Investing in College Housing

Investing in college housing is a great way to get started in the rental property business. Before you roll your eyes, and have flashbacks or your own wild collegiate years, think about these:

  • College kids always need a place to live.
  • Parents frequently pay the bill.
  • College students (sometimes) party hard… other’s work their butts off.
  • High turnover allows you to frequently and easily change the rental amount.

Renting to college students

Renting to students has a plethora of advantages: for one thing, you don’t really have to advertise a whole lot as word of mouth is key in this demographic. These properties are also considered fairly prime locations and although you may have a high turnover, you probably won’t see your units sit vacant for very long. If you have a rental property near a college, you may want to consider customizing your lease to sort of cater to that niche and also protect your assets.

Here are few items you can, and probably should consider, with your power lease agreement with college bound young adults.

Due Date of Rent. College students may have a relaxed attitude about the date the rent is actually due. However, your mortgage payment won’t be flexible.   If you do not specify the due date with the tenant(s), the payment may slip. Once payments start to get behind, it can be impossible to catch up.

Number of residents allowed on the property. Every house has a limited amount of space and small college apartments will only be appropriate for a limited number of people. The rental agreement needs to be specifically deigned to limit the number of people who are allowed to live on the premises and each one of them needs to be listed in the lease agreement.   The more people crammed into a space, the more wear and tear on your property. So, no live-in girlfriends/boyfriends or long term couch crashers.   One caveat: make sure you don’t violate any local housing laws when limiting the number of people who can live in your property. For example, state laws forbid discrimination against families with children.

Rent offsets. Some tenants think it is reasonable to barter for some of the rental obligation. This usually means they cannot afford the rent you are asking. This isn’t uncommon among college students, but’s it’s a road you need to be wary of.   What if they injure themselves while working for you? Are you responsible for providing insurance or withholding taxes? Any number of serious conflicts can come up, so you are better off keeping the landlord-tenant relationship as simple as possible.

Automobiles on the premises. Just as you need to restrict the number of people living on the property, you want to restrict the number of cars that tenants are allowed to have parked on or near your property. Your lease needs a restriction on the number of vehicles, a rule that the vehicles have to be registered, and (possibly) a ban on working on vehicles on the premises.   Without those rules, it is easy for tenants to make a mess of your property, not only visually (think “curb appeal”) but environmentally as well.

Application of security deposit to rent. Always collect first AND last month’s rent, in addition to a security deposit. Follow this rule unless local practice dictates otherwise; For example, doing so would be too much for tenants to come up with out of pocket, and therefor your rental property sits vacant for extended periods of time. Sometimes, college students may decide to apply their security deposit to the last month’s rent. This means that if they do not clean the property or if damage has been done, you have no recourse in collecting the costs from the security deposit.

Conditions for Return of Security Deposit. The security deposit is intended as a fund to ensure that tenants do not damage your property, fail to return keys, or leave without cleaning. Does anyone know college kids who don’t like cleaning? That is a rhetorical question, but some students will cause considerable damage and fail to clean up the place, yet still expect to be given their full security deposit. Doing a walk through BEFORE they are ready to vacate can often solve this potential problem. At this time, you can let the students know what needs to be repaired or cleaned. Gently (or not-so-gently depending on your style) let them know that in order to get their security deposit back they will be required to complete the tasks that you have pointed out to them. This step helps improve communication and ensures that the tenants know the terms of vacating the property.

The pros and cons of a college town

You’ll need more than school spirit to profitably house college students, but investing in a college town may be a perfect choice for the active landlord who can handle a certain amount of wear and tear due to youthful exuberance. However, for a landlord who prefers a more passive role in property management, investment properties in university towns may be the wrong way to go.

The Good Stuff

Community thrives in a college town

College towns are notoriously cool, and offer amenities that are unavailable in the suburbs and rural areas. The unique needs of faculty and students work together to create a community that has a lot to offer in the way of arts, restaurants, entertainment, and depending on the area, green space. The university itself hosts cultural events, sporting events, guest speakers, and programs often open to anyone affiliated with the school. Restaurants pop up everywhere in order to satisfy the frequent dining out needs of students, offering food that is as diverse as the population of students. Some universities offer public transit systems in places where transit options would be otherwise limited. A community like this will always be a draw for new renters.

A new batch of potential tenants every August

New college students show up like clockwork every year, and while many start out living in on campus housing, there are always sophomores and juniors itching to more off campus into a private rental. While the main influx of students happens at the start of the Fall Semester, transfer students, graduate students, and new faculty and staff move to town all year which makes for a steady supply of potential renters.

Steady rent prices

High demand keeps rent prices from fluctuating despite other market changes. This demand also affects housing prices in college towns, making the property itself likely to hold value over time. Stand alone housing that would be considered single family in the suburbs (perhaps occupied by one or two incomes) can house three or four students in a college town, allowing for a higher rental price. Many college students are heavily supported by their families, making rental prices independent of meager or nonexistent student incomes.

The Bad Stuff

Significant wear and tear

To make a sweeping generalization (and to reference every classic college movie ever made), renting to college students is hard on a property. Most students are living on their own for the first time, and dorms, with their concrete slab walls and furniture built to withstand the apocalypse, are more indestructible than the average rental unit. The college lifestyle, late nights, lots of stress, lots of alcohol to deal with the stress, and general immaturity, will leave lots of wear and tear on a unit. However, if you are a handy landlord who lives close enough to the property to handle repairs, the pros of renting to students may outweigh the broken windows, carpet stains, and that lingering smell of stale beer.

Summer vacancies and subletting

While students do take classes in the summer, lower course offerings and other priorities keep the student population lower. Many college students go home during summer break, or travel for internships and study abroad programs until school starts back in the Fall. Housing units are more likely to be empty during the summer, and the request for subletting is common.

Definitely not a passive investment

Investing in rental properties in college towns can be a lucrative choice for a property owner who is comfortable with active maintenance of their units. However if you’re looking for a passive investment, it’s probably best to find a market where the potential renters are a little older, and less likely to try a keg stand.

Summary

While it is true that not every college kid or group of college kids is going to turn your unit or rental home into a flop house, it stands to reason at some point, you may be dealing with some aftermaths you’d rather avoid. Acting accordingly can give you a healthy return on investment for your property, while not requiring you to pay a fortune in clean up and repairs at the end of each lease.

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