Imagine a college student. They sleep in, miss class, throw loud parties, and can often be found in a hazy cloud snacking on whatever they can afford. With that image in mind, you may wonder why you might consider a student housing investment in the first place.
The truth is that movies like Animal House have given students a bad rap. Sure, there’s a chance they’ll have friends over more than most tenants, and a party or two might get thrown. But, across the U.S., attitudes around college are shifting.
More students than ever understand the financial risk of student loan debt. The ones that follow through with college plans have their families’ financial backing, which provides investors peace of mind, or they’re serious enough about their studies not to jeopardize their futures with needless partying.
Of course, there will always be bad tenants, whether they’re students or not. The fact is, savvy investors are capitalizing on student accommodation investments because the benefits outweigh the risks. With that in mind, let’s dig into why investors put their money in student housing.
Three Pros and Cons of Investing in Student Housing
For many people, a pros and cons list is a great place to start when making a decision. Investors are no different. While this list is by no means exhaustive, it’ll most likely spark your thought process to determine whether or not you want to consider how to invest in student housing.
Pros
A Captive Tenant Base
A steady supply of renters will continuously pass through the area in popular college towns. As long as student enrollment remains steady or increases, landlords will have plenty of tenants to choose from, and rent growth will be a common aspect of your investment.
International Student Security
International students have a number of incentives to push them toward success. In many programs, if an international student loses their job, they must get a new one in 90 days or face expulsion from their program.
Waning Occupancy Limits
In some states, occupancy limits put a cap on the number of people who can live in a single property. These limits were not applied to families, but now they won’t apply in states like Colorado. The result for investors is less anxiety around over-occupied units and more potential to create new rentable rooms via renovations.
Cons
Higher Turnover
Students typically rent by the school year, so you’ll likely need to find tenants yearly. As a result, landlords can experience more vacancy periods and extra costs for advertising and re-renting.
Financial Instability
Many students may not have a long credit history or steady income. Be careful when screening tenants, and consider requiring a co-signer or guarantor on the lease to ensure you get your rent paid promptly.
Potential for Property Damage
Because off-campus student housing may be some students’ first experience living independently, there’s the chance for increased wear and tear or accidental damage to your property. An appropriate security deposit is a great way to mitigate this risk.
How to Invest in Student Housing
If the cons weren’t enough to scare you off from student housing investment, your next step is to learn how to invest in student accommodations. These steps are critical if you want to reach the goals you have for your investment.
In the following sections, we’ll cover fragments of our Investing in Student Housing Academy course. Because the tips we include below are mere slivers of the content contained in the course itself, you’ll want to check out all 2+ hours of course content if you plan on investing in student housing.
Study Your Market
Rather than looking for a college with the most prestige or the highest number of enrolled students, check out your local market or the college town nearest you. When you operate your business in your own backyard, you’ll have a deeper understanding of the market.
Other considerations include:
- If and when the market reaches 100% occupancy
- Capitalization rates
- Competitive analysis
- Renter demographics
- Types of colleges nearby
- Your buy box (i.e., your ideal property type)
Establish Renter Criteria
Like renting to non-students, you’ll need to determine the criteria you’ll set when deciding whether to rent to an individual. Of course, students present challenges you aren’t likely to encounter with other renter demographics.
The first challenge is their credit score. Consumers need six months of credit history to get a credit score; some younger students may not have one yet. That’s a relatively easy fix; you could require a co-signer or a guarantor. Another option is to increase the security deposit to its maximum amount allowed by law.
In addition to a credit check, tenant screening reports uncover details that renters won’t be asked about on a simple rental application. Information that will come up on screening reports (where allowed by law) includes:
- Collections status
- Criminal history
- Eviction history
Also, make sure to consider the type of students you’ll rent to. International students will have a different screening process than domestic learners. Also, undergraduate students won’t have the experience of renting a property quite like a graduate student will, making them more patient and knowledgeable.
Find Tenants
Once you determine the criteria a student must meet before being offered a lease agreement, you’ll need to advertise your property so those students can find and apply to live in the dwelling.
For students, you have a crucial advantage in knowing where they go daily — to campus. So start there by posting fliers on bulletin boards. Then, contact the school for digital databases where you can add your property to the list of available housing. Colleges need students to survive, so it’s in their best interest to help them find housing.
These are just a few of the more common tips. Visit the Academy course for a full breakdown of potential campus-focused advertising opportunities.
Then, of course, are the traditional means of advertising properties. Landlords can use:
- Word of mouth
- Rental listing sites
- Social media
- “For Rent” signs
For some students, a mad scramble to find their next housing is inevitable. Make yourself a known housing provider in your community in order to capitalize on it.
Prep Your Student Rental
Just because they’re students doesn’t mean they can get by or be happy with dirty or less-than-functional housing. When getting ready to welcome your first student tenant, be sure to tidy the joint up and test the following internal components to make sure they’re operational:
- Appliances
- Water heater
- Washer and dryer (if applicable)
- Smoke and carbon monoxide detectors
- Plumbing fixtures
Some of the preceding may need an update or replacement. That’s just a part of the game. An investment in comfort and safety is an investment in happy tenants.
In terms of outdoor updates or renovations, consider the following:
- Turf installation
- Xeriscaping
- Sprinkler maintenance
- Outdoor furniture
You might scoff at the idea of installing turf or xeriscaping the yard, but turf requires far less maintenance and care than grass, and xeriscaping can save thousands of gallons of water every year. If you need to hold off on these updates or they’re not for you, you’ll want to get the sprinkler system maintained, if applicable, immediately.
And because you may be renting to multiple tenants in a single property, outdoor furniture turns the outdoors into a common space, which equals more room for your tenants to spread out.
Of course, everything just mentioned barely scratches the surface. If you’re a landlord or rental property investor, you likely already know that. Again, ensuring the comfort and safety of your tenants is a critical job, and the more comfortable they are, the longer they’ll stay. Plus, word spreads fast, and students are likely to promote your place to their friends if it worked out well for them.
Learn More About Student Housing Investment
For a complete breakdown of how to begin your journey in student housing investment, sign up for TurboTenant’s Investing in Student Housing Academy course. The article you just read only covers about 5% of everything you need to know before investing in your first student accommodation.
Also, if you’re studying the best landlord software to help manage your units from anywhere, sign up for a free TurboTenant account. With it, you can automate rent collection, property listing, tenant screening, and other critical aspects of managing your business from anywhere you can find an internet connection, and it’s free for landlords.
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