Around 14 million students nationwide attend a four-year university, and these students need somewhere to live.
With so many students looking for housing near campus, many buy and hold investors capitalize on this by purchasing properties near colleges. Like any other buy and hold investment, investing in student housing can offer outstanding earning potential with the proper research and planning.
However, renting to college students comes with its own unique factors to consider when compared to other types of renters. To help you decide if student housing is the right type of rental property for you, we went over some of the pros and cons below.
Keep reading to learn more!
Pros
Here are some reasons you may want to rent to students:
You Can Potentially Charge More For Rent
As a student housing landlord, you can charge more for rent since there’s higher demand near college campuses. To be able to do this, you need to look at the way you rent differently. For example, when you invest in student housing, you can rent per room rather than renting the whole unit to one tenant.
This makes it easier to maximize the price for your unit so you can profit from your renters. Say you want to get $3,000 out of your property each month. Maybe your monthly mortgage payment is $2,300, and you want to make an additional $700 per month from the property.
$3,000 is far too much for the average student tenant. However, if you get four tenants in the house paying per bedroom, each student pays $750, which is much more manageable. When deciding how much you want to charge tenants per month, plan for potential repairs and replacements, so you’re not paying out of pocket.
Tip: If you choose to rent by the room and are not living on the property, make sure you are aware of your local by-laws and regulations so that you can be familiar with and/or know the differences between tenant and roommate rights.
Rental Demand is High in College Towns
With so many students looking for housing near campus, competition is stiff in college towns.
Ideally, students like to live near other students, campus, restaurants, bars, or other local amenities. Since most students don’t want to worry about driving everywhere, living within walking distance of the hottest spots is also important.
If you can score a property within walking distance to these attractions, you’ll likely have a waiting list of students who want to rent your property, even if you are charging a higher monthly rent than your competition.
Tenants Have Lower Expectations For Housing Conditions
College students can’t afford (literally) to be picky about where they live.
Many college renters go into a new lease understanding that the property will not look like a 4-star hotel. After all, this is just a place for them to sleep, study, and hang out with friends.
Because college students have lower expectations for their housing conditions, you can get away with buying a fixer-upper for a lower price and using builder-grade renovations. While you’ll need to make it livable, you won’t need to put as much cosmetic work into this property as you would with an older, more experienced renter.
Tip: When renovating for students, consider renovating with materials that are durable and can handle wear and tear easily.
A Cosigner May Provide a More Reliable Source For Collecting Income
Many students don’t have enough of a credit history to qualify for the rental requirements you’ll want to set.
To ensure payments don’t get missed, you may want to require a cosigner for students who don’t qualify independently. Having a cosigner provides an extra layer of security for getting payments on time each month.
While students may not be as concerned about missing payments or hits to their credit score, their parents will likely care much more. If the student can’t pay for one or several months, the parents may step in and offer a loan to avoid late/missed payments impacting their credit history.
Cons
Here are some factors that may deter you from investing in student housing:
Tenants Are More Likely to Cause Property Damage
We mentioned earlier that student tenants aren’t as picky about the condition of their temporary homes.
While this can save you money, it can also cost you money. Since students aren’t hypersensitive about the home's condition, they may cause more property damage than other renters.
Also, college parties are common, so things may get a little rowdy in the unit and result in broken windows, holes in the drywall, stained carpet, etc. Remember that you can charge a security deposit to reimburse yourself for some or all of the damages.
Tip: The amount you can charge for a security deposit will vary depending on the state your property is in. We recommend brushing up on local laws to get the most value out of your tenants' security deposits.
Students May Lack Rental Knowledge
Some tenants have no regard for the rules or the terms of a lease.
When students don’t understand a landlord's rights or that missing rent will impact their credit history, you may spend more time, energy, and patience on certain tenants than you anticipated.
Breaches in Contract May Be More Common
Student renters often sneak in additional roommates to make rent cheaper.
For example, if a tenant moves in as a single renter, they may get in a relationship and ask their partner to move in and split their portion of the rent, leaving two tenants occupying one bedroom. Or, if there’s a basement, tenants may try to sneak a friend in to stay there even though it’s not technically a “bedroom.”
Since you must notify your tenants when entering the unit (unless an emergency needs to be addressed), they can easily hide that additional tenants are living in the home.
Tips For Investing in Student Housing
There are pros and cons to managing any rental property; student housing is no exception.
There’s great earning potential if you feel you can handle the cons of investing in student housing. If you’ve decided the pros outweigh the cons, here are some general tips for managing student housing:
Use a Standard Screening Process
When renting to any tenant, having a screening process is crucial for ensuring you know who you’re renting to.
A screening should uncover:
- Tenant’s job history
- Past evictions
- Income
- Rental history
- Credit score
- Sex offender status
- Terror watchlist status
- Criminal background
When tenants apply, you may want to charge a small application fee that will cover the screening process so you don’t have to pay out of pocket for each applicant.
Require Tenants to Pay Renter’s Insurance
This type of insurance will protect renters who live in houses or apartments.
It helps student renters pay for lost or stolen items while protecting both you and the tenant should a guest hurt themselves on the property. You can have renters pay for this insurance as part of the lease.
Use Inexpensive Materials in the Unit
Don’t buy the most expensive flooring, cabinets, countertops, or furniture when preparing your unit for student renters.
As we mentioned before, these tenants are more likely to damage the property and the belongings inside, so avoid using materials and items that will be expensive to replace.
Perform Market Research Before Deciding on a Unit
Before you purchase anything, you’ll want to ensure there is great earning potential in the region you’re thinking about investing in.
With PropStream, you can use real estate data to easily examine a market. Uncover information like:
- Rent Price
- Rent Price/Bedroom
- Rent Price/Sq. Ft
Tip: A real estate investment software like PropStream can also help you find off-market properties in a hot rental market. Since property condition isn’t a huge concern when renting to students, paying less for a distressed property can increase your earning potential!
Is Student Housing the Right Investment Avenue For You?
While investing in student housing can be challenging, it can reap great rewards if you plan wisely.
Try PropStream for 7 days free and enjoy 50 leads on us to find student housing investment opportunities!
