College rental analysis

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Originally posted by @Kyle Soderman :
Originally posted by @Brent Coombs:

@Kyle Soderman, student vacancy = only 3% per year? Just asking...

 It is exceptionally easy to rent out college houses in the area I am, especially 3 blocks off campus. Many landlords in the area have had 100% occupancy in the same area. It is also the norm to lease the house around 6 months in advance.

 hi kyle,

i have some student housing 1 1/2 blocks from USC.  no one gets 100% over any length of time.  student housing is extremely problematic.  students are not adults so you cannot expect them to treat your property with respect.  yes you are covered by the deposit, but you're going to have down time getting the house ready for the next tenants. a previous post mentioned "hardened"; very appropriate. 

over the long run even during the semester let alone the summer, some students are going to leave...guaranteed!  the other three students are not going to pay that students share.  you'll be faced with accepting rent from only 3 students until either they get a another roommate, somehow you get the other students parents to kick in or the lease turns over.  

there's great money in student housing, but it's more work and more costly than the equivalent standard housing.  the best way to make money in this situation is if the previous owner had not maximized the square footage and you were able to get an extra bed in there.

good luck!  you'll learn a ton about student housing, get your start on "mailbox money" and know how to look for square footage and layout that's going to get you that extra bed.

phil

One thing to consider, utilize parents as cosigners.  This protects you from the tenants that want to spend their rent money on other things.....

@Andy Basler My thoughts exactly! Thank you.

@Andreas W. I believe most big ticket items have been recently repaired but that is something I will know more about after walking the property/ having an inspection. Also with maintenance costs, it is hard to say whether 7% would be enough or not. It is very true that students are harder on the house then traditional tenants, but that being said you do not need to keep the property in turnkey, beautiful condition for the students. Don't get me wrong I will NOT be a slumlord, I will keep up with things that NEED to be fixed such as broken window, locks not working, ANYTHING that is leaking, etc. But I will most likely not be changing carpets and painting walls after every tenant.

I like to think that I will keep the property as nice for the tenant as I would be comfortable living in. And I do live in student housing so I have a good idea as to what is appropriate.

Phil NA 

That is something I have considered, Phil. There are going to be students that are going to want to leave but as long as I have a solid lease then, as far as I know, you can make pay until the end of the lease, or they can find a sub lessor to take over their lease. Kevin, that is a good point, I would most likely require a co signer with most student renters.

I also do agree that no one is ever guaranteed to have 100% occupancy all the time.

Thank you everyone for the great responses, I love the discussion thats going on!

Originally posted by @Kyle Soderman :

@Andy Basler My thoughts exactly! Thank you.

@Andreas W. I believe most big ticket items have been recently repaired but that is something I will know more about after walking the property/ having an inspection. Also with maintenance costs, it is hard to say whether 7% would be enough or not. It is very true that students are harder on the house then traditional tenants, but that being said you do not need to keep the property in turnkey, beautiful condition for the students. Don't get me wrong I will NOT be a slumlord, I will keep up with things that NEED to be fixed such as broken window, locks not working, ANYTHING that is leaking, etc. But I will most likely not be changing carpets and painting walls after every tenant.

I like to think that I will keep the property as nice for the tenant as I would be comfortable living in. And I do live in student housing so I have a good idea as to what is appropriate.

@Phil G. @Kevin Hunter  

That is something I have considered, Phil. There are going to be students that are going to want to leave but as long as I have a solid lease then, as far as I know, you can make pay until the end of the lease, or they can find a sub lessor to take over their lease. Kevin, that is a good point, I would most likely require a co signer with most student renters.

I also do agree that no one is ever guaranteed to have 100% occupancy all the time.

Thank you everyone for the great responses, I love the discussion thats going on!

 kyle,

chasing after past due rent is aggravating, time consuming, costly and not always successful, no matter how solid your lease is.

@Kyle Soderman

Make sure you know your municipality's occupancy laws.  We can only have 3 unrelated adults in some areas of our town, so a 4 bedroom would be a problem.

There are pro's and con's with renting by the bed vs a single lease with all occupants.  When possible we like a blanket lease holding everyone responsible, but with undergrads, this is almost impossible to enforce and administratively difficult.  Damages in common areas become an issue with individual leases.

There are two strategies to student housing.  Above average units with Soup Nazi like management, or under market rents.  The most effective small-time landlords in student housing are very hands on and spend a lot of time at the properties to develop personal relationships with the tenants to nip problems in the bud.

During due diligence talk to a property manager in your area that has experience with these.  You will deal with fickle move-outs, mid-year graduations, high vacancies during summer, utility bill issues, and personality conflicts among tenants that somehow become your problem.  Think about your alcohol, drug, and gun policies.

The strength of the lease doesn't matter.  If the student leaves a couple of months early, it rarely makes sense to chase down someone with no money who has left the state for a few hundred bucks.  We have gotten in battles with helicopter parents as guarantors who can be worse than the tenant.

These examples definitely represent exceptions and 90%+ of the tenants will work out great.  But the exceptions take constant work.  You must be prepared for something that is management intensive.  For that reason, expect to pay higher management fees if you ever turn this over.

That being said, if you're willing to do the work and have the right personality, student housing can be a great money maker.

Vacancy on our Student Rental has been 0% since we have owned it (2 years). We do expect occasional problems like kids failing out, etc. This is why we have parents cosign all leases. Last year a kid failed out before he even moved in and his parents paid half the year up front then found a sub-letter for the second semester. We only do 12 month leases but that is typical in our area. With student housing you need to follow standards in the neighborhood otherwise you'll have a tougher time renting the property out. Be prepared for things to break. We have not had too much tenant inflicted damage but we have had plenty of work that had to be dealt with. Also, snow removal adds up quickly here. Are you sure you accounted for enough for your location? 

We do student rentals and you have a lot of good input here.   I would say for 12 months they don't find subleasers for the summer,  the boston' students I understand from friends just disappear. I had one early leaver who did the same and I was stuck with 2 of 3 rent checks coming in which is better then none.  For the most part though a full house. As I said before we have 9 month leases due to our summer market but that is different in other college rental locations.

If you search the forums for student rentals you will get tons of old threads on hardening and how to deal with students.  There is a lot of general knowledge on the topic.

Regarding snow we put it on the students to do but we do the lawns.  When the grass is growing it is party season and a good way to know if they are partying out on your property is to show up to do the lawn.  We have this in our lease for on property that we will mow and enter the property for landscaping without notice. I have never had a problem with this but the lawn is small. We also don't get much snow and don't have a sidewalk so no risk of a citation for not shoveling the walk like you might have. 

@Colleen F. Do you believe that it could be a liability if the residents neglect to shovel the snow/ put ice melt down?

I would assume you keep a good eye on it and give them a friendly notice if they are neglecting snow removal?