Student housing rentals can be one of the most profitable niches in all of real estate. However, for all the tremendous upside they do come with their fair share of challenges. A student housing rental is any property located near a college or university that rents to students. This arrangement often works as a win-win for both tenants and landlords. Tenants live in a house rather than a dorm or small off-campus apartment, usually for less than the cost of living on-campus. Landlords can charge higher monthly rents based on location and demand. Property values near colleges tend to appreciate in value but require more time and management. Investing in student housing rentals can be a real home run but they are not for every investor. Here are some pros and cons with student housing rentals.
Higher Rents: The primary benefit of student housing rentals are the increased rents. It is not uncommon for a student housing rental within a mile from the campus to earn 10-20% higher rent compared to the average rental property. In the right location and with the right amenities you can get as much as a 25% increase in rent received. This increase in cash flow makes student rentals very appealing.
Large Tenant Pool:Students are always looking to live off-campus. In some schools they are required to live off-campus after their junior year. Other places simply have a shortage of on-campus apartments and living off-campus in a house makes more sense. Either way, a well-positioned property will consistently be in demand with hundreds of students are looking for off-campus housing. This gives you a tremendous pool of renters to pick from.
Increased Security:The structure of the lease on a student housing rental is different than a traditional one. The students are the lease holders but are not the guarantors of the lease. In most cases their parents or guardians are held financially responsible for the lease. This gives you an increased sense of security in knowing that if their tenant defaults the parents are responsible
Management:Renting to a family is much different than renting to a group of students. For most students. this is the first experience they have of living on their own. With that, there are going to be some bumps in the road. You can expect to get phone calls about basic maintenance issues on a weekly basis. Some calls will feel like the end of the world when a simple fix is all that is needed. If you own a student rental, expect a greater need for management.
Damage/Condition Concern:Regardless of how nice they are a student will not treat a rental property the same as they would their own house. The security deposit protects the landlord from major damages, but it is the routine maintenance items you need to worry about. Students put more wear and tear on the property that will cause you to spend more money over time.
Annual Turnover:As great as it is to have a large tenant pool to choose from there is another side to that coin. Most student housing leases run only a year or two tops. This means you must prepare the property for turnover and find new tenants every year. You should ask your tenants to have the property cleaned and be open to constant showings until you find a tenant.
In the right location and with the right management a student housing rental can be a real home run. However, you need to have patience knowing that your tenants are young adults living on their own for the first time. Do you have the experience to teach young adults to live on their own and maintain a house? Perhaps a student housing rental is the investment opportunity for you!