Is Renting To Students A Good Idea?
As a rule, college towns make suitable real estate investments. Property values hold across the board and not just for student housing. University towns tend to have vibrant downtowns, which are hot spots for lots of local businesses that attract locals and professionals to the immediate and surrounding areas.
Southeastern Michigan is no exception. Cities like Detroit and Ann Arbor offer much more than just a college vibe. Single-family or multi-unit properties can reap $1000 per room, and that’s just about where most one-bedroom apartment rents start. With many medium-sized properties offering 6-12 bedrooms, you can see how they produce positive cash flow.
But, there are several factors to consider before you decide to jump into student housing.
Pros
✔️Luxury student housing, which is becoming quite the norm, is commanding top dollar in a very competitive market. Monthly rents can garner $1200, $1500 or more. Deep down parents are hoping their kids graduate on time or don’t decide to switch majors.
✔️Besides inflationary upticks in price, properties with modern conveniences are collectively raking in billions of dollars annually. You may have lugged laundry home so your mom could take care of it, but nowadays many student suites are equipped with private bathrooms and washer/dryer units. As a landlord, you’ll have to invest a little extra upfront, but getting it back is easier when you’re able to charge more for the conveniences and amenities that today’s students expect.
✔️The rental market has built-in demand. The start of every school year brings in a massive influx of new renters. Though most universities and colleges require their students to live on campus for the first and/or second year, most students quickly abandon dorm life for off-campus housing.
✔️The housing market has little effect on student housing, which makes it all but recession-proof. That inherent stability keeps rent rates reliable whether home prices are falling or not. More often than not, the student’s parents are footing the bill for rent, so you can charge more than the student would be able to afford. Parents have already budgeted for it and see it as an expense of sending their kids to college.
✔️As opposed to the zoning ordinances in most cities, the majority of college towns allow landlords to, in effect, operate boarding houses and rent out rooms separately. This obviously boosts your overall rents for a building.
✔️Most college towns have organic activity all year long, so you don’t have to rely solely on students to keep your units rented. Many young non-students work in the area and would prefer to rent in the area since eschewing vehicles is becoming more popular. Should you find yourself with a short-term vacancy, you have the option of listing your property on Airbnb or a similar site until Student Move-In Weekend.
Cons
❌Vacancy rates can fluctuate more than usual, especially when school is out. If your renters have taken the time and effort to move out between semesters, there’s a good chance they’ll be finding another place to live for the following year. With students moving out every year, you’ll find yourself deep-cleaning, painting, and screening new tenants more often.
❌ The stereotypical college student is often less respectful of the property, which translates to doing more repairs and having to deal with more maintenance issues that go beyond normal wear and tear. Even if you keep some or all of their security deposit, you’ll still have the hassle of completing repairs between tenants.
❌Students prefer to live as close to campus as possible or least near a bus line to make commuting easier. That’s an indirect way of saying that properties closer to the center of campus will be more expensive to purchase. One option is to buy C-grade properties and to make improvements that will increase their value.
❌Purchasing a large property allows you to cash-in on the potential income stream using the economy of scale, but may require more money than your savings account can handle. You may need help through bank financing or a partner(s).
One or two single property units with 4 to 6 rooms can keep even the hardiest of landlords busy. Depending on how many doors you acquire, it may be wise to hire a property management company. So, if you’re ready to get back to school, student housing can be a great (and lucrative) addition to your investment portfolio.