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!
It sounds a lot like a QSR vs fine dining.
Thank you for the insight.
@Jeremy Hua Totally agree. Same industry, different model.
I do have a question regarding the segment you're invested in. Most university housing is priced astronomically high around Ohio State. Given that your supply of tenants is much like Niagara Falls, are you willing to pay more for properties because of this?
@Jeremy Hua I will pay a lot more if the properties are near something "fun".
Students, despite what they tell their parents, are mostly in college to have fun.
If you get properties that are within walking distance to fun things like: bars, football stadiums or basketball stadiums, then they will always be in high demand and very low likelihood of vacancy.
I never advertise how close a property is to school, I advertise how close it is to the bars or the football stadiums.
Awesome article!
I'm in Lexington and see what happening in downtown Columbia. Are you seeing an effect or worried about the boom of apartment complexes in downtown? Feels to me like it being WAY overbuilt and is a bubble in the making.
Thoughts?
Btw, my rentals and flips are in kershaw county.
@Daniel Roberts I think there will be on oversupply of student apartment complexes in the very near future, if not already. In my opinion, however, the demand for SFHs and apartments closer to campus (and/or Shandon, Five Points, Olympia, etc) is still vastly undersupplied. The properties on Bluff Road (The Retreat, University Oaks, etc) are probably going to be in trouble once more properties are built closer to Five Points and campus.
Agree/disagree @Andrew R. Lucas @Michael Lee?
Excellent, well-written post @Will Gaston
Not sure if/when there will be an oversupply of the student apt complexes but I'd def agree that there will always be a strong market for SFH or basically any non-apartment style housing right around USC. Just looking back at my time there as a student and talking to my friends who rented off-campus housing, I think juniors/seniors truly 'love the idea' that they're living in a house (albeit for one year). It makes them feel independent and grown-up almost; not to mention the bragging right they have amongst their peers. But this obviously leads to the above-mentioned pros and cons to student rentals as well.
@Michael Lee Yes, I agree here as well.
Anybody can live in the large student housing complexes but there is a much more limited supply of rental houses near the University.
Just because you have the desire and the money to rent a house within walking distance to the stadium or bars, doesn't necessarily mean that you'll find one.
Awesome article Will. It brings some great topics to the subject. Maybe we will see you on the Podcast sooner or later! Great work
Thanks @Ian Kurela. Appreciate it.
This post is gold! Especially for me as I am considering student rentals for my next purchase.
As someone who obviously has a lot of experience, maybe you can help me with estimating expenses on student rentals.
How do you estimate vacancy and repairs/maintenance/cap ex differently for student rentals? It seems that vacancy in itself would not be an issue, because when one student moves out the next one is moving in shortly after. But the turnover expenses I would think would be a lot higher. Do you have a percentage (~15% of rent) or a flat amount (~$2K-$3K) that you use to estimate repairs/turnover per year?
Kyle M. I wish I could tell you that I did, but I don’t. My goal is to try and get 2% of the purchase price in rent when I buy a property. I’ve been in great shape on any that I’ve been able to do that on.
Understood and makes sense. The main thinking is that your increased revenue more than makes up for the increased expenses.
Do you typically rent by the room and put each student on an individual lease? Or do you put them all on the same lease?
What are some of the red flags you filter out candidates on? Any trends that you have noticed in terms of renting to Men vs. Women, amount of tenants/unit, or anything else others possibly getting into the market may not think of?
As a reference I am in the Denver area and feel like prices here are pretty high and difficult to make cash flow well. I have started to look at university towns like Fort Collins (CSU), Greeley (UNC), and possibly Boulder (CU). Thanks for your insights!
@Kyle McCorkel Everybody at the house or apartment is on ONE lease. This has been crucial to the success of getting in paid in full by so many tenants. We explain up front that everyone on the lease is responsible for the entire contract amount and note it several times in our lease.
Peer pressure from their friends works 1000x better than anything we say to them.
Love it. Thank you.
@Steven D. Great questions:
There are tough challenges for renting to college guys vs college girls.
For Guys the main things that come to mind are:
1) Property damage
2) Neighbor complaints
3) NOT calling about repairs that need to be made
4) Prolonged turnover times
For Girls they are:
1) Parental involvement/helicopter parents
2) Pest control
3) Security issues (i.e. house is broken into)
4) Roommate drama
Both can be incredibly difficult to deal with for sure. I will say that the two worst groups I've ever rented to were groups of 5 girls.
Also @Steven D. I failed to mention your question about the tenants per unit. I have 2 BRs all the way up to 8 BRs. They wear and tear, drama, and management level seems to double for every single tenant that is added to a property.
My team probably spends 4-5x the amount of energy on my largest property than the smallest 8 to 10 properties. That large property also makes the same as the smaller 8-10 properties as well. High maintenance usually means high reward.
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@Colleen F. I don't really have one.
99.9% of the responses to my properties are students. The price + location + the start date is typically only something a student would want. We do occasionally have families or professionals that come to look at our properties, but they realize they can get a much cheaper place a little further out from campus. You can get a pretty nice 1500-2000SF SFH in Columbia for $1200-$1500. There's no reason they'd want to pay twice that to me.
Awesome thread. I specialize in the same niche. I make money hand over fist on my ROI because of the premium. How do you do your advertising? I stick to craigslist only and that's left me with 0 vacancy since I've been doing it, but sometimes it's a close call/undesirable tenants. Do you advertise on campus? Do you work out a deal with campus registration? I know when I went to school they gave me a packet of apartments near the school.
@Richard Ladenberg I only use Craigslist and word of mouth. I don't do anything with advertising on campus. I haven't found that to make a difference and most everyone will visit CL at some point in their search.
I also have gotten many of my tenants from referrals from current residents who were living there at the time.
Very interested in that you can get more rent for these.
I've always preferred long term tenants, but you make a case for these students. :)
Awesome thanks for your answers. A bit of clarification on the larger property:
"That large property also makes the same as the smaller 8-10 properties as well"
Are you saying it makes as much as the the 8-10 smaller ones, or as much as the the 8-10 smaller ones combine. If it is way more work and maintenance but cash flowing the same as a smaller unit doesn't make sense, but since you say high maintenance high reward I'm guessing this is one of the best producing properties.
Will Gaston, I appreciate your thread. I have been contemplating doing the same thing since I have graduated. I just could not figure out how to write the lease up I wanted before taking it to the attorney for finishing. Where would I find examples of these to start with? I assume that repairs are the usual (windows, Sheetrock, etc.) just more frequent?