First post: Thoughts on investing in college towns?

Question

I am new to this world of real estate investing and have never done a deal, but am in the information gathering/learning phase. Curious to hear everyone’s thoughts on investing in properties in college towns, specifically homes/complexes that students would rent. Thank you!

Will Gaston · Answer

My experience has been different than @Pragati Soni's on #2.

The college students that I have rented to complain quite a bit more than non-student tenants.

I think the macro reason is expectations.

Almost all of my tenants have never lived outside of their parent's house or a dorm room. They have no idea what to expect when living in a house or what a good or bad Landlord is like. We've tried to temper this by having a 45-60 minute meeting to provide clear expectations with potential tenants before signing the lease.

I think it is the Landlord's responsibility to set that expectation from the beginning as we are the more experienced of the two parties. Having this meeting has helped improve the experience on both the tenant and landlord side.

Casey Cline · Answer

@Grant Rothenburger Interesting...I never considered renting by room, but I suppose it offers a certain amount of flexibility for the landlord and for students.

Thank You!

Will Gaston · Answer

@Casey Cline I have invested in a college town & student rentals for the last 13 years and I can't speak more highly of the financial aspects of it. These are the four biggest pros IMO.

1) Cash flow is tremendous

2) Students are highly likely to pay their rent

3) Easy to raise rents every year

4) Consistency and stability of the tenant base

The management, however, is pretty involved and can be very stressful. I'd recommend finding an experience LL in your market to mentor you if at all possible. I wish would've done that as it would've saved me a lot of headaches (and money!).

Greg Dickerson · Answer

Hi Casey,

College towns are great to invest in and present lots of options and opportunities From single family year round, flips, student rentals and multi- family. The challenge is everyone knows this so good properties are hard to come by. A good strategy is to develop ground up if you can find land.

Greg Dickerson · Answer

There are many business models to student rentals. Some people rent by the room and some by the bed. Yes by the bed. They can get up to 4 people per room sometimes and charge $400-600 per bed. I don't do these but i have some friends in my town that have hundreds of beds they rent out.

Pragati Soni · Answer

I am a newbie and I don't currently have properties but having lived in college town for 4 years I know that the pros outweigh the cons. Many people are hesitant to invest in college towns due to high maintenance costs but there are just so many pros such as:

1) Rent payments on time - Parents usually cosign on the lease and students usually have loan money to cover cost for apartment even if they can't pay out of pocket.

2) College students don't complain much - I knew some people that literally lived in a crooked house for 3 years and each paid $300 in rent for a total of $900 for the owner. This house was pretty rundown and could not have been rented out otherwise.

3) Even though there is high turnover, the demand is super high so you are almost guaranteed tenants without little to no marketing. Ex: My brother lived in an apartment and decided to transfer out. He posted on his facebook college group that he was looking for someone to sublease his place for the remaining 6 months. Within 5 days, he had 6 people ready to take over the lease. Demand is very high and supply is usually low because colleges accept more and more students each year but housing options usually remain the same.

I am currently saving up to purchase primary property as well as invest in my college town. I think there is so much potential.

Will Gaston · Answer

I have an in-house manager that deals with a majority of the leasing and management issues. I have about 50 units so I'm able to pay her a nice salary and have 100% of her attention on my portfolio as opposed to paying a PM 8-10% and only getting a fraction of that time spent on my properties.

Grant Rothenburger · Answer

You're welcome!

Casey Cline · Answer

@Will Gaston Thank you for the information!  Knowing how I treated my house in college it's not hard to believe the management of the property could be a huge headache.

Do you use a property manager for your campus properties?

Grant Rothenburger · Answer

@Casey Cline

A lot of investors have success with student housing. I can't remember who the speaker was or what platform I heard it, but I vaguely remember hearing an investor discuss his strategy of buying large SFR and renting each room to a student. Also providing a little "business center" with internet, printer, etc... Said parents loved it and never hesitated to pay his prices (which were higher than most in the same area).

Lot's of ways to do it, that's just one. Good luck to you!

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