Student Rentals - Pros & Cons

11 Replies

My Realtor took me through several houses about a week ago that was in a neighborhood that is primarily student rentals and is near our local University. One house was interesting to me based on purely the numbers. The house had 5 bedrooms but was still a small house. It had 5 students renting it, each paying $250 per month, cheap to them, but when added together this house was earning a staggering $1,250 per month! The asking price was 67K and appeared to be in decent shape for what it was.

My immediate thought was that this was an incredible investment. I realize this is only a 9-month lease so that has to be taken into account. I also realize you will almost always have new turnover every year and will get a different crop of students each year.

However, I am thinking I am still missing A LOT in terms of investing in student rentals. I would really like some of the landlords experienced in student rentals to give me their thoughts on the pros and cons of investing in this niche market.

@Michael Temple in my experience the main pros are financial, especially the cash flow and ability to raise rents. The downside is without a doubt the management. Much more intensive than just about any other niche. 

The post may be helpful: College Student Rentals

@Will Gaston Thank you! that post was very helpful! A couple of follow up questions, do you think it would be worth having a property manager deal with just these properties? I typically manage my own, but since you mention it is so management intensive I am thinking of letting a property handle all that so I don't have to deal with it.

Also, you mentioned the damages issue. I can certainly see that with 5 students living in a house that none of them fess up or blame it on one of the others without naming a specific person as in "I saw that window was broken, maybe one of the other guys did it" kind of thing. So that being said how did you bill for and or mitigate that issue? Did you just bill all 5 students for the repair?

Just fyi, you will have a higher turnover rate with students vs regular long term rentals and each time that they move out you will have to fix the place up. I've had several student rentals. You can definitely make money on them but you can also lose money. I'd make sure that you had reserves and plan for vacancies and repairs.

@Deadrick Colbert Do you find the place destroyed most of the time? Does it help to alleviate that if you put the parents on the lease to avoid some of those costs to help recover some of those damages?

@Michael Temple  Students do stupid stuff ... they are still learning how to live on their own. Set your expectations with them from the get go, follow up with reminders every now and then, and your place shouldn't get trashed. Probably a little more wear and tear than usual, but not trashed.

You may have yearly turnover. I don't. Get them in their for their second year and have them for three. Then do it again. That said, even if you do turn over every year, you have a built in market so finding new tenants is easier.

Do not put the parents on the lease as co-signors. That gives them the same rights as the students - which means you are potentially dealing with twice as many people then will be actually living there. Have the parents go through the background check and be guarantors for the lease, utilities, and the security. If a toilet is running or backed up you want to hear from one of the kids, not mom or dad.

@Michael Temple , I've only had it trashed a few times, but I regularly have to replace carpet and holes in walls, along with other items that don't seem to be an issue when renting to families. I've not noticed that it helps to put the parents on the lease. I think most kids just get away from home for the first time and taking care of a condo is the least of their concerns.

Originally posted by @Michael Temple :

@Will Gaston Thank you! that post was very helpful! A couple of follow up questions, do you think it would be worth having a property manager deal with just these properties? I typically manage my own, but since you mention it is so management intensive I am thinking of letting a property handle all that so I don't have to deal with it.

Also, you mentioned the damages issue. I can certainly see that with 5 students living in a house that none of them fess up or blame it on one of the others without naming a specific person as in "I saw that window was broken, maybe one of the other guys did it" kind of thing. So that being said how did you bill for and or mitigate that issue? Did you just bill all 5 students for the repair?

I'd recommend using a PM if they are experienced in student rentals. Communication is one of the hardest things about dealing with student rentals so sometimes using a large PM company who don't communicate well can complicate that.

Regarding damage and/or the lease: Make them all responsible for it. Put them all on one lease. Jointly and severally liable will go a very long way to ensuring you could get paid in full. 

Also, I would confirm with the zoning in your market that it is legal to rent to 5 students. Lots of markets have laws prohibiting the amount of unrelated people living together (my market is a max of 3). You certainly don't want to buy something that is a good deal based only if you're breaking the ordinance.

@Will Gaston   Also, I would confirm with the zoning in your market that it is legal to rent to 5 students. Lots of markets have laws prohibiting the amount of unrelated people living together (my market is a max of 3). You certainly don't want to buy something that is a good deal based only if you're breaking the ordinance.

Very good point. I had thought of that but forgot to mention it. I had heard a few years back rumblings about making an ordinance like this, but I can't remember what happened. I wasn't interested in the market at all at that time so I didn't really follow the story. I will check into that. Thanks!

I’ve got 6 units that are dedicated “college rentals”. In my market each bedroom is worth about $550-$600/mo- which is obviously great for cashflow... but also makes underwriting properties easier. I have parents co-sign in each one, they pay online/direct deposit/Venmo. Rarely late, and when they are, they accept the fee. I also get 1 year leases. I just turned 5 properties over Aug1-3, two units didn’t need require cleaning/no damage. Two units had minimal damage- mostly poorly hung wall art... nothing major. One unit was left dirty/ but nothing broken— and we billed for the cleaning. I’ve got a guy who manages, he’s yet to receive a 3am call...mgmt has not even a nightmare. 

I think the key is buying/making your college rental a B+ -A property= better tenants and more rent $. There’s a lot of ****** college rentals- makes it easy to stand out. 

Cheers

@Jake Walroth I recently talked to a friend of mine who is an insurance agent (property/casualty) and is also a part-time property manager. He said another issue with college rentals is that insurance companies don't want to insure them. I was wondering if you found this to be true or if you found your insurance considerably more expensive as a result? 

The insurance companies ask..: but I’ve found a broker who usually gets me a rate <$115/mo.... have I had a few insurance companies say no? Sure... but you’ll find one that works for you and then you’re set.