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!
@Will Gaston Thank you for the advice! This thread is gold!
Originally posted by @Margaret Buoncora: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?
I would advise against renting single rooms simply because a new tenants first impressions of the people living in the other rooms will be biggest deciding factor as to whether they sign a lease or not. I have a duplex at Baylor University Waco Tx. 4bd/4bath each unit. property manager talked me into doing this with one unit. The first person she leased to had a very unique look to them and from then on it was difficult to rent the other three rooms. For 6 months that person had a 4bd/4bath apartment for a 1/4 of the cost. Me on the other hand lost 1,000s in rental income over that 6 months. Now, I am losing again because the 4 leases in place don't terminate at the same time, so getting back to an empty unit where i can go back to a single lease is going to cost me in rental income as well.
That been a learning experience I don't want to do again. Just my $ .02 . .. Hope this helps.
Jerry
Originally posted by @Adam D Rinehart:@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.
I require that my student tenants pay for all of their utilities. Gas, electric, cable, internet, and water. Although the City requires that the landlord have the water in our names so we re-bill for water.
@Jerry Bankhead Couldn't agree more on renting single rooms and/or individual leases. What a nightmare that can be. This also places you in the crossfire of any/all roommate issues.
Spoiler alert: These are a routine occurrence with emotional 18-22 year olds.
@Will Gaston, appreciate the response. Quick follow up, is your requirement included in the lease agreement/amendment or separate document? The thought of having to chase a 2nd bill isn’t appealing especially if the bills are in my name and there isn’t much recourse on my end to force the issue.
Originally posted by @Will Gaston:@Jerry Bankhead Couldn't agree more on renting single rooms and/or individual leases. What a nightmare that can be. This also places you in the crossfire of any/all roommate issues.
Spoiler alert: These are a routine occurrence with emotional 18-22 year olds.
We had to do this up in NJ because one of our property management clients refused to listen to us regarding the plan for improving their property. We recommended improving it over the summer (and having a vacancy) and using a 9 month Lease to find a group. Would've been easy. They insisted on doing the work while the current tenants were in the house this past spring. That pissed those tenants off something fierce (naturally we were getting blamed for it) and on top of it, it was difficult to show the property to groups as construction work was going and the feedback from the current tenants to prospective tenants was poor. Long story short we had to fill the house by the bedroom and it's been one issue after another so far.
you were my landlord on Texas St like two years ago! I am actually buying a property in Columbia to rent out to students while im working in charlotte. Do you manage any properties that you dont own? @Will Gaston
Originally posted by @Will Gaston:@Jerry Bankhead Couldn't agree more on renting single rooms and/or individual leases. What a nightmare that can be. This also places you in the crossfire of any/all roommate issues.
Spoiler alert: These are a routine occurrence with emotional 18-22 year olds.
Thats no Joke... although the occupants renting in the one unit from me have been great tenants for the last three years have been great. Actually going to be sad to see them go in May.
Referencing one of your earlier posts, you mentioned you have the water in your name and re-bill the tenants for it. Hows is that going.. currently my tenants pay all the bills but I am wanting to get a HELOC on the duplex. I have my eye on a couple of small places that I am interested in for Air BnB.
My bank will not do HELOC on properties i do not occupy, but will do it if the water or other utilities are in my name. Apparently, if i can show that I pay the utilities, I can show on the application that I occupy the place and they will grant the HELOC. So i am thinking of changing the utilities to my name, adjusting rents in the next Leasing cycle, and just making the rents All Bills Paid.
@Will Gaston awesome summary thanks. In your SFH. Do you have a contract and collect rent separately for each person? Or do you set the high price and let tenants find their own roommates to split it up?
@Rhonda McDaniel I see Will hasn't responded yet, but he's been asked this before. I think we would give the same answer. Charge one rent, they are all equally responsible for the rent. In my case I use a property manager, they pay the PM separately, but they are all still responsible for the total amount. If one of them doesn't pay the others will need to cover it. Let peer pressure be your friend. They find their own room mates, they come to me as a group and apply together, all sign the same single lease agreement.
Will advocates NOT having the parents co-sign, as they can be a lot of hassle. If they don't co-sign, you don't have to talk to them. I'm going to do this next cycle, one parent this year is an attorney, and has been a PItA.
@Tim S. Thank you Tim. Makes sense.
Originally posted by @Jacob Camilliere:you were my landlord on Texas St like two years ago! I am actually buying a property in Columbia to rent out to students while im working in charlotte. Do you manage any properties that you dont own? @Will Gaston
I do not and it's not something I would want to do. Where is the rental that you are buying in Columbia?
Originally posted by @Jerry Bankhead:Originally posted by @Will Gaston:@Jerry Bankhead Couldn't agree more on renting single rooms and/or individual leases. What a nightmare that can be. This also places you in the crossfire of any/all roommate issues.
Spoiler alert: These are a routine occurrence with emotional 18-22 year olds.
Thats no Joke... although the occupants renting in the one unit from me have been great tenants for the last three years have been great. Actually going to be sad to see them go in May.
Referencing one of your earlier posts, you mentioned you have the water in your name and re-bill the tenants for it. Hows is that going.. currently my tenants pay all the bills but I am wanting to get a HELOC on the duplex. I have my eye on a couple of small places that I am interested in for Air BnB.
My bank will not do HELOC on properties i do not occupy, but will do it if the water or other utilities are in my name. Apparently, if i can show that I pay the utilities, I can show on the application that I occupy the place and they will grant the HELOC. So i am thinking of changing the utilities to my name, adjusting rents in the next Leasing cycle, and just making the rents All Bills Paid.
Re-billing of the water is going great. As you can imagine, it drastically cuts down on the amount of water use when the tenants have skin in the game. I could not recommend this more highly.
Originally posted by @Rhonda McDaniel:@Will Gaston awesome summary thanks. In your SFH. Do you have a contract and collect rent separately for each person? Or do you set the high price and let tenants find their own roommates to split it up?
I set the price and let them figure it out. I continue to reiterate throughout the process that they are jointly and severally liable for the entire amount and it's up to them to get the total $XXXX/month in rent. Also, many times the rent is split unevenly bc of different room sizes. I'd recommend being very careful about how involved you get with college kids and the choices, decisions and responsibilities that they need to make for your property. It is a VERY slippery slope.
I may have totally missed it. Since you do one lease, people who come see the home are already coming together to get the house together? For instance, 4 bed 2.5 bath. 4 friends come together to rent it?
@Layla Sewell Correct. They're usually a group of friends, fraternity brothers, sorority sisters, etc. However, the City of Columbia only allows a max of 3 unrelated persons per dwelling unit. So you could have 4 friends together but it would need to be a duplex.
Hello I am trying to get into the the real estate business. I am currently looking at purchasing a duplex near UGA in Athens, GA. The duplex is 2 beds/ 1 bath each side. My question is, should I lease each side normally or can I lease per room? I was suggested to take care of all the utilities and furnish the unit and just factor that into the rent of each tenant. Somewhere between $600-700 a room. That way they only have to worry about making one payment. But I called a property management company and they advised against doing that. They said they don’t like dealing with per room leases because it’s too much work. I don’t want to manage the property myself. Any advice on what I should do? Thanks.
@José Servín I agree with the PM. By the room leases are 10x more the work IMO. I personally would never go with that model is that is begging for management issues like roommate drama and chasing rent. If you can't lease it as an entire unit and make the numbers work then I would pass on the deal.
@Joseph Lopez Great question. If you really wish to follow that model then you should keep shopping property managers and see if you can find one that will do what you looking for them to do. They are a service provider and there are quite a few of them.
On the other side, the good thing with a duplex that is 2 bedrooms on each side is that it would be conforming even though Athens has a maximum of two unrelated adults per household.
Do not hesitate to reach out if you need anything!
To @Georgui Kasaev's comment, I would highly recommend finding out and then complying with the ordinances @José Servín. Many college towns have an unrelated persons ordinance. Don't let this seemingly small detail ruin your investment.
Great post! Thank you.
I am in the process of buying properties in the McAllen/Edinburg, TX area.
The University of Texas has a campus in Edinburg and I am considering renting apartments to students because most landlords won´t. In my opinion this is an opportunity to get higher rents but also more problems. This was very interesting to read.
Thanks @Charles Large. Find somebody locally that's already renting to students and see if you can provide value to them and learn about their business model. Great way to quickly get a lot of the insight on Zoning, neighborhoods, seasonality, pricing, etc.
@Will Gaston, great article. While I am no where close to your scale, I do have a few SFH that I rent to students and most of your points I would agree on. The only one that stands out to me is the one that you don't deal with the parents. Maybe because of the number of properties that you have, however in Bridgeport CT, it would be seen as a red flag if the landlord does not want to meet with the parents, especially if they are the ones that are signing those checks on a regular basis.
This can also have to do with the location, but especially for female tenants, I have noticed the parents are very plugged in and they want to know everything about where their kids are staying, who they are dealing with on a regular basis...and so on.
@Nik Corbaxhi I agree with you. It is seen as a red flag by a portion of the parents. But these are the helicopter parents I'm trying to avoid. So I'm absolutely fine with them going elsewhere. That's also why I only am buying the best properties in the most highly sought after locations.
I graduated from UofSC in 2002 and it was incredibly rare for any type of parental involvement when my friends and I lived off campus. Our parents only wanted to know one thing: "How much is it?" These kids are living in the same houses and in the same neighborhoods.
It's been my experience, almost without exception, that parental involvement makes the experience worse for everyone (tenants, the parents, and the landlord) and I have lots of colleagues in my market who agree. The spider web of trying to communicate with all 5 kids in a duplex + 10 parents is ripe with miscommunication, especially when 10 of them don't live at the property. This miscommunication almost always causes problems and escalating emotions.
As per my original post, I think the parents are generally well meaning and just want to help their children. But, in my experience, it almost always does the opposite.
Do you rent to these students with the units furnished? I’m buying a house now and might buy the furnishings at a bargain price.
Also who does lawn maintenance and snow removal?
Thanks for your help.