Real estate investment in a college town

14 Replies

My wife and I are moving to a college town in Texas next year. We are planning on purchasing a rental property (our first), hopefully doing some house hacking along the way.

I ideally want to purchase a quadplex, but the fact that students go home during the summer worries me. Younger families are starting to move into town so single family homes might be a little more advantageous since it would seem there's not much of a seasonal cycle due to fall and spring semesters.

What are some special considerations to take into account being in a college town? Would it be wise for a "newbie" to start off in this kind of situation?

Owned 6 rental properties in Hays, Kansas, a small college town....we always started advertising our rentals the day after St Patrick's Day and would make the students sign a one year basically have until school starts to rent it out with the more responsible students signing earlier. If you have a vacancy in December or January it wasn't uncommon to be vacant until march. We charged an absolute premium for rent since a lot of the students were from out of state and considered our rental rates cheap.

Thanks @Dustin Frank for the response.

- Were those properties single family homes, multifamily plexes?

- Did you budget more money for for repairs, since the students can be a little rough on the property?

- Right now I'm estimating a 12% vacancy rate. Do you think that is reasonable, or should I estimate more?

- About how much rent were you charging?

I think student housing is a great idea. You have a somewhat captive tenant pool, and the 'rents usually have to co-sign. And you sign a lease for the full year. A lot of those kids are going to hang around for the summer anyway, as opposed to traditional dorm students.

The only caveat is that it should be walking distance or a short drive or bike ride to campus. You can't buy someplace 10 or 15 miles away from campus and try to market it as student housing.

@Jordan McDonald great advice from @Dustin Frank . I have a college student rental property business that caters to over 100 students and have been doing it for over 10 years. The market knowledge of when to lease is absolutely crucial. There are some times early in the Spring that I can properties for 20-30% more than I could later on in the summer. It took me a long time to figure that out.

Also, I would be hesitant to recommend student rentals to anyone unless they're able to enforce boundaries very well. Students are an absolute nightmare if you allow them to be.

Originally posted by @Jordan McDonald :

Thanks @Dustin Frank for the response.

- Were those properties single family homes, multifamily plexes?

- Did you budget more money for for repairs, since the students can be a little rough on the property?

- Right now I'm estimating a 12% vacancy rate. Do you think that is reasonable, or should I estimate more?

- About how much rent were you charging?

My advise would be cheap but Nice....Many students look at properties with their parents so get something that the parents don't think is gross.....Hint HInt, Parents that look at properties with their students are usually the ones that pay the rent for them each month...on time that is!

I do student rentals in a SFR room by room. Students pay a premium, so if you have partial vacancy in the Summer, you can often absorb it. I find out who is leaving for Summer and then try to rent out the vacancies to Summer session students. Moderate security deposits help to absorb cleanup at move out time (renting to families with messy kids/pets can sometimes be more of a mess than students). Couple of rules to implement: no pets, no significant others staying over more than a weekend's time, no mini fridges or heaters. And get lockboxes for the thermostats. Good luck!

I rent to College Students in Charlotte.
I have a 4br/4ba, I learned that a private bathroom for College Students is a luxury. If you plan to rent out rooms and has private bathroom you will have an advantage.
A trick I learned is providing a finder fee for a vacant room. My finder fees are enough to make them look and far less than what Property Manager would charge me.
Remember it's to tenant advantage to find their own roommate and if you give them a finder fee you give them an extra incentive.
As of yet I've never had to look for a tenant for this particular property..

@Jordan McDonald Here are the two main ones: 

1) Late rent: 

Be relentless about enforcing late fees because they'll be consistently late if you don't. I charge $150 per house if they're late and will not bend on this. Usually 3 or 4 months out of the year I will have 130-140 students that will all pay their rent on time. The other months it's usually only 1 or 2 late payments. It's because we're very, very strict about this.

2) Communication:

I would be very hesitant to not to give them specific instructions on you to communicate with you. If you give them your cell phone number, they will text you at all hours. We set a policy that all of our communication goes through our property management software outside of normal business hours. Students have no clue what 9-5 means so you'll need to instruct them on that.

I rent out an apt/condo, I rent out the rooms.
Utilities are included with the rent..
When doing this it's important to put on lease your utility Caps and to be clear.
For example for water my cap is $50 anything above it gets divided by 4 (each tenant)
What I notice is very important to these tenants is high speed internet they typically don't even watch Cable TV. When I bought property ex landlord was paying for Cable TV, I asked if anybody was watching and all 4 said no.

@Jordan McDonald I'm invested in a college town but I don't rent to "only students" or "primarily students" or "never students".  So with that in mind you have to keep in mind that college towns do have a cycle for renting next year's apartments.  Don't be surprised if leases are signed in January for the following year.  It's a little weird but once you the cadence you should be fine.  There's nothing to stop you from offering a 12-month lease at $600/month or a 9-month at $800/month.  You still get the same gross collected rents and you just live with the vacancies or attempt to rent (at that time) to students in a summer session.  That said, college students are basically a unique bunch.  What you don't want to end up with are the last-resort college students as they'll usually be harsher on your unit, collecting rent will be troublesome, etc.  So don't be the cheapest game in town.  Likewise, renting 1 bedroom/1 bathroom units is a completely different ballgame than renting a 4 bedroom home to 5 students.  Party-central is never going to be the 1 bedroom/1 bathroom so if you're taking a keg to watch a college football game, it's not going to be in those cramped's going to be at that house.  And you also (if you're going to mix students with families) have to go beyond thinking about just noise issues but think through parking situations.  If you flood a 4-plex with 12 students you probably need at least 10 parking spots.  Odds are you don't have that.  It's not the end of the world for students but if one unit is rented to a family, mom won't want to deal with street parking 2 blocks away from the students have 10 cars competing for 6 spots and street parking.  Anyway, just food for thought.

I just graduated a few months ago, so hopefully I'll be able to lend some unique insight. Full disclosure: I lived on campus all 4 years and never rented where I went to school though probably 95% of the upperclassmen rented locally.
My sibling attends a Californian university and rents a room in a duplex. I believe there are 7 people living in his unit (2 doubles and 1 triple room) and they're monthly rent is about $4,800. Assuming the same for the upstairs unit (also students) the landlord makes about $9,600 in initial income monthly. I'd have to look it up, but I don't think the place is worth more than say 800k. It's operated through a property management company that keeps close watch on the students. They have an annual lease and their deposit was roughly equal to 1 months rent. The PM guys come by randomly to make sure the outside of the place still looks ok.

In my experience, college rents tend to be higher than your average rent (depending on distance to school. If you have something within 15-20 minutes on foot you are golden). I've also only ever heard of annual leases where I went to school and my sibling says it is the same where he attends (opposite sides of the country, he's in CA and I went to college in NY). Many students try, unsuccessfully, to sub out their lease over the summer.

Expect damages, most students don't keep the place too clean, so account for that beforehand.

Don't wait too long to renew the lease. Many college annual leases seem to renew sometime over the summer and many students lock down a rental agreement in late fall, early spring. Developing a relationship with the students is key (mostly this just means leave them alone and let them do their own thing) because they will then suggest the place to their friend network when they move out/graduate.

If you're looking for an idea of the number of students that may be renting, data on student numbers / university housing should be available on the school website. Many universities only guarantee housing for 1-2 years and most of the student body has to rent for the second half of their school career as a result. If you can, walk onto campus and check out the number of bike racks vs parking spaces, this will give you an idea of the percentage of the student body that walks/ bikes vs drives and the areas they'd be stuck renting in as a result. Also see if the university has any free bus routes as students will also tend to live in those locations.

Advertising suggestion: student newspapers are a fairly popular source for finding housing

Reading from your initial post, are you house hacking this?

I think you may be in for a rude awakening if you are trying to house hack a 4-plex with students. Not only will they be your tenants but your neighbors, with shared walls?