Good time to buy, bad time to rent

12 Replies

How do you manage to fight seasonality? I am interested in a SFR within a mile of a major university. However, the best returns in the area come when you list a rental in early Spring for a June 1st move-in, because the school year ends in mid-May and that is when students assess their housing for the following year.

With it only being October now, what's a creative way to lock this in knowing it won't be occupied until June? Even if the seller agrees to a 60-day close, I would still have several months of holding costs that would be great to avoid if possible.

@Brian Ploszay my experience with student housing has been that, once settled in, the students actually stay longer since they are locked into several years of schooling anyway. They also don't look at the cost of rent as a whole, but rather on a per/person level, which tends to welcome higher total revenue.

We all have our preferred niche, though.

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Maybe you can negotiate a better deal buying during the winter (especially if it's not occupied). Use those funds for holding costs until next June comes around. I am assuming it's not occupied because you would get the rents after closing.

@Frank Geiger that's what I was thinking, to basically consider the holding costs a part of my initial out of pocket investment, and try to take that amount off of the purchase price. It's been listed for 6 weeks, and just had a 7% price reduction, so they could be getting antsy to sell. 

You can also attempt to AirBNB the unit.  Depending on the college, if there are a lot of out-of-town students then you could target parents.  That way you earn a little something back.

Or create a 6 month lease and find a placeholder at an affordable rate.  Accept you'll operate on a loss but minimize that until June.

I bought student housing with 4 months to cover before I could get in sync with the school schedule.  I AirBnB'ed it and covered about 90% of the mortgage during that period.  I didn't expect it would be a very desirable property for that purpose, but I was pleasantly surprised.  I priced it cheap and it was filled every weekend, also has several mid week rentals.  Hardest part was finding someone to clean and prep it between rentals, I'm out of state. 

There's no good answer to this in my opinion. We rent to a lot of students and sometimes that's just the way it goes. I'm getting ready to close on a place next week and will have the same situation. I look at it as a way to address repair/remodeling needs to get "ahead of the curve" so the unit won't have to be down for any kind of time for the foreseeable future after rehab is done. That said, I have rented every single month of the year so it's not impossible. I will shorten up leases that are done October-December, however and have them end in June. 

My firm works with many investors in our highly student populated town. It is a good time to get a deal, but you're on the money about renting this time of year. 

We typically just get the property rented as quickly as we can, even if it needs to be a lower rent rate than usual. We also do the initial lease to end on May 31st, with an option to renew. That way, if the tenants move out at the end of the term, it's back on the market during the best time and highest demand. This also give the opportunity to negotiate a rent increase at renewal, though we don't recommend going too high if trying to avoid unnecessary turnover. 

Yes, it can be a challenge to rent this time of year, but I wouldn't let it discourage you from expanding your investment portfolio. 

@Kenny Dahill @Tim S. good ideas, and I actually already have an Airbnb on this campus, though the kicker is I bought the Airbnb with the existing furniture included. If I were to furnish this new property, it would cost more than just carrying the mortgage until June. I could toy with renting it furnished come June, but then that's another liability, and students tend to already have their own stuff.

A short term lease until June is an idea, but I've never tested the market for that before. 

@JD Martin do you have trouble filling those 6-ish month leases? Do you rent them for a lower rate just to help carry your costs until peak leasing season comes along? What is your plan for the place you close on next week? 

Originally posted by @Derek Luttrell:

@Kenny Dahill @Tim S. good ideas, and I actually already have an Airbnb on this campus, though the kicker is I bought the Airbnb with the existing furniture included. If I were to furnish this new property, it would cost more than just carrying the mortgage until June. I could toy with renting it furnished come June, but then that's another liability, and students tend to already have their own stuff.

A short term lease until June is an idea, but I've never tested the market for that before. 

@JD Martin do you have trouble filling those 6-ish month leases? Do you rent them for a lower rate just to help carry your costs until peak leasing season comes along? What is your plan for the place you close on next week? 

Not generally. I don't think I've had a SFH vacant more than 2 weeks in over 4 years, unless we left it vacant on purpose to get some rehab done. What I have noticed is that the late fall-winter tenants tend not to be long-term tenants as much as people who just end up needing someplace due to poor planning or something out of their control i.e. their rental was sold. Plan for the place next week is to do a quick (about 3-4 week) rehab and (hopefully) have it on the market the first week of November. November and December are our toughest months.

Originally posted by @Derek Luttrell:

How do you manage to fight seasonality? I am interested in a SFR within a mile of a major university. However, the best returns in the area come when you list a rental in early Spring for a June 1st move-in, because the school year ends in mid-May and that is when students assess their housing for the following year.

With it only being October now, what's a creative way to lock this in knowing it won't be occupied until June? Even if the seller agrees to a 60-day close, I would still have several months of holding costs that would be great to avoid if possible.

Hi Derek, there are a couple of ways you can approach this. While you wait for the school year seasonality to kick in, you can easily establish a 6-month lease for a shorter term renter and then offer the option to go on a month-to-month lease status to get yourself back on track for a June 1st occupancy; using that month-to-month option can be super helpful for making sure you get your rental on the right season as you're getting started.

Originally posted by @Derek Luttrell:

If I were to furnish this new property, it would cost more than just carrying the mortgage until June.

It probably won't pencil out, but it might be worth looking at what it would take to rent furniture from somebody like Rent-a-Center, or a local furniture store that offers rentals.  Normally that is a pretty expensive way to buy furniture, but since you only need it for about 8 months, maybe it would work out.