What are your thoughts about buy/hold around colleges/university
Melbourne, FL · Member since 2015 · 14 posts · 1 vote
Hello, I'm a new investor. I'm trying to establish an effective criteria in todays fast moving fluid market.
I'd like to get some experinced thoughts of buying and renting properties around university's. Of course this brings in a different type of renter.
I look forward to hearing from you!
Thanks,
Jacob
Hey @Jacob Tudor - welcome to BP and great question! Most of my rentals are near a major university or in trendy parts of town so I get a lot of college kids and young professionals. There are several pros and cons with these types of rentals so I'll list a few of the top ones:
Pros
-Steady stream of new tenants, so low vacancy (if leases kept on school schedule)
-Very few issues with collecting rent (parents or student loans or jobs are plentiful)
-Tenants tend to be very tech savvy which can aid in streamlining processes
Cons
-Obvious one is added damage - I haven't had any nightmare stories yet that weren't inherited but college kids can be very rough on apartments. I was very rough on my apartments in college, but I was also responsible enough to clean them up when I was ready to move out.
-Lot's of turnover. It's easy for college kids to move so they'll do it more often. If you have high turnover costs (ex. PM charges 1 month rent) then this could kill your profitability.
-Parents...they are overly worried about everything when their babies leave the house for the first time and often that will get taken out on the landlord.
I love investing near colleges and will continue doing so. Just like other niches of investing, it's not for everybody and some people won't be successful at it so consider whether the pros/cons listed above sound good or bad to you (pros mean a lot to me and cons don't scare me).
@Jacob Tudorrenting these by the bedroom is not uncommon and very profitable.
Hey @Jacob Tudor - welcome to BP and great question! Most of my rentals are near a major university or in trendy parts of town so I get a lot of college kids and young professionals. There are several pros and cons with these types of rentals so I'll list a few of the top ones:
Pros
-Steady stream of new tenants, so low vacancy (if leases kept on school schedule)
-Very few issues with collecting rent (parents or student loans or jobs are plentiful)
-Tenants tend to be very tech savvy which can aid in streamlining processes
Cons
-Obvious one is added damage - I haven't had any nightmare stories yet that weren't inherited but college kids can be very rough on apartments. I was very rough on my apartments in college, but I was also responsible enough to clean them up when I was ready to move out.
-Lot's of turnover. It's easy for college kids to move so they'll do it more often. If you have high turnover costs (ex. PM charges 1 month rent) then this could kill your profitability.
-Parents...they are overly worried about everything when their babies leave the house for the first time and often that will get taken out on the landlord.
I love investing near colleges and will continue doing so. Just like other niches of investing, it's not for everybody and some people won't be successful at it so consider whether the pros/cons listed above sound good or bad to you (pros mean a lot to me and cons don't scare me).
Great advice! Micheal, great advice about the tech savy young. I previously had a tennant in a low populated area in MI and they couldn't begin to figure out to do wire transfers. It made collecting rent a chore and uncertain. I really appreciate the responses.
I love investing around colleges and agree with the thoughts of @Michael Seeker above.
College students will likely appreciate the following, as well:
Often times it is hard to get multiple roommates from different cities to be able to meet at the same time to sign a lease, rental application, etc., so e-signatures are great.
As a Mother of a first year college student I see huge upswing to investing around the college, I am paying $750 per month for half a cubicle. With only first semester completed he is already telling me he wants to live off campus. One of my buyers purchased a duplex for his 2nd year student making him house manager collecting rents, splitting utilities and clean up. As a Property Manager I don't want to make my position obsolete but assigning the best applicant to handle some Mngt duties for a discount rent might just give you eyes and ears on your property. Don't just give it away make him/her earn it so you know they are performing.
FYI those interested in purchasing student housing in SW Florida we have a brand new construction state of the art gated development due for completion for Fall 2017. The complete project is in partnership with FGCU but the housing rental is open to all students from any university. Contact me if interested.
@Michael Seekernailed it. I've been managing multi-family student assets for several years and those are the pros and cons.
Some things I would add:
Marketing: Take whatever you think you need to do/spend to market and double it. Any and all online outlets are crucial, especially Craigslist and Zillow. Bandit signs on main roads directing traffic, bandit signs and information left at the site, have a good website for your company if you have one. College age renters are 100% going to check you and the property out online first. If you're on social media definitely use that to your advantage too.
If you've got cool stuff college kids would like then make sure it's listed! Appliances included, fire pit, deck, garage, security system, pets etc.
Again, @Michael Seeker is dead on. I have four units ( two duplexes) near a large University. They are very easy to rent. But one serious downside to student renters is turnover. For this reason, I only try and only rent half of my units to students at any given time. You are almost guaranteed that you will have yearly turnover.
I have always required one (1) year leases, so the students now that they are responsible for the summer. I can tell you that vacancies around the University skyrocket during the summer, and I often see for rent signs up for weeks, if not months.
Online advertising is definitely the key to finding the student tenants.
Disclaimer: I am new to this and don't own any "student housing" rentals. I worked at a university for a few years, and my other half went to university and rented in a smallish town with *lots* of student housing rentals.
If a rental property you're thinking about buying is immediately adjacent to land the university owns, even if it's just a vacant lot, it might be worthwhile to ask the university about their expansion plans. Often, they have a low-key program to acquire properties around the university, so they have room for expansion. What you hope this means is that you rent it for a while and then they offer you 20% over market value for it What it can mean is that they do shenanigans with the city to get your property condemned and then buy it for 20% of market value.
Check with the city to see what their regulations are for rental housing. Sometimes small "college towns" will have more regulations than you would think, precisely because of all the student housing rentals.
Some small towns with universities will have a fairly expansive bus system, to serve the students. Having a bus stop near a property can be a plus. However, if a seller tells you that the bus route will change to be closer to the property... don't believe it without talking to someone at the bus service. Many of them are at least partly publically funded, so they don't mind answering questions like this.
There is a university in a neighbouring town and I have thought about student rentals. But from looking at this I see several problems. First, turnover as has been discussed. You are constantly going to be looking for tenants as each academic year begins. Second, ongoing management. You are going to have to deal with stupid student tricks and will have to spend time managing this and dealing with student issues. Third, damages. Students are young and often away from home for the first time. This is a recipe for trouble. Finally, you won't be in control of your property, they will move people in and out as they see fit and you will have unauthorised occupants which will be hard to keep track of and prove.You also have the issue of maintenance and cleanliness. Keeping on top of this is going to be an ongoing concern.
All of this adds up to one thing: increased management time. This is OK if you plan to be an amateur landlord and only have one or two units, but if you have plans for growth you could well be run off your feet. In addition to this in my area there are a lot of people who have all had the same idea of becoming a student landlord and as a result prices of property near the university have been bid up to very high levels. The numbers just do not work very well because of this.
In comparison regular renters present less trouble and starter home prices for rental units are affordable in decent areas. For most tenants the issue is an occasional maintenance call for plumbing, appliance repair or handyman type stuff. I have been careful with screening so I have only ever had late rent (very rarely and only a matter of a few days late), as opposed to nonpayment, and the excuses have been pretty credible. Other than that most people seem to be fairly low drama. I had problems with an inherited tenant, but for the most part things have been smooth. As is emphasised so much on BP, the core activity is tenant selection and screening. I have to think that this will be harder to do with students. They won't have much credit history and they won't have much life experience, so it will be difficult to apply the usual screening techniques. Guarantors sound nice until you have to think about chasing them through Small Claims court. I have thought about it and while I am sure that student landlording works for some people I have decided it does not work for me. The key issues in real estate investing are time and money. My conclusion is that student landlording takes disproportionately more time and money than renting to regular renters.
Like @Mike Woodsaid, 1 year leases are a must. Most students don't take summer courses so unless you want that vacancy you've gotta sign a 12 month lease. Most students in my experience understand that.
@Stephen E.brings up some very valid points but I disagree with the conclusion. Yes it takes more time and potentially repair costs but the rent is so much higher if you lease per person, or per space.
Student housing can be subject to greater regulation than other rentals. In London, ON the council is always very concerned about the proliferation of multiple occupancy units. They passed an ordinance that capped the number of rooms you could rent at four. Bad luck for landlords that had five bedrooms and counted on that revenue. With student rentals you have to rent inclusive of utilities, and a four bedroom house might go for $500 a room each month, or $2,000. Utilities would be of the order of $300 and likely higher given space and likely usage given to the tenants utilities appear to be free. That leaves $1,700 for a four bedroom house. I can get $1,200 for a three bedroom townhouse with regular occupancy by a single tenant or family. So you would have to buy a bigger property (4 bedroom detached) and endure student high jinx in order to earn $500 per month. I know this works for some people and they choose to specialise in this. I am not one of them, I think the management time is best spent buying more properties and putting in more tenants.
Pro's - higher rents, good demand
Con's- you better be an active landlord or you'll not do well (house will go down fast, payments will lag, poor behaivor)