How to get over the fear of renting out?

Question

So we've got an accepted offer on a nice small duplex. We need to meet all conditions by Friday and everything seems on track. We haven't had the inspection done yet because that would be the first money we have to spend on this place (aside form the refundable deposit) and we are not sure yet. The financials look good. There are better deals to be had, but we are looking to rent in a student area and the fall semester is fast approaching. The duplex has been fully renovated which could help us fill it even this late. I put a test ad up with real photos on Kijiji and got a lot of interest in a short amount of time (9 replies in a few hours). There is a bit more work required (install a washer dryer in both units, replace a stair runner, buy a few items since there is literally nothing in them, and a bit of landscaping), but nothing extreme. The main thing holding me back is the fear of renters. You hear so many horror stories. And everyone we talk to in real life says that student rentals are a terrible idea, whether they have direct experience with it or not. Is all this fear worth it for an extra $300-400 a month? Help!

Joe Schwartzbauer · Answer

Do the proper background and credit check. Get their parents as cosigners. I've found students with parents as cosigners are great! The parents pay the rent and are typically there at the end of the lease cleaning the fridge because they want their deposit back! Do your proper checks get your systems in place. Plan for the worst and hope for the best. It's a learning process. Good luck!!

Roy N. · Answer

You want each student who is party to the lease and who does not have sufficient credit history, income, or assets to qualify on their own, to have a guarantor (parent, grandparent, older sibling, etc).   Screen the guarantor for financial soundness as you would a tenant.

You normally do not want the person providing the guarantee as a co-signor (endorser) to the lease (contract) as that would give them tenancy rights.  Parents having tenancy rights - including right to access - can lead to housemate unrest, particulalry if one parent is of the helicopter variety.  Best to help the young students along their path to independence.  As a guarantor, they have agreed to be the financial backstop for their guarantees - they have the obligation to pay any amounts their guarantee does not and usually the right to financial status information about the lease, but have no other tenancy rights.   We execute a separate guarantee agreement with each guarantor (for each guarantee) and attach them as a schedule to the standard lease (NB has a standard form of lease as does Ontario, I believe).

Edward B. · Answer

For $300-$400 per month? No.
To get started on a path to financial freedom? Absolutely!

There is nothing wrong with renting to students. They tend to be harder on a property and turn over more but just account for that in your calculations. The key is tenant screening and with the response rate you got you should be able to pick tenants that will provide the best return on your investment.

There really is no reason to be afraid but I know that advice is very frustrating to someone who is afraid. Instead I will tell you that it is ok to be afraid as long as you don't let your fears control you. It sounds like you have done your due diligence so trust that it will be fine. Don't worry about it being ideal or going exactly according to plan. It won't, so there is no reason to be afraid that it won't. It will work out, though, and the experience alone will be worth all the fear you are feeling.

Roy N. · Answer

Stephanie:

Welcome to BP.

Rules around deposits vary greatly across Canada as well.   In Ontario you are permitted to collect a rent deposit for the last months rent (which you must collect at the time the lease is signed, before the tenant moves in), but no other form of security deposit.  In NB we are permitted a Security Deposit, but not to collect rent more than one rental period in advance.

We have several student rentals here in Fredericton and rent both entire houses/apartments on single leases and rent furnished rooms in a duplex we own (mostly to International Students).

Aiming to rent for September this late in the year you will want to make certain you have your application and screening process thought through and screen all candidates and their guarantors (being students they will likely need guarantors).   We normally have all of our units relet for the the academic year before the end of April (often in February or March).  While there are exceptions (particularly when renting furnished rooms to international students), experience has taught us most students who show-up in late August and begin looking for a place to live are not the best of tenants.

Feel free to reach out if you have specific questions.

Kelly N. · Answer

Hello Stephanie,

We bought our first two triplexes about 2 years ago and rent to college students.  We added another 4 unit house this year and I am waiting to close on two more properties which will bring us up to 16 units.  About half my tenants are college students and so far the market has been good to us.  The most damage caused by a tenant we've had so far has been by a non college student, and even at that not too severe- the dude cracked a toilet seat, broke off the shower head, and damaged the hollow core closet door beyond repair- nothing too serious.  The college kids generally pay on time, or shortly after the due date but with the late fee.

There may also be some tenants in the area that are non students- depends on the size of the town.  These comprise the other 50% of our tenants, and there are two groups within them- those that are on their way up and trying to make a life for themselves- they have a plan, don't want to rent forever but it makes sense right now, and are generally college graduates in their 20's or 30's, and there are those that merely exist.  This last group is the one that cause the most head aches- late payments mainly- and these are the ones we try to avoid...

Kelly

Tanner M. · Answer

Our first rental was to a few college students.  They always paid on time.  Kept the place nice.  But they did have a lot of friends over that were zooming through the neighborhood in their cars.  We did have it under property management so if we had any issues they would be able to handle it. So if timid have it under PM until you are comfortable with doing it yourself. The first one is the hardest to pull the trigger.  But before you know it you will have owned it for years and it will have been putting cash in your bank the whole time. If it is a good deal that is. Hope this helps.

Richard C. · Answer

There are millions of people renting in Canada, yes?  And the place doesn't look like the main garbage dump in Tondo or anything, right?

JD Martin · Answer

No reason to be afraid if you do your homework. Most people, including renters, are reasonably decent and won't purposely trash a house. If you have run a credit & background check, that goes a long way. It also goes a long way to own the type of place you'd like to rent. You mentioned that your place has small rooms, no central air, no dishwasher, no off-street parking. You have a lot of strikes against you (probably - what does the rest of the market look like where you are? Do you need AC in Canada?), which usually means you have to make up the shortcomings on things like lower rent, riskier tenants, shorter leases, etc. So you might not be able to remedy off-street parking, but dishwashers are usually not too much trouble to retrofit.

To overcome these shortfalls, you might want to price right and screen heavily. There are plenty of good people looking for low-rent units for whatever reason - empty nest, saving for future retirement, cheap by nature, etc. The trick is to separate the wheat from the chafe here.

Tom Kelly · Answer

My first rental was to students. They trashed the place. Thankfully, we had an attorney on the team and he filed with the state and we had a lien placed. I thought that this was a lost cause. After many years, one of the students got married and went to buy a house. He met the lien and we were repaid! It was so old, we laughed at our good fortune.

Stephanie D. · Answer

Roy, thank you so much, that is very helpful information! I still have a lot to learn, obviously. I've seen some people's leases here and they don't appear to be standardized but I could be wrong. I realize it is late in the game for a student rental, but I am hoping we can make it work for this year, and advertise much earlier next year (assuming turnover). I have been in touch with several property managers and I had a great interaction with one this morning which alleviated some of my fears.

Nice to hear from a fellow Canadian! I am originally from New Brunswick and just came back from several weeks of fieldwork there. Hence getting in a bit late for a September rental here. I would love to stay in touch.

How to get over the fear of renting out?

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