Nearing 1,000 College Student Tenants: Here's what I've Learned
All:
I've recently spoken to a few REIA groups in my area about my business and I thought it would be a good idea to share this info in the forums.
I've been investing in college student rentals for 12 years and currently have ~50 units (SFHs and duplexes, mostly) within a 3-4 mile radius around the University of South Carolina in Columbia. I've rented to close to 1,000 students since I started at the age of 25 and wanted to offer some insight. It's my belief that because of the age, maturity level, number of decision makers (parents & their child) that it is one of the hardest niches in buy and hold investing. I have several landlord friends that have tried to rent to students and said "never again." But it can be done and done successfully
As I see it there are 4 major reasons why you'd want to rent to students:
1) CASH FLOW:
They pay a whole lot more than non-students. In my estimation, somewhere between 20-100% more. I have a SFH home with a cost basis of 60k that rents for $1725, a 170k duplex that rents for $5,000, and a 90k that rents for $3,500. I pay no utilities and these are all one year leases.
2) THEIR CREDIT RATING
College students almost always pay their rent. At least the ones that I rent to. Out of all the students I've had, only had four (4) did not pay their lease in full since I started. Over 4 million dollars of leases and only ~$3500 was not paid. That's over 99.9%. And I do this without parental guarantors.
3) ABILITY TO RAISE RENTS
Raising the rent $100/month on a family is a big deal. Raising it a $100/month on a duplex that 4 students are sharing is only $25/person. The fact that they split the rent up makes it much, much easier to raise rents on students versus non-students.
4) CONSISTENCY OF THE TENANT BASE
Barring a catastrophic occurrence, the University will be there for a long time. Every single year 5,000-6,000 new students will come in needing housing. I know when they need to move in and when they need to move out. Companies and even military bases can close down and move away, but this is highly unlikely with state University.
There are roughly 8,754,999,549,142 reasons why you'd NOT want to rent to students but here are my top 4.
1) DEALING WITH PARENTS
This is usually surprising to a lot of other investors. My least favorite thing about the student rentals are not the students. It's their parents. They're usually well meaning, but when they get involved with the leasing process, a repair issue, a neighbor complaint, etc, it always escalates the issue. And it's because they're only getting 20% of the story from their child. Dealing with and communicating with 6 nineteen year old girls living in a property together is hard enough, I can't and won't deal with their 12 parents.
2) DEALING WITH NEIGHBORS
Neighbors in my market don't like student rentals just as they don't everywhere else on planet earth. They usually have the expectation that students should be respectful, not park in the yard, have loud parties, etc. And they're right. That's what students should do. However, that is not realistic. These same neighbors are living 3-4 blocks from 30,000 students and 25 bars. I've been able to curb a lot of this through large fines in my lease, but even having to pay $1,000 will not always dissuade my tenants from continuing that behavior.
3) IRRESPONSIBILITY OF THE TENANT
If you're renting to students forget about ever getting them to admit to anything. They lie all of the time. "I don't know what happened" or "It was that way when I got home" are the constant excuses I hear regarding damages to the property. I've had over 100 broken windows in the last decade and only had 4 of those admit to breaking it on their own. Full disclosure I was the same way when I was in college. They're not bad kids, but they are kids.
4) CONSTANT TURNOVER
80% of my properties turn over every single year. This makes the summer an incredibly busy time, especially with a lot of these turnovers happening within an 8-10 week span. We tried to expedite these turnovers by using the same wall paint, ceiling paint, trim paint for all of the properties. If you're looking for long term tenants, student rentals are not for you. I've only had one group stay for longer than 2 years and that was only for 3 years.
Hope this insight can help if you're thinking about renting to students. And if you do, Godspeed!
I’m in a position this year where the groups are becoming harder to come by due to the increase in apartment style complexes being built. I’m thinking of possibly renting individual rooms to students but would probably lose the summer months. My only other option is moving to families but of course the rent is less lucrative. Has anyone chosen one option over the otherin a similar situation and how did it work out?
@Margaret Buoncora I have never done it but renting individual rooms could be an option if competition is increasing in your market.
It's my experience that having those types of leases creates many more management headaches because the students/roommates can pull you into their drama much easier. Putting every roommate on one lease tends to eliminate all of that because they're all responsible for the house and the total rent.
I'd personally rather go the non-student route than do individual leases but that's just a personal preference.
Thanks so much for the post! Really learned a lot in the comments.
What are the cap rates you can achieve at refi if you BRRR a single family/duplex? Been reading a lot about how student housing caps are in the 5's now, but curious if that only applies to the bigger buildings/portfolios, or if a lender will abide by those rates on the smaller stuff?
Every market is different, each property is different, can’t make generalizations about the cap rate of an asset class as a whole.
@Will Gaston This thread is a valuable resource!
I own a property management company and we manage a lot of Philadelphia student housing rentals, and I own student rental properties as well.
Everything Will said is important. The key is one lease, with multiple roommates. They are all financially responsible that the entire amount of the lease is paid. The others tend to pay if one doesn't. Or a parent will, even if they aren't on the lease. One, or more of them will want to protect their name/credit.
Also, the more bedrooms a unit has, the more premium the price. For the reasons Will already said...$100 more is far less when divided 3, 4 or 5 ways.
Same goes with the security deposit charges. If the tenants are charged $100 for damage beyond normal wear and tear, its less of a hit. Again, this hit is divided by the number of tenants and becomes a fraction to them; but important to you.
Another point is security deposits. Tenant damage, beyond normal wear and tear, tends to be covered by the deposit. Yes, it can exceed the deposit, and there is the hassle of getting the work done; but when you are talking about premium rent prices and the security deposit, it really gets you where you need to be.
Thanks @Joe White. The power of putting them on one lease comes from the peer pressure. Skin in the game for the whole group is much more effective and efficient than individual leases.
Originally posted by @Sean Weinstock:
Thanks so much for the post! Really learned a lot in the comments.
What are the cap rates you can achieve at refi if you BRRR a single family/duplex? Been reading a lot about how student housing caps are in the 5's now, but curious if that only applies to the bigger buildings/portfolios, or if a lender will abide by those rates on the smaller stuff?
Smaller stuff would be 1-4 units. Those aren't appraised via income approach, they're appraised using comparable sales approach. The cap rate means nothing to an appraiser in that situation.
So much gold in this thread. I spent the past couple hours reading through all the pages and taking notes.
Will - A couple things I did not see answered I wanted to ask.
What are your terms regarding being late? Ex: If rent is due on the 1st, are you charging a late fee on the 2nd, 5th, etc? How much (set amount vs. percentage)
Is this possible for someone who is out of state? Would you rely solely on a local property manager to handle these responsibilities?
I read earlier that all of your properties are in LLCs and have been in your entire career. Did you purchase them cash initially or finance in the name of the LLC?
@Mike Lee Our late fee is 8% of the total rent amount which is slightly below the standard in our market (10%). It is actually pretty rare that we have any tenants that pay after the 6th so we'll usually give them a day grace period.
I would not recommend an out-of-state investor unless he/she had a PM that dealt almost exclusively with student rentals. Not saying it can't be done but I just personally wouldn't recommend it.
On the LLC question. I do both. Purchase/finance them both directly in the LLC.
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Originally posted by @Will Gaston:
All:
I've recently spoken to a few REIA groups in my area about my business and I thought it would be a good idea to share this info in the forums.
I've been investing in college student rentals for 12 years and currently have ~50 units (SFHs and duplexes, mostly) within a 3-4 mile radius around the University of South Carolina in Columbia. I've rented to close to 1,000 students since I started at the age of 25 and wanted to offer some insight. It's my belief that because of the age, maturity level, number of decision makers (parents & their child) that it is one of the hardest niches in buy and hold investing. I have several landlord friends that have tried to rent to students and said "never again." But it can be done and done successfully
As I see it there are 4 major reasons why you'd want to rent to students:
1) CASH FLOW:
They pay a whole lot more than non-students. In my estimation, somewhere between 20-100% more. I have a SFH home with a cost basis of 60k that rents for $1725, a 170k duplex that rents for $5,000, and a 90k that rents for $3,500. I pay no utilities and these are all one year leases.
2) THEIR CREDIT RATING
College students almost always pay their rent. At least the ones that I rent to. Out of all the students I've had, only had four (4) did not pay their lease in full since I started. Over 4 million dollars of leases and only ~$3500 was not paid. That's over 99.9%. And I do this without parental guarantors.
3) ABILITY TO RAISE RENTS
Raising the rent $100/month on a family is a big deal. Raising it a $100/month on a duplex that 4 students are sharing is only $25/person. The fact that they split the rent up makes it much, much easier to raise rents on students versus non-students.
4) CONSISTENCY OF THE TENANT BASE
Barring a catastrophic occurrence, the University will be there for a long time. Every single year 5,000-6,000 new students will come in needing housing. I know when they need to move in and when they need to move out. Companies and even military bases can close down and move away, but this is highly unlikely with state University.
There are roughly 8,754,999,549,142 reasons why you'd NOT want to rent to students but here are my top 4.
1) DEALING WITH PARENTS
This is usually surprising to a lot of other investors. My least favorite thing about the student rentals are not the students. It's their parents. They're usually well meaning, but when they get involved with the leasing process, a repair issue, a neighbor complaint, etc, it always escalates the issue. And it's because they're only getting 20% of the story from their child. Dealing with and communicating with 6 nineteen year old girls living in a property together is hard enough, I can't and won't deal with their 12 parents.
2) DEALING WITH NEIGHBORS
Neighbors in my market don't like student rentals just as they don't everywhere else on planet earth. They usually have the expectation that students should be respectful, not park in the yard, have loud parties, etc. And they're right. That's what students should do. However, that is not realistic. These same neighbors are living 3-4 blocks from 30,000 students and 25 bars. I've been able to curb a lot of this through large fines in my lease, but even having to pay $1,000 will not always dissuade my tenants from continuing that behavior.
3) IRRESPONSIBILITY OF THE TENANT
If you're renting to students forget about ever getting them to admit to anything. They lie all of the time. "I don't know what happened" or "It was that way when I got home" are the constant excuses I hear regarding damages to the property. I've had over 100 broken windows in the last decade and only had 4 of those admit to breaking it on their own. Full disclosure I was the same way when I was in college. They're not bad kids, but they are kids.
4) CONSTANT TURNOVER
80% of my properties turn over every single year. This makes the summer an incredibly busy time, especially with a lot of these turnovers happening within an 8-10 week span. We tried to expedite these turnovers by using the same wall paint, ceiling paint, trim paint for all of the properties. If you're looking for long term tenants, student rentals are not for you. I've only had one group stay for longer than 2 years and that was only for 3 years.
Hope this insight can help if you're thinking about renting to students. And if you do, Godspeed!
nice write up and congrats.. I just wanted to point out the income on these is based on premium rents PER BED ROOM not per property.. you at least I am thinking you are like the folks that buy homes from me for student rentals.. are pricing by room.. which gives you the large premium.. The other thing I learned is with the large turnover you better have your units ready to rent by aug 1 to aug 15 if they can move in by then.. the units could sit vacant for a year.. or you will have to rent at market which as you state is a lot less..
Turnover cost since they are yearly are significantly more than non student but your making up for that with income.
again congrats on your niche.
Thanks @Jay Hinrichs and you are correct! It is significantly more in turnover and, fortunately, in rent as well.
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Originally posted by @Will Gaston:
Thanks @Jay Hinrichs and you are correct! It is significantly more in turnover and, fortunately, in rent as well.
on the plus side I am sure some students re up they don't just go to one year of school.
also its nice to get the parents on the lease that's a big plus too.
Excellent thread here! I’ve been looking through this thread and I haven’t seen anyone discuss furniture yet. As a recent graduate, I know a big reason I preferred student apartments was because I didn’t want to deal with buying/renting furniture.
Aside from appliances, such as W/D, would it be worth it to furnish each bedroom with say a full size bed, night stand and desk/chest of drawers?
My student housing is fully furnished: beds, dressers, desks, pots pans, silverware, couch, chairs, everything. Some people want their own beds, they are free to bring them in but, I don't let them get rid of the beds provided.
Originally posted by @Tim S.:
My student housing is fully furnished: beds, dressers, desks, pots pans, silverware, couch, chairs, everything. Some people want their own beds, they are free to bring them in but, I don't let them get rid of the beds provided.
This is exactly what I had in mind. Thanks for the insight Tim!
Good evening, looking for a bit of advise from the crowd. Do you prefer single family, townhouses or condos for the most part? I am looking at buying for the purpose of student housing. Thanks
Will,
Thanks for so much info. I have two "college" houses currently. One of them has all male students and the only real issue is them disturbing the neighbors. I have not heard directly from the neighbors but I have had two inspections from the city with picky items listed like ruts in the yard from people parking so I am pretty sure the neighbors have called.
Do you have specific wording in you lease that defines number of guests allowed or specific hours on "quiet time" to address such issues?
This group of 3 guys want to continue living there and we had a discussion last week but I'm trying to put some specific language in the text to help the situation.
Thanks again.
Dave
My lease does include language limiting the number of guests, and quiet hours. Hours s/b in alignment with local ordinances.
@Dave Moutardier I have similar requirements as Tim.
I have a $250 fine in my lease specifically to address neighbor and/or City complaints and have the tenants initial beside it during the lease meeting. It's been my experience that adding that to the lease has greatly reduced complaints from the City/neighbors. Nothing will eliminate it entirely but that sure went a long way.
FWIW I've enforced this fine many times over the last several years.
Awesome thread @Will Gaston! I've got a page full of notes! One of my biggest questions that i'm tossing around in my head is SFH vs. MFH. I have a duplex that is a student rental and it seemed to be much harder to rent than my SFH simply due to the fact that another group was living in the unit upstairs. It seems like the students i've dealt with are willing to pay a premium to have their own place and yard. I want to scale up, however, it seems that SFH is the stronger asset in this niche until you can expand to the A+ developments.
To scale in this niche would you recommend increasing your portfolio of SFH homes and then transferring your portfolio into higher end MFH in the future?
Thanks so much for the value!
@Kristian Conway I do think that students prefer SFHs over MFH so yes to answer your question. But I would check with your local City zoning codes to make sure there are no occupancy laws that could be an issue. In my area, a max of three (3) unrelated persons per dwelling or unit can live together. This is fairly common in college towns so I'd recommend verifying that before going off on a buying spree.
@Will Gaston Thanks for the advice Will!
This Thread is OUTSTANDING!! So much great information here. Thank You!
One thing I did not see brought up that i was curious about is; what you have found works best for payment frequency/amount? Here in Central WI it is the most common to have students pay by the semester (one large lump sum), and then also a small amount for summer if they decide to stay. The justification for this is to ensure that landlords get their rent from the financial aid received by the students so they cannot go and spend it all, even though most financial aid disbursements don't really get completed until a few weeks into the semester anyhow.
For our student rentals we have gone to a 1 year lease, with monthly payments. We have found this to be a little less work on our end, easier on the accounting, and have not had any problems....yet. Of course, we do take mitigation actions like you mentioned with getting the tenants all one lease, educating them at the lease signing, doing inspections etc. Just curious what has been your experience with this?
Thank you!!!
I have 2 Student Rentals here central wisconsin.
@Lukas Loveland We do monthly payments as well. I'm not opposed to a lump sum payment, however it's usually only one of the roommates that wants to do so.
We constantly reiterate that the entire house/apartment is being rented together so there's not a lot of upside for them to pay a percentage of the rent early. If they don't pay the rest of it on time there would still be late fee.
Again, I've found that students will pay their rent 99.5% of the time if you put them all on one lease. You don't need guarantors. Just make all the kids responsible. Peer pressure works so much better than anything that I could/would do or say to them.
@Will Gaston I’m glad to hear you “over improve” your student rentals as well. I’m currently renovating my first property (purchased as a foreclosure) specifically for a student rental but chose finishes that many people watching from afar have said are “too nice” for a student rental. I agree that you need to set yourself apart from the competition and also have a product that can help win over a skeptical parent if they think the price is too much before seeing the house.
Also, how do you deal with utilities? I don’t really want to have them outside of my name for obvious nonpayment reasons, but also don’t want to have to chase another payment every month. Up until I read this thread I was planning on doing individual leases and toying with the idea of including them in the rent price, now I’m rethinking my plan.
FWIW the house is a 5/3 and walking distance to campus and football stadium. It’s a rural area with a huge shortage of housing, regular and student, with a surge in enrollment numbers over the last 5 years.