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!
@Will Gaston. My question is on the timing of purchasing new properties (SFH) intended for student housing near a medium-large university (enrollment 28,000). Do you shop "year round," or do you try to time your closing for only certain times of the year. E.g. If I offer now (mid Dec), close 30-45 days later on Feb 1, prepare the property for tenants, it may well stay vacant for 3-4 months until the summer session, and even then it's iffy. So should I hold off making any offers on a property until at least March, or maybe not even until May/June?
@Leroy Kim Yes, this is something I very much consider. If I have my ideal time frame it would be to close on something in September. Rehab it in October through December. Have it available to show in Jan/Feb. This may seem too early to you but getting max rents requires that a property be available to market as early as possible.
I'd expect 4-6 months of vacancy for your first purchase if you do it this way.
@Will Gaston. Thanks for the reply! The very long lead time surprised me.
Help me understand the rationale for the long lead time in that "ideal" timeline. Sounds like you calculate that the loss of 4-6 mo of rent of the Spring semester is adequately offset by the premium rent you expect to receive starting in June. If a property was available for students starting March, and you started marketing in March, what would you expect in terms of the occupancy and rent for the summer and the subsequent Fall?
@Leroy Kim this is just for the 1st year bc in the 2nd year it will (or should already be occupied).
Look at this way. If your goal is get maximum rents then you need to have the largest pool of students available looking. That is always earliest in the year.
At my school: August 15th, 2021 there were ~30,000 students looking for housing for the 2022-2023 year. That number dwindles down every single day until August 15th, 2022 when everyone has gotten housing and 0 need it. This is why I advertise super early (Sep-Dec) for the following year.
@Will Gaston. Thanks for your response! My take away is that you have found that, at least in your setting: 1) You don't have any expectation of getting tenants for a new property during the semester in which you closed on the property. 2) Having a long lead time of several to 10 months before the semester starts to market the a property helps assure that the new property is filled when the semester starts. 3) Because of these realities, it makes the most sense to close on a new property about 10 months prior to the fall semester for which you are targeting the best rate and occupancy, to give plenty of lead time for marketing. 4) Expect, therefore, that whenever a new property is added, at whatever time of the year the deal closes, expect to have no income for several months, but it pays to market as soon as possible.
I'm sure many campuses are in a similar situation, which may be one of the many reasons why college student housing can be a hard code to crack (but it can be done, and done well).
@Henry Hansen this is probably going to sound unhelpful but I get them mostly through broker relationships. I only buy in 2 zip codes and have a network of referrals due to that specialization. Picking 1 area and sticking with it can go a long way.