By Mercedes Shaffer l Published in AOA Magazine
If you’ve ever thought about buying a rental property near a college campus but you weren’t sure if renting to college students would present too much risk and headache, after reading this article you will see that there are a lot of good reasons you may want to purchase an investment property that is near a university. Many real estate investors are finding the benefits outweigh the risks and they are purchasing rental properties in areas where there is a high demand for student housing. There are some drawbacks to be aware of as well, but once you learn how to avoid the pitfalls, renting to students can be very profitable.
Lots of Demand
Being near a college or university creates a constantly renewing source of rental demand. If you own a property near a college, try to time it so that your lease termination date coincides with the end of the academic year. Oftentimes students like to secure their housing for the Fall term before they leave for summer break, so it’s best if you’re able to time things so that you have a vacancy near the end of the Spring term when there is a peak in demand.
Maintenance & Repairs
In areas where there are not a lot of rental housing options, oftentimes students will sign a one-year lease even though they’ll be gone for the summer months. This creates a great opportunity for a property owner to do any interior upgrades or repairs without bothering the tenants. It’s important to know that even if the tenants have not occupied the rental yet, so long as they are on a lease, you must always give them 24 hours’ notice before entering and doing any repairs.
No Vacancies
If you take care of your property and you’re a responsive property manager, you may never have to search again for new tenants. Through word-of-mouth students will have friends who want to rent from you once their lease is up. Sometimes it may just be one roommate who is moving out and being replaced by a new one, in which case you simply use AOA’s Room-Mate Addendum.
Rental Rates
On-campus housing in many places is significantly more expensive than the average rent at off-campus options, and therefore it drives up the price of rents the closer the property is in proximity to the university. Not only are dorms pricy, but they are also small and cramped and oftentimes require students to share a room with one or two other classmates, so many students want the freedom that comes with living in an apartment after their first year in the Freshman dorms. High demand for rental housing and the high cost of dorms keeps market rates high in college towns.
Dispersed Risk
Most students don’t have any credit history or income so it’s their parents who co-sign and pay the rent. If you’re renting a 3-bedroom home to 3 students, and 3 sets of financially qualified parents are responsible for paying the rent, there is a lot less risk of the tenant not being able to pay the rent. Juxtapose this with a family where only one person is the bread winner, if that person loses their job there is a greater risk that they will not be able to afford to pay their rent.
Navigating Risks
One of the biggest risks with renting to students is that they are known for partying -- which can lead to damaging the property and costly repairs. When it comes to student housing, it’s important to check on the property regularly and to keep the parents informed and updated if there is any damage or noise complaints from neighbors. Renting to students does not mean that they are going to party and destroy your property. I have been renting to college students for many years and most of them are very respectful of the property.
One thing that is important to emphasize is the importance of reporting any leaks or damage immediately. Since it's often their first time with a place of their own, many simply don't realize they need to report small problems before they become major issues.
Refundable Deposits
With any tenant there is the risk of damage to the property, so if you make it a policy to collect the maximum allowable deposit you minimize your risk of not having sufficient funds to cover any repairs. The maximum deposit a lessor can collect is the equivalent to two time the monthly rent, and you cannot charge a different deposit amount for students vs. non-students. You must treat all tenants equally, it’s simply a matter of the tenant financially qualifying. It can be easier to find tenants who qualify when you have multiple parents who are responsible for the payments and the deposit, which is another benefit to owning property in a college town.
Weighing the Pros and Cons
Before you consider an investment property located near a major college or university, it's important to consider the advantages and drawbacks of renting an apartment or house to students. If you don’t like the idea of renting to students, while you cannot discriminate against them, you can choose a property that is not near a university so that there is a low likelihood that students will want to rent from you. If you like the idea of renting to students, buying property in a college town can be a profitable strategy, but like any investment decision, it has its pros and cons. As long as you can deal with the potential drawbacks, renting to college students can be a smart part of your real estate investment strategy.
Mercedes Shaffer is a real estate agent with Pacific Sotheby's International Realty and specializes in helping clients to create an optimal investment strategy through buying and selling investment real estate and 1031 Exchanges. If you’re thinking of buying or selling, or you would like a free investment property financial analysis, I can be reached by phone or text at 714.330.9999, by email at InvestingInTheOC@gmail.com or visit my website at www.InvestingInTheOC.com. DRE 02114448.