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Will Gaston
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Nearing 1,000 College Student Tenants: Here's what I've Learned

Will Gaston
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Posted Sep 24 2017, 07:50

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!

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David Sussman
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David Sussman
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Replied Apr 25 2018, 13:32

Thanks again!

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Jared King
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Jared King
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Replied May 2 2018, 18:35

@Will Gaston awesome thread. You've provided EXCELLENT insight and advice and everyone here appreciates it. 

I had a question regarding to your lease. I was just wondering if it was possible to see a copy of the lease that you use for your rental properties. I'm on the route to purchasing my first rental property in USC and am really curious as to how your lease is structured/ what it includes. Thank you so much and i look forward to hearing from you!

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Sean Rogers
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Sean Rogers
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Replied May 29 2018, 00:04

@Tim S.@Will Gaston at what point did you start using an llc? I have two sfa  rentals in A class neighborhoods that are not in a llc, however we are under contract to buy a duplex near the University of Memphis and have been discussing the need to move to it to a llc. We have operated under the belief that if we have proper insurance the llc was not needed. 

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Rodney Sums
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Rodney Sums
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Replied May 29 2018, 01:55

@Will Gaston

If I'm reading correctly from a marketing standpoint your target customer is someone looking to be near the local strip.  It just so happens these local strips are close to schools making them students. I see your direct competitor would be landlords nearby and indirect competitors would be landlords further away via ridesharing companies and online colleges for example.  Do you have any concern of what impact these businesses may have on your rents and/or target customer in the future?

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Will Gaston
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Will Gaston
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Replied May 29 2018, 02:46
Originally posted by @Sean Rogers:

@Tim S.@Will Gaston at what point did you start using an llc? I have two sfa  rentals in A class neighborhoods that are not in a llc, however we are under contract to buy a duplex near the University of Memphis and have been discussing the need to move to it to a llc. We have operated under the belief that if we have proper insurance the llc was not needed. 

All of my properties are in LLCs and pretty much have been for my entire career. I'm not certainly no expert on asset protection but I'm unsure of the downside of having them in an LLC.

Regarding lawsuits, I will tell you that insurance/LLCs are probably both great for protection but are secondary to doing a good job with property management. Treat your tenants with respect, OVER-communicate, document everything to the best of your ability and you will be fine.

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Will Gaston
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Will Gaston
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Replied May 29 2018, 02:54
Originally posted by @Rodney Sums:

@Will Gaston

If I'm reading correctly from a marketing standpoint your target customer is someone looking to be near the local strip.  It just so happens these local strips are close to schools making them students. I see your direct competitor would be landlords nearby and indirect competitors would be landlords further away via ridesharing companies and online colleges for example.  Do you have any concern of what impact these businesses may have on your rents and/or target customer in the future?

Other "products" (i.e. student apartments) that are farther away will always have better amenities than I will, however location seems to be the primary factor for the students. Putting new houses in the locations that I have will most likely never happen because of strict zoning laws.

I see my only competitors as nearby landlords. My concern for competition is with the mom and pop landlords that will buy one or two properties and don't necessarily need to rent them for a high price. Many Landlords in my market don't rent their properties for market value because they don't want or need the money. They're often renting equivalent properties at 60%-70% of what I'm charging.

This is a bigger concern for me.

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Rodney Sums
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Rodney Sums
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Replied May 29 2018, 03:23

@Will Gaston in other words technology has not proven to affect you and from your stand point it won't or may not.  Landlords that are underselling are more of a concern.

1. How have you combated this, especially considering you mentioned that you don't compete using price (understandable)

2.  How comfortable are you that new developments and zoning will continue to work in your favor?  I only ask because a town I grew up in, (Tempe AZ) was cheap when I first arrived there.  Since then Arizona State University has grown tremendously, new high rise apartments showed up, multi units started specializing in marketing "room rent", and of course home owners that bought decades ago are able to undersell like the mom and pops in your area.

Kudos for identifying that your customers value proximity to entertainment more so than to educational facilities.  

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Will Gaston
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Will Gaston
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Replied May 29 2018, 03:46

@Rodney Sums

1) We're very, very aggressive with marketing of our properties. We market early in the spring semester for fall leases, show them often, seek referrals, etc. Fortunately, it's worked really well for us so far. The single biggest thing that I've probably learned about students so far is that they're not price sensitive, mostly because they're not paying for it. If their parents allot them $700/month to spend, they'll take a $699/month place over a $499/month place if it's only slightly better. It's a binary decision if it's in their budget. It's either a "yes" or "no" not a "yes, if you lower the price."

2) I really don't worry about it at all. The majority of my properties are in a very established neighborhood/area that would wage an all out war for a developer looking to build property that would compete with me.  

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Peter Tverdov#4 Managing Your Property Contributor
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Peter Tverdov#4 Managing Your Property Contributor
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Replied May 29 2018, 04:46
Originally posted by @Sean Rogers:

@Tim S.@Will Gaston at what point did you start using an llc? I have two sfa  rentals in A class neighborhoods that are not in a llc, however we are under contract to buy a duplex near the University of Memphis and have been discussing the need to move to it to a llc. We have operated under the belief that if we have proper insurance the llc was not needed. 

 I own a handful of student rentals in NJ. None are in LLCs. You have liability insurance on each property don't forget and then I have an Umbrella Insurance policy on top of all of my rentals. It adds up to be a lot of insurance. 

LLCs on each property seems like a monster headache for me. It racks up CPA fees, in my town if the property is in an LLC you need a lawyer to represent you in court for something as petty as a trash ticket. You have to have separate bank accounts just for that LLC. I think it can get messy.

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Rodney Sums
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Rodney Sums
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Replied May 29 2018, 14:16

@Will Gaston

I have a condo near a school so this is all good info to know,  I appreciate your feedback!

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Travis Rasmussen
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Travis Rasmussen
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Replied May 29 2018, 15:58

@Will Gaston

Awesome! This is something I definitely have my eye on. Colleges aren't going away any time soon...

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Rachel H.#2 Mobile Home Park Investing Contributor
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Rachel H.#2 Mobile Home Park Investing Contributor
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Replied May 29 2018, 19:04

@Will Gaston Good to know. Thanks for sharing! 

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Michael Plante
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Michael Plante
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Replied May 29 2018, 19:21

When I went to school we, and every student I talked about it, had to pay for the year upfront plus 2 months security 

Do you do this?

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Sean Rogers
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Sean Rogers
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Replied May 29 2018, 20:34

Will Gaston thank you for the quick response. Has being in a llc ever proved it’s worth? I’ve always worried about it but when I look into it, it doesn’t seem worth it for my situation. How many properties do you normally have in one llc? And then you have to take steps to keep them from being pierced like @peter mentions? Also did you start out self managing the student rentals or once you acquired X amount you made the jump. I know not all situations are the same but curious if your path.

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Will Gaston
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Will Gaston
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Replied May 30 2018, 02:25
Originally posted by @Michael Plante:

When I went to school we, and every student I talked about it, had to pay for the year upfront plus 2 months security 

Do you do this?

 We require first and last month's rent and security deposit prior to move in. I'm unaware of anybody in my market that can get the whole year up front.

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Will Gaston
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Will Gaston
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Replied May 30 2018, 02:30
Originally posted by @Sean Rogers:

Will Gaston thank you for the quick response. Has being in a llc ever proved it’s worth? I’ve always worried about it but when I look into it, it doesn’t seem worth it for my situation. How many properties do you normally have in one llc? And then you have to take steps to keep them from being pierced like @peter mentions? Also did you start out self managing the student rentals or once you acquired X amount you made the jump. I know not all situations are the same but curious if your path.

I think the number of properties in an LLC depends on a lot of things, but mostly what risk you're comfortable with. I certainly think one per property is overkill, but 50 units (in my market) would probably be too much. I don't spend a lot of energy on worrying about that. If you do a great job with property management then you're likely not going to have to deal with lawsuit risks.

I started out managing them myself but have had in-house property management for the last 4-5 years. They handle all of the day to day management.

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Michael Plante
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Michael Plante
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Replied May 30 2018, 04:15
Originally posted by @Will Gaston:
Originally posted by @Michael Plante:

When I went to school we, and every student I talked about it, had to pay for the year upfront plus 2 months security 

Do you do this?

 We require first and last month's rent and security deposit prior to move in. I'm unaware of anybody in my market that can get the whole year up front.

It was many many years ago lol

In Oswego NY 

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Tim S.
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Tim S.
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Replied May 30 2018, 20:17

@Sean Rogers I'm actually meeting with an attorney tomorrow to talk about LLC's and asset protection strategies. It's a little more complicated in CA, even though my properties are not in CA, and the LLC is not from CA, this bloodsucking state still requires an extortion fee of $800 per LLC. I'm looking into using a Land Trust instead.

@Peter Tverdov  You might want to look into Series LLC, one tax return, one bank account, even with multiple "child" LLC's

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Sean Rogers
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Sean Rogers
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Replied May 31 2018, 20:59

@Tim S. once you make a decision, I would be interested in what you did and why?

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Grant Rothenburger
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Grant Rothenburger
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Replied May 31 2018, 21:55

Great post @Will Gaston!

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Will Gaston
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Will Gaston
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Replied Jun 1 2018, 09:42

Thanks @Grant Rothenburger-I've learned many tough lessons along the way!

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Peter Faulkner
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Peter Faulkner
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Replied Jun 7 2018, 09:36

@Will Gaston - fantastic post! Really appreciate all of the insight and information.

It's obvious from your post that student housing is an extremely high-touch business, but one that you have mastered - timing in marketing, expectation setting with kids, quarterly check-ins, the list goes on.

So my question is, as an out of state investor considering investing in the same type of space, how would you characterize other property management companies ability to successfully run a business like this? 

For example, if you wanted to outsource that part of your business, are there management companies in your area that you would feel comfortable turning operations over to?

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Will Gaston
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Will Gaston
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Replied Jun 7 2018, 13:04
Originally posted by @Peter Faulkner:

@Will Gaston - fantastic post! Really appreciate all of the insight and information.

It's obvious from your post that student housing is an extremely high-touch business, but one that you have mastered - timing in marketing, expectation setting with kids, quarterly check-ins, the list goes on.

So my question is, as an out of state investor considering investing in the same type of space, how would you characterize other property management companies ability to successfully run a business like this? 

For example, if you wanted to outsource that part of your business, are there management companies in your area that you would feel comfortable turning operations over to?

Thanks, Peter. 

Just like anything in RE I would say it depends on a lot of things. The property location, the condition, and the type of students that the property attracts would all go into that. If it's an A+ location then it will pretty much lease itself if your prices are reasonable. The problem that a lot of LLs in my niche get into is that they don't inspect the properties on a regular basis. That's of course something you could get the PM to do.

Regardless, I would expect to spend more time "managing the manager" than in a typical PM-owner situation. 

I would feel a lot better about doing that in a market where there was a PM who only managed student rentals. I'm unaware of anybody doing that in my market, but I've heard they are out there in others.

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Gary F.
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Gary F.
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Replied Sep 26 2018, 14:37

So, they all sign one lease, but pay separately? How does this work exactly? 

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Will Gaston
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Will Gaston
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Replied Sep 26 2018, 16:01

@Gary F. they all sign one lease and pay together. One lease, one payment. And I don't accept anything less than the full payment. Putting everybody on the hook makes a lot easier. At least in my market.