Powers Realty Group LLC, www.powersrealtygrp.com Broker Founder, David R. Powers, REALTOR located in downtown Dothan Alabama’s “Mural City” Historical District provides keen insight into parents and grandparents investing in their family members student housing investment properties or adding a property in their 1031 exchange investment portfolio. Student housing is consistently in high demand, so college towns such as Tuscaloosa or Auburn Alabama and most large university towns can be great opportunities for real estate investing. There are some downsides to renting to college students, though. Hint, you may want to offer a cleaning service as an “upgrade” service to your tenants for a fee, and to put some type of oversight into your property. If you’re looking for your next rental property, you might wonder whether investing in a college town is worth it. You should carefully consider the pros and cons before making the investment. To that point, some college towns, such as Auburn University, many students live in mobile homes as a normal practice as there is limited on campus housing. It is vital that you have maintenance and contractors on speed dial that have insight into these types of properties so repair costs are held to a manageable cost t property maintain your investment property and at some point you want to sell the property after four years.
Advantages of Investing in College Towns
Rental units in college towns can be highly competitive and lucrative. Here are some of the greatest benefits of owning rental properties in a college town:
Easy to Get Tenants
Most college towns are full of students looking for housing, so you may not have to market or advertise your rental property at all. A sign outside the building or a simple Google listing could be all you need to attract prospective tenants. Word travels fast in college towns, too. If your tenants have a positive experience, they’ll tell their classmates or colleagues, which will generate even more interest in your properties.
Large Applicant Pool
Because of the high demand for ongoing long term housing in college towns, you’ll probably have a large pool of applicants for all of your rental units. This allows you to be selective when choosing tenants. Renting to college students can be risky because most are young and inexperienced, but if you screen your applicants thoroughly, you can find reliable and respectful tenants. You don’t have to limit yourself to renting to students, too. There may also be a number of faculty and post-grads looking for housing close to campus. And quite often, a parent or grandparent may be the person held accountable on the lease for rent and or repairs if the students damage your property.
Higher Rates
Students aren’t made of money, but you can earn a fairly high rental income when renting by the room. Most college students live with roommates, and charging per tenant is a great way to maximize your rental income. For example, the average rate for a traditional two-bedroom apartment in your area may be $1,500, but instead, you could rent each bedroom out separately for $800.
Possibility for Prepaid Rent
Some students pay for their entire year of housing up-front with their loans or with assistance from their family. You could even offer a discount for paying up-front. This can give you a great deal of financial security and liquidity that you could use to invest in additional properties.
Simple Units
Student apartments tend to be very plain and simple. Most students don’t have the funds for a luxury apartment with brand new appliances, so a basic, no-frills apartment is highly marketable in a college town. As long as the unit is clean and functional, your renters will be happy. You don’t have to invest in major upgrades or renovations, so you can instead use your funds for new investments.
Disadvantages of Investing in College Towns
Buying property in a college town can be a successful venture, but there are risks involved, too. The following are some downsides to consider before making your investment:
Frequent Tenant Turnover
Most undergraduate students only stay in their apartments for one school year as the students find new friends and or relationships to fraternities or sororities and there often is constant turnover, however, there are relevant due dates for on campus housing turnover which can benefit you with incoming freshmen classes due to limited on campus housing in many towns. While you may find more stability with faculty or graduate students, most apartments in college towns experience frequent turnover. This means you’ll be constantly looking for new renters, reviewing applications, and cleaning and preparing your homes, condos or mobile homes for the next tenants. A keep point to mitigate your financial risk is to advertise in “parents of students” Facebook groups. Like our family, there are many parents of students groups in Facebook where parents can collaborate their family members college journey.
Damage to Units
Although not all college students are destructive or disrespectful, you have to remember that most of them are new to adult life and may be living on their own for the first time. When renting to students, you face a higher risk of the units being damaged, dirty, or poorly maintained. It is vital that you have a painter and or handyman on speed dial for student turnover and always have an attorney when dealing with security deposit disputes. A pre-rental and post rental walk through inspection report is always a good idea to document the condition of the home prior or after a tenant moves out.
Noise Disturbances
College students are known for partying, so noise disturbances may be a common concern in your investment property. If any of your renters throw loud parties, you may receive complaints from your other tenants or neighbors. You should be prepared to settle these disputes quickly and also it is also wise to document these disturbances with law enforcement from local or campus police departments.
Summer Vacancies
Students often look for housing with leases from September to May or June. To market your rentals to college students, you may need to offer these short-term leases. However, summer vacancies will reduce your rental income. You can use the off-season to clean, repair, or upgrade the apartments, but every month the property goes unoccupied is a financial loss. Also, many parents carry the leases through the summer sessions for their students which mitigate financial risks to your investment.
Tips for Managing Rental Properties in College Towns
Owning and operating a rental property in a college town can be different than managing a traditional investment property. If you’ve decided that a college town is the right location for your next investment, here are some strategies that will set you up for success:
Require a Parent or Adult Co-Signer
Renting to students with limited income and rental history can be risky. Requesting a parent or adult co-signer is a great way to achieve more stability and security. If your tenant fails to make their payments, the responsibility falls on the co-signer.
Require Renters Insurance
Maintenance and repairs are your responsibility as a landlord. However, renters insurance protects your tenants’ belongings in the event of fire, theft, or other incidents. When your tenants are covered, they’re less likely to pursue legal action against you if their personal property is damaged. Renters insurance policies are inexpensive, and they protect both you and your tenants. Please discuss these types of insurance with your licensed insurance agent to insure your property is protected. A key point is to have all tenants provide a active copy of a renters insurance policy prior to renting and renewal periods.
Screen Applicants
Because student housing is in such high demand, you’ll probably get several applications for each property you’re offering. Screen your applicants carefully to choose the best tenants. You cannot select or deny tenants on the basis of race, religion, national origin, or other protected statuses. However, you can vet your applicants by running credit checks, reviewing employment history, and requesting references.
Rent by the Room
If your property has more than one bedroom, rent each room out separately instead of putting all the tenants on one lease. You can usually charge more per room when offering separate leases to each student or parent than when renting the entire property to one person or party. This also helps with turnover because if one renter moves out, the other tenants’ leases are unaffected.
Offer Student-Friendly Amenities
A few simple amenities can make a big difference when marketing to students. For example, many students look for homes with on-site laundry. If your property or condominium building has any common areas, you could also create a designated study space by setting up some desks and computers. Furnished properties are popular among students, too.
Managing student properties requires a lot of hands-on work. Your tenants will probably only stay a year, and they may not take great care of the unit. However, you can get a great return on your investment from buying property near colleges or universities. Students and faculty create a consistent long term demand for housing, so you can find tenants with little to no marketing. As long as you’re aware of the risks and willing to put in the work, you can be successful with your investment. And as always you should consider using a REALTOR or Licenced Property Manager to manage your investment property to mitigate financial and physical risk to your property.
Powers Realty Group LLC, 306 North Foster Street, Dothan, AL 36303. www.powersrealtygrp.com (334) 446-4011