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!
@Christine Kankowski I think the student rental makes more sense if you're looking to grow and/or have the time to handle the management, turnovers, drama, etc. The cash flow expedites the ability to raise capital to buy more property but it takes a lot of time to handle that. I'm looking forward to shifting my portfolio in the future to longer term tenants.
Originally posted by @Steven D.:
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.
Sorry @Steven D. It makes as much as the 8-10 smaller ones COMBINED. The PITI payment on it is $4,300 (on a 15 year note) and it rents for $8,000 but it is a bear to manage.
Thanks for the reply Will. You're kicking butt in this thread. I had one more question.
Do you do any kind of automation for these properties? Things like a key lockbox on the house they can open with a phone app for all the showings. Automated craigslist ads? Right now I rent on a room to room basis at my properties and because of the high turnover I was thinking of implementing a very thorough system I thought of with almost no face to face interaction until the very final signing.
Especially if you have so many properties, what are general tips and tricks you use that let's you take up the least amount of your time as possible?
@Houston Pitts I wouldn't try and reinvent the wheel.
Get 3 or 4 leases in your college town market (via finding and asking landlords or PM companies that have a lot of student rentals) and take the best parts of each.
Their lease has already been through the ringer and they've thought of a lot more than you ever could prior to starting.
Great thread! I'm amazed to hear you say you don't require parent co-signers. It's that much of a hassle?
My question is how you structure your leases. Do they all come due on June 1, or July 1, or August 1, and do you insist on year-long leases?
Originally posted by @Richard Ladenberg:
Thanks for the reply Will. You're kicking butt in this thread. I had one more question.
Do you do any kind of automation for these properties? Things like a key lockbox on the house they can open with a phone app for all the showings. Automated craigslist ads? Right now I rent on a room to room basis at my properties and because of the high turnover I was thinking of implementing a very thorough system I thought of with almost no face to face interaction until the very final signing.
Especially if you have so many properties, what are general tips and tricks you use that let's you take up the least amount of your time as possible?
I don't have any automation for showings, unfortunately. We pre-lease properties for the fall semester in January-May. This means all properties are currently occupied so I have someone to do that for me. I do not automate the ads either because I like to scan the market to know which properties to advertise when. Marketing is probably the last thing that I will give up in my business. The market timing of rentals in my area is tremendously important. A house advertised in March may be worth $2,000/month but only be worth $1,200/month in July.
I understand your desire to not have any interaction. I would love that. I just don't know how that's possible in my business with the type of tenant I deal with.
The best advice I can give you is to hire someone to do it for you. I've had a full time individual working for me for almost 3 years and she handles almost all of these items. I don't know many investors that have regretted outsourcing these kinds of tasks.
@Drew Shirley I am in the vast minority on this site regarding co-signers. Most everyone will tell you that you need to require students to do so, partly because that's the way it's always been done. To each their own. I am a firm believer in that there are thousands of ways to be successful in RE.
Having co-signers is not without downside, though. Co-signers can also contact you about the property, repairs, lease, etc. I've got 5 guys on one lease at a duplex. Can you imagine if those 5 and their 10 parents could text/email/call me about one property? It is a reality for many of my fellow landlords and it creates a communication nightmare. Somebody is always mad about something because they're only hearing part of the story.
Plus I have a lot of property to rent in a short amount of time. Most of the co-signers want to read the lease (as they should) and this takes time. It has been my experience that putting everyone on the property on one lease works just as well, if not better, than co-signers.
As I mentioned above, roommate peer pressure works much better than anything a PM or landlord can say.
@Drew Shirley also, my leases are 355 days. They almost all start the first week of June, July, or August. The 10 days in between is for turnovers.
Thanks. I'm all over it this next week. Thanks again for your advice. You all have been a great help!
Thanks @Will Gaston, terrific info.
@Will Gaston : Nice job on this thread! We rent to a lot of students as well - nowhere near the number you have rented to, since our scale (and town!) is much smaller - and I think most of your points are about right for us as well. Especially the differences renting to guys vs. girls.
We do use the parental co-signer thing; not because it's always been done, but because (our experience) few parents want their kids to start off life as deadbeats. We also screen pretty hard and more times than not end up with students in graduate school or upper classmen (juniors & seniors). We have rented to some first-timers, but even most of them were older, less traditional students. In any case, I also agree with the turnover factor (a lot of students go home or go away in the summer, and start all over again in the fall, which is baffling to me) and the higher rent ratio.
We've had good success renting to students. For whatever its worth, a lot of the parents I believe see us as "surrogate" parents, rather than leaving their kids with a creep landlord or a corporate conglomerate. I think this is the reason that we have overwhelmingly rented to single women students; their parents are comfortable with us. None of the students have been overbearing with requests or calls; in fact, they probably tend more towards the side of not calling when maybe they should have (oh! that's what that water was!).
@JD Martin Thanks for that info. Do you rent to any large groups or usually just individuals? I have some friends that rent to individual students as well and that can be much less of a hassle.
Generally individuals or roommates. We've never had anything more than 3 roommates together. For whatever reason, graduate students tend to rent the 2br homes by themselves. And we see the same thing you mentioned regarding SFHs near the campus. That has been one of our top draws; the homes we have closest to campus are never vacant more than a few days.
I agree with you. I am a college student myself and I must say that Ive seen many college students live in filth not because of the property and location, but because the way the students live. I've met people who love to party every day and Ive met people who know how to manage their time and be responsible tenants. The stereotype that burdens college students is that they only want to party and that could definitely lead to damaging your property. But I can see why one would want to rent to college students and I would definitely consider doing the same. Thanks for the insight!
@JD Martin Yep, same with me. Rentals near campus/college bars surrounding it is like renting beach property. Every street closer you are to the beach, the more highly valued the property is. Same house 2 blocks away from the bars rents for more than one 5 blocks away.
Thanks a lot for the information! Ever since I considered investing in real estate I pictured college students as a highly profitable demographic to target due to the large amount of rent I hear of my friends who are currently in college paying. On another note though, I see first hand how they treat the places that they rent, and upon taking into consideration the rehab on each turnover could potentially cancel out that additional cash flow they would bring in. I'm still considering it so I've definitely gained a lot of information from this thread!
@Hunter Johnston Student rentals can go fairly well if you train them correctly. Most of my tenants have never lived off campus before and with that comes a myriad of expectations, many of which are unrealistic.
We meet with all our tenants for 60-90 minutes before they sign the lease to let them know what to expect and how we things. We also meet with them within the first few weeks of them moving in to remind them of our expectations.
We still have plenty of problems but I think this mitigates a great deal of them.
Originally posted by @Will Gaston:
@Hunter Johnston Student rentals can go fairly well if you train them correctly. Most of my tenants have never lived off campus before and with that comes a myriad of expectations, many of which are unrealistic.
We meet with all our tenants for 60-90 minutes before they sign the lease to let them know what to expect and how we things. We also meet with them within the first few weeks of them moving in to remind them of our expectations.
We still have plenty of problems but I think this mitigates a great deal of them.
So are the cost of the properties significantly higher due to the location? Basically what I'm getting at, is with those students paying what I would assume to be a lot more in rent than you pay in mortgage, is it worth it to get your mortgage paid down faster thus creating more equity in that property?
@Will Gaston I found your article very interesting because I'm a new investor thinking about doing the same thing in Gainesville, FL. The properties I'm looking at are on the lower end - lower priced but still close to campus. In your opinion is it a good idea to buy these older, lower priced student condos that might not be as fancy or expensive as the new luxury student housing that's being built all over? As a new investor my limited budget has me eyeing these older more run-down student communities. What are your thoughts on high end versus low end in student housing?
@Hunter Johnston Yes, they are usually much more expensive, but the increase in rent makes up for that. If you're going to get in to this segment, I would recommend buying the best location that can still cash flow. It protects you from cash flow and also provides leverage with difficult tenants.
If your rental is in an A+ location then you'll have much less threat of a tenant trying to move out, break their lease, etc, but also the best chance to raise rents and that it will appreciate.
Originally posted by @Heidi W.:
@Will Gaston I found your article very interesting because I'm a new investor thinking about doing the same thing in Gainesville, FL. The properties I'm looking at are on the lower end - lower priced but still close to campus. In your opinion is it a good idea to buy these older, lower priced student condos that might not be as fancy or expensive as the new luxury student housing that's being built all over? As a new investor my limited budget has me eyeing these older more run-down student communities. What are your thoughts on high end versus low end in student housing?
I live in Gainesville and the development of apartment-homes (not sure what they are really calling them now because they are loaded with all these amenities and are new buildings) is crazy here. They just finished one called The Standard and I heard it's starting $1300 but I can't confirm that unless I call myself and find out just what the levels (bed/bath/floor) are. I read another article that a section of too far from The Standard is slated for the same residential, likely catering to students, dwellings. That location has/had restaurants and have been told by their landlord that they need to find a new place of business. That's commercial for you.
These places have other condo/SFH surrounding the area and are much older. I've also noticed some developers purchasing lots and tearing down the existing to build very nice SFR homes that are rental.
While location means a lot, it's also whether the tenant will perfer one of theses newer built apartments or other newer SFR to an older one that has older systems. I talked to a few students that left their older residence, some where apartments and some were moving from a much older SFR, for a newer one of these built developments.
It's a toss up really. How one gets those statistics I'm not sure and everyone has a different opinion on this. My rentals are not in that cluster area and the target tenant isn't a student. I am renting to a professor though but again, different target.
Great Insight @Will Gaston!
Yes we have an oversupply of college apartments already. The Bluff road apts are renting to section 8 and Copper Beach went into receivership.
I personally decided to branch out of student rentals when I saw all of the apartments coming up. I was worried about losing my supply. However, like you say, there is something different about living in a SFH or Duplex that keeps these rented while the apartments go 60% full.
I also believe those apartments cannot handle the huge influx of turnover during the summer. They are hiring inexperienced leasing agents that are asked to do a 80% turnover in a 10 week timeline. That is leaving the apartments in worse shape every year, and causing them to miss the students that are looking.
Great post it gives insight to how you worked the systems and benefited. That may not work for all but it is an idea hat may gives others the inspiration.
Heidi W. Personally, I prefer higher end rentals as there seems to be always be a need for that in every college town.
I never ever want to compete on price. That is a dangerous game to play with students. Condos aren’t my thing either as they are easier to duplicate where as the older properties with character in most college towns are not.