Remember the movie Animal House? The one with John Belushi and his college friends who hosted the most epic (and destructive) party ever at their Frat House? Well I do, and I think this movie single-handedly cemented all the fears that any investor has ever had regarding student rentals and why they are a terrible idea.
Table of Contents - The Benefits and Drawbacks of Student Rentals
The belief that all student rentals are ruled by the 3 B’s (Beer, Bongs and Bashes) and are a financially risky investment couldn’t be further from the truth. The fact is, when done properly, student rentals can be a lucrative long-term investment, a source of above-average monthly cash flow and relatively hassle-free.
Higher Monthly Revenue /Cash flow
Unlike conventional rental properties, students rent by the room, rather than the whole house, which can have a direct and positive effect on your bottom line each month. The more bedrooms that you can comfortably (and legally) add, the better your monthly revenue will be. With a smart design eye and a little creativity, many 3-bedroom houses with a large enough basement can easily be converted into a 5 or 6 (or even 7), bedroom student rental.
When you rent by the room, rather than the whole house, you automatically add a level of vacancy security to the property. Consider this: if a tenant in a single family home stops paying rent or suddenly vacates, you will have zero income until the house is re-rented. But, with a student rental, even if one or two tenants suddenly move out, you will still have income from the other rooms to sustain you and cover (or partially cover) your fixed costs.
Many students are not overly fussy when it comes to expensive finishes like granite counter tops or stainless steel appliances. Instead, these students are usually looking for a house in a convenient location that is clean, functional and well maintained. This means that when it comes to your renovation budget, you can skip the high-end finishes and hold onto to more of your cash.
Non-payment of rent is actually quite unusual in the student rental world. When you think about it, kids work hard for several years in high school to get accepted to university or college and their post secondary education is often a significant and meaningful part of their larger life plans. As such, they typically have a well thought out plan for how all aspects of their education will be paid for. So, even though they might not have a lot of extra cash, they do tend to have the necessary funds for rent. The norm is also for each student to have a guarantor for their lease. In my experience, parents are happy to act as guarantors and do step in to pay in the unlikely scenario that a student does not.
Easy to anticipate rental cycle
Almost all the student landlords I know, myself included, offer 12-month leases (May 1- April 30) exclusively, so the rental cycle comes up only once a year. The window to attract new tenants is also short (typically 30 days in early January) when the vast majority of students hit the streets looking for their homes for the following year. If you have an above average house in a good location, all you really need is to have an open house on one or two weekends and you can generally get you house rented.
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Students Will Be Students
Let’s face it, many students are just not that great at taking care of rental homes since it’s the first time out on their own. Many (though not all) are messy and they certainly don’t tend to take initiative when it comes to maintenance like a long-term tenant might. A possible work-around for this problem is to rent your house to more studious upper year or graduate students. For the most part they have outgrown their hard-partying ways and tend to be more interested in studying.
More hand holding required
Many students are novices when it comes to handling things that invariably happen around the house – like changing light bulbs or dealing with leaking toilets. So, if you are managing the property on your own, be prepared for lots of phone calls (especially in the beginning as the kids are getting settled).
If the thought of late-night calls about leaking toilets makes your blood run cold, you can always hire a property manager. I don’t manage a single one of my student properties and the peace of mind that I have knowing that there is a professional managing the day-to- day annoyances is a price I happily pay every month.
Other Important Considerations Before Investing in Student Housing
If you’ve decided that student housing is right for you, it’s extremely important to understand local by-laws and vacancy rates in your area. Given the profitably of student rentals, many investors (and even developers) are turning to this strategy and some locations can suffer from over-supply issues. Be sure to do your due diligence and understand the nuances of your chosen market well.
Gillian Irving is a real estate investor who specializes in student rentals that create passive long-term income for her family as well as her joint-venture partners. For her FREE Property Analyzer/ROI spreadsheet visit https://www.InvestInStudentRentals.com
Student Rental Investing Stories with Gillian Irving
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