Investing in real estate has always been a popular way to increase wealth, and everyone knows the three keys to real estate investing are location, location, location. Buying in the right location can mean better market growth, higher property appreciation and greater demand for rental units.
One specialized area in income properties is investing in student rental housing. In college towns, there are higher numbers of rental units due to the constant flow of students. Student rentals are a niche market, with its own quirks and rules.
Let’s explore the secrets to investing in college town properties.
Types of Properties
When it comes to student housing, many different properties can fit the bill. Apartments near campus can easily be rented out to students. Duplexes or triplexes are also popular choices. Sometimes local families even choose to lease out their guest bedroom or basement to a student for extra income. Look for properties that offer easy access to campus by walking or biking, or on public transit lines.
Simple family dwellings can also be converted into student housing. Some real estate investors focus on buying three and four bedroom homes to renovate into student rooming houses. Often, extra bedrooms are created by finishing the basement or converting the dining room, living room or any other extra living space. Then, the landlord can either sign a traditional lease agreement on the house or lease out each bedroom individually. Students share the common spaces such as the bathrooms and kitchen. Rooming houses are usually regulated more strictly however; check your local bylaws for specific occupancy rules and other regulations.
When leasing to students, always require that their parents/guardians sign as guarantors on the lease contract. This helps secure rent payments as the parents will be held responsible for the rent if their child doesn’t pay. You should always run tenant background checks on the cosigners, either instead of or in addition to the student tenants – if the cosigner has terrible credit, it defeats the purpose of having them cosign.
Clearly specify the term of the lease – to avoid summer vacancies, you can require one year leases, and these can start in June to force students to pay the summer months before the school year starts. Alternatively, you could differentiate yourself by offering August-May lease terms… and simply mark up the rents to cover the vacant summer months. You can always lease the unit at a lower rate in the summer to graduate researchers.
To keep things simple, some landlords choose to include utilities in their rental rates. This ensures the heat or electricity won’t get turned off because the student responsible for that utility didn’t pay the bill.
Clauses in Lease Agreements
Protect yourself and your property by including specific clauses in your lease agreements in regards to noise, guests and parties. Address whom will be responsible if any damage occurs. State your expectations and the consequences for breaking the rental agreement. Consider charging a higher security deposit as well – students are brutal on housing, and will cause significantly more damage than, say, a nice elderly couple.
Lastly, make sure your lease agreement includes a clause making each student and cosigner liable both jointly and individually, so that you can collect the entire amount owed from any individual, in the event of an outstanding balance.
Are Students Good Tenants?
This may be surprising to some, but students can be some of your best tenants. They generally aren’t as demanding, since they are just venturing out for the first time. Their priorities often consist of location and safety. Smaller bathrooms or dated kitchens aren’t usually a deal-breaker.
Many students are serious about their studies and are looking for a quiet place to live. Those that are only there to party don’t usually last long. Careful background screening, that includes requiring an official transcript including a grade point average (GPA), can help you chose student tenants that are there to learn, not party.
Renting to students can also mean higher rental rates. When you lease each room individually, you can usually make more money than if you had an entire house for rent. If you create a space for four, five or even six students, each paying their own rent, you should be able to charge more in total than you could otherwise.
Not Sure About Taking On Student Housing?
Even in college towns, you aren’t limited to student housing. If being a landlord to a bunch of college kids doesn’t appeal to you, looks for units that aren’t as student friendly. Properties further away from campus, for example, won’t attract as many students. Single homes in the suburbs usually attract families, not students. More expensive or upscale units, such as condos or lofts, are great for young professionals and college faculty.
Remember that universities generate hundreds or thousands of jobs. Study your town and see which areas are more popular with your preferred group of renters.
Students can be excellent short-term tenants. Many landlords choose to rent exclusively to students and focus on purchasing properties in college towns. By being close to a college, your rental property will always have a steady demand for rental units. And with a built-in, ongoing demand for apartments and rooms, college towns offer a great opportunity to the right real estate investor.
Leasing to students does require additional vigilance. Tenant background checks are still important, with cosigners as well as tenants. Screening all applicants carefully can help ensure quality tenants. Most students are simply looking for a clean and safe place to live while going to school. By meeting their needs, you can also achieve your goals of having successful real estate investments.