woman clean the common areas every month, she is able to document any damage and get it fixed. It is a big help if the college shuttle service will bring them to you property.

    Call the college off campus housing office ask them where the students like to live, what they pay for rent and what is in included. How they rent.

    I heard a guy speak recently who has student housing in a tough area of Boston the parents all ask him if its safe he answers as long as they pay the rent!

    Paul

    0Reply
  • Julie Kern
    OP
    Investor · Taylorsville, GA · Member since 2014 · 352 posts · 540 votes
    11y

    Great tips, @Paul Timmins !  

    0Reply
  • John Rocker
    Kennesaw, GA · Member since 2015 · 7 posts · 1 vote
    11y

    Julie,

    What did you end up doing? SFR or college students?

    How about the second house?

    0Reply
  • Julie Kern
    OP
    Investor · Taylorsville, GA · Member since 2014 · 352 posts · 540 votes
    11y

    Hi, @John Rocker. We ended up going the SFR route. I'm really glad we did. When we were rehabbing this house, we got to know the next-door neighbors really well. Super nice people and very happy we had bought the house and were fixing it up.

    In the course of conversation, we found out someone had bought a house in the neighborhood for their college-age son and was renting rooms out to other students.  Apparently it caused a mini-uproar because other homeowners didn't want a "frat house" in their neighborhood.  

    We have very good tenants in the house and couldn't be happier we went the route we did. 

    As for the 2nd house, we also went the SFR route. Got a good family in there who wanted to be in the school district (Kennesaw Mountain).

    Now, there is a 2/2.5 townhouse in Kennesaw that *may* be a possible deal for us that would make a good student rental since (a) it's very close to KSU and (b) As long as only 2 students are renting it, we won't be in violation of any ordinances (see discussion earlier in the thread).  If the deal goes through, we would seriously consider positioning it as a student rental.

    Thanks for following up!

    0Reply
  • Brent Henson
    Kennesaw, GA · Member since 2016 · 1 post · 0 votes
    10y

    @Rachelle S. really helpful to see this done and to see that it works in the area.  Like you, I have rented as a student in the area in apartments, student living, and one house (split between friends) so I have always seen a need in the area for more student options.  I love the way you have some of your systems set up regarding rent payments/ appliances/ lawn care.  I'm currently searching for my first home in the area with plans to possibly house hack by renting out a room down the road.  My next goal will be saving up to buy a house closer to KSU to rent out.  

    0Reply
  • Roy N.Pro Member
    Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
    10y

    @Brent Henson

    We are doing many of the things Rachelle mentioned above ...  and a few more {search the threads here on BP for student housing or student rentals}.

    We see ourselves as a services company (working towards being a lifestyles company) and not merely a landlord.  It seems to be working, the vacancy rate in our student units has been <2% in the past five years ... and that includes when we acquire a new property or empty a property for renovation.

    1Reply
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