If you’re looking for a way to break into the real estate investing game – or you’re simply looking for another way to diversify an existing real estate investment portfolio – student housing in college towns is certainly something to consider.
There’s plenty of money to be made, but in order to be successful, you must proceed with caution.
Why Student Housing?
When we say student housing, we’re not referring to official on-campus student housing. We’re talking about off-campus housing options like single-family homes, apartments, and condos. Here are some of the benefits that come from these types of investments:
- Captive demand. There are very few real estate investments in the world where you have what amounts to a “captive” group of renters. Unless the school gets shut down (which is almost certainly not going to happen when there’s a major college or university involved), you know that you’re going to have an influx of several thousand new renters each and every year. On-campus housing can only support a certain percentage of them. The rest need somewhere to live nearby.
- Recession-proof. Unlike other investments, student rental housing is basically a recession-proof place to put your money. People still go to college during recessions and they still need housing. That’s never going to change.
- Higher rental rates. You can get away with charging higher rental rates in a college town than you can elsewhere. This is due to the fact that each tenant signs their own individual lease agreement. So while a house might only fetch $1,500 to a family, you could charge as much as $2,000 or $2,500 when you have four or five different leases.
- Less delinquency. Many student renters are still being supported by their families in some form or fashion. So even if the student reaches a point where they can’t pay the rent, someone else usually will.
This is just the start. The list of perks and benefits could go on and on. Just talk to anyone who has had some skin in the student housing game over the past 10 years and your jaw will drop with success story after success story. However, nothing is guaranteed. Plenty of student housing investments flop, too. It’s up to you to do your research.
The 6 Mistakes You Must Avoid
If you play by the rules and do your due diligence, college housing investments can generate a pretty substantial ROI for you. However, you absolutely, positively must avoid making the following mistakes.
1. Ignoring What’s Happening on Campus
Don’t just blindly assume that because a property is located in a college town, it’s a good investment. As always, location is super important. More specifically, you need to pay attention to the university’s long-term plans.
Over time, campuses evolve, and new building projects take the school in new directions. What’s considered the middle of campus today could easily be on the outskirts in five or 10 years. Likewise, what’s off-campus today, could be right in the heart of future developments down the road.
Don’t invest in a vacuum. Most schools publish their master plans for new building initiatives and campus development. Get your hands on these resources and talk to people in the know. You need to figure out where the campus is going over the next decade and plan your investments accordingly.
2. Incomplete or Poorly Worded Lease Agreements
Don’t take anything for granted in your lease agreements. College students usually have no experience living independently and will push the boundaries if they aren’t clearly outlined.
Have your lease agreements drafted by a real estate attorney who understands the nuances of college housing. It’s also important to take local factors into account, including how many people can legally reside in a single property, parking restrictions, etc.
3. Not Screening Each Tenant
Here’s a mistake that we see all the time. A landlord has a college student reach out and say he’s interested in renting the property. The landlord asks a few questions and does some basic screening on that prospective tenant. The individual then gets a group of his buddies together and they sign a lease. Big mistake.
You have to treat each tenant the same. It doesn’t matter if they’re friends or not – they must be individually screened and asked to sign individual lease agreements. Don’t let a college student serve as your screening solution.
4. Not Asking for a Co-Signer
With very few exceptions, every college student should have a co-signer supporting them. They simply don’t have the track record or finances to be 100 percent on the hook by themselves. Even if they have a job that pays enough to cover the rent, having a parent or loved one attached to the agreement significantly lowers the risk on your part.
5. Not Planning Ahead for the Next School Year
The tricky part about college housing is that you, as the landlord, have to plan ahead pretty far in advance. For the most part, college students are figuring out their housing plans six months in advance. So even if the lease doesn’t begin until August (next semester), students are lining up their housing in February, March, or April.
As soon as the calendar flips to a new year, you should be talking to your current tenants to see what their plans are. If they want to re-sign another lease for the following school year, get it on paper. If they don’t, inform them that you’ll be looking for a new group of tenants to take over once their lease expires.
6. Not Checking in on the Property
College students are, well…college students. They aren’t the cleanest or most careful people on the planet. They do silly things and can be irresponsible from time to time. Don’t make the mistake of only stepping foot on the property at the beginning and end of a lease.
Drop in every few weeks to see how things are going. (You can pose it like this: “Hey, just wanted to drop in and see if you need anything!”) This allows you to put eyeballs on the property while also setting a precedent with your tenants. If they know you have a tendency to ring the doorbell unannounced, they’re more likely to respect the property and make smart choices.
Let Green Residential Manage Your Properties
Want to streamline your investment portfolio and turn your rental properties into hands-off assets that produce steady monthly cash flow? We can help.
At Green Residential, we offer comprehensive property management services that handle everything from tenant screening and rent collection to property repairs and inspections. This removes all of the time-consuming “busy work” from your to-do list and allows you to focus on adding more investments to your real estate portfolio.
Want to learn more about how we can help you? Contact us today for a free property management analysis!