Purchasing a property in a college town or in an urban neighborhood dominated by a university could be a wildly successful investment strategy… as long as you make the right considerations. You need to be aware of the differences between renting to a student population and the general public, so you can adequately prepare your rental property and property management strategy.
A potentially untapped market
Investing in student rental housing could provide you with a unique investment opportunity that allows you to access a market segment other investors in your area aren’t tapping into. When handled correctly, purchasing a student-oriented property creates a reliable revenue stream, with regular opportunities to add value.
Recognize that managing and owning a student rental property often requires a more hands-on approach as compared to traditional rentals. Additionally, there are times throughout the year when you may find it difficult to fill your property. You’ll also have to create unconventional lease agreements.
Properties in college towns or university neighborhoods are also highly desirable. It might mean paying a premium to break into the market.
If you believe a student property is in-line with your larger investment strategy and your personal investment objectives, carefully consider the benefits and drawbacks associated with this type of asset.
Benefits of renting to students
Renting to students is often a great way to charge reliable rents and work with a consistently growing tenant pool. The benefits of renting to a student population quickly become apparent, including the following:
•High degree of appreciation: One of the primary benefits associated with purchasing an investment property in a college dominated neighborhood or city is the high degree of appreciation its likely to experience. College towns are relatively insulated markets, meaning they’re less likely to devalue, even when national markets experience a downturn.
•Large tenant pool: When you purchase an investment property in a college town or neighborhood, you’re providing yourself with instant access to a large population of tenants actively seeking new housing opportunities. This allows you to position your property to meet their needs.
•Stable, rising rents: Most universities are actively improving their educational infrastructure and growing their student bodies. Meanwhile, most real estate surrounding universities is already densely developed. This means you can comfortably charge rising rents.
•Desirable locales: Snagging a property within walking distance of a university means you’ll have an exceptionally desirable location. This will help your property appreciate faster, and it will allow you to command higher rents.
Drawbacks of student housing
By investing in a property targeted to students, you are opening yourself up to a number of risks not associated with more traditional property rental opportunities. Here are just some of the central drawbacks you may experience when you begin renting to a student population:
•High degrees of turnover: One of the most significant drawbacks associated with student housing is the fact that turnover is relatively high. Students often leave campus following the end of each semester, which means you’ll likely have to find new tenants every four to nine months.
•Challenging summer months: When classes aren’t in-session, it may be difficult to find tenants who want to rent your property. This is particularly pronounced in smaller towns, where the local university is the primary employer, as well as the central educational institution.
•Potential property damage: College students are notoriously hard on the spaces in which they live. Parties, constant in-and-out and the long hours associated with the modern student lifestyle means your property is much more likely to experience some substantial damage while it’s hosting students.
•Hands-on property management: The income generated by renting out a student investment property is far from passive. In fact, you’re much more likely to have to use a hands-on approach to property management when managing university-oriented housing. Roommate disputes, disruptive tenants and more can cause serious headaches.
Savvy investors can use several smart tools to mitigate the potential risk they’re opening themselves up to by investing in student housing. Here are just a few ways you can limit the risk associated with student housing investments:
•Craft a creative lease: The first place to consider adding protections and safeguards is in your lease. A well-crafted lease is a cornerstone of student housing. Because most students won’t have an extensive credit history, you should require parental co-signers on all leases you issue at your property. This not only adds a layer of liability, it also serves to ensure a guarantor, which means rent will be paid on-time and in-full.
•Sub-divide utilities: If they’re not already, sub-divide the utilities at your property so each tenant is responsible for paying their share of the water, gas and hydro bills. This can help you minimize both potential tenant disputes over high utility charges, as well as your own liability to pay exorbitant energy and water costs.
•Hire a resident assistant: To ensure your tenants are behaving properly and your property isn’t at risk of serious damage, consider hiring a resident assistant to live on-site and police student behavior. Even the mere presence of an on-site managerial authority can significantly deter bad behavior from occurring in the first-place.
•Make rules clear and concise: When crafting your lease agreements, consider every possible scenario that may arise at your property. Even if you think it goes without saying certain activities are prohibited, make sure to include it somewhere in your lease documents. Prohibit illegal drug use, designate ‘quiet hours,’ water gun bans and more. Make it clear what you expect from the students renting your property.
Student housing can be a great investment for savvy real estate professionals looking for their next investment. But, it’s important to acknowledge the challenges associated with owning a property targeted to college students.
Purchasing an investment property in a college town or neighborhood could provide you with a high return on your investment, through its appreciation and the passive income you generate by charging rent.