One of the most common questions among real estate investors is “Where should I purchase rental properties?”
They typically mean the context of finding neighborhoods and the best cities for real estate investing. But before asking where, it often helps to decide who you want to rent to. Because if you want to rent to college students, that determines exactly where you should invest.
For many investors, the thought of renting a house to college students invokes images of Animal House and a feeling of dread – perhaps in recollection of your own college experiences. I know I certainly have to admit that my respect for other people’s property was a little lacking in those years!
There are most definitely some risks and hurdles to having college students as tenants, but there are also some major perks.
Here are some advantages and disadvantages of renting to college students, and why you should consider it if it hasn’t been on your radar until now.
5 Pros of Renting a House to College Students
Despite your visions of toga parties and red Solo cups, student housing offers plenty of pros for buy-and-hold real estate investors.
1. High Demand
As long as there are universities, there is a need for student housing.
Schools can only house so many students on-campus, so students inevitably look to surrounding areas. Properties within walking, biking, or short driving distance to campuses are extremely desirable.
In many college towns, there’s a shortage of off-campus housing suitable for students, so the properties that are available typically have high and continuous demand.
Having this large, concentrated pool of potential renters makes marketing a breeze, and drives up rents.
2. Potential for Higher Rental Income
Another huge benefit of catering your rental property to college students is the opportunity to structure your rental income a bit differently. Instead of simply charging a normal monthly rent, you can calculate the rental amount per room.
For example, let’s say you have a 3-bedroom property that would normally rent for $1,000 a month. Rather than renting the entire house, consider renting rooms to college students at $400 per month. It generates an extra $200 each month in income, while still providing a very reasonable rate for each student that will be sharing the house.
Wondering how to administrate renting a room to college students? There’s really no right or wrong answer.
One option is to have each renter sign a lease agreement with the rent amount already divided up, basically leasing out each room. The other option is to have all of the roommates sign one lease agreement for the entire house in which they would pay you the entire rental amount in one monthly payment.
From my experience, both as a previous college renter and a current employee for a property management company in Indianapolis, the latter proves more common.
3. Student Renters are Less Demanding
Renters are picky.
Having worked on both the rental and sales side of things, I would argue even more so than most buyers. This, however, is not the case for college renters which is yet another advantage to renting to students.
As a college student, cost and convenience will be the two most important factors in choosing a place to rent. This means that they will likely be willing to overlook your property’s shortcomings that would otherwise turn a regular renter away. Think dated bathrooms, deferred maintenance, walls that haven’t been freshly painted, and carpets with the occasional beer stain.
With college renters being less demanding, there are fewer deterrents to getting your property leased.
Note: This by no means gives you an excuse to be a poor landlord or take advantage of the situation. It simply means that student renters don’t expect the house to be perfect.
4. Higher Assurance of Rental Payment
Two things that college students have that most other tenants do not are parental support and loans.
How does this benefit you as the landlord?
If a normal adult tenant doesn’t have the money to pay rent, you have to go through a bunch of rigmarole to get it. Often times it ends up costing you more time and money than it’s worth, especially if you have to file eviction.
In the case of college student tenants, they will usually have financial support from their parents, or student loans, or both.
Many students’ parents pay the rent on behalf of the students. Even if they don’t you can still require the parents to sign as co-signers on the lease agreement. While that doesn’t 100% guarantee the rent, it does give you a little more assurance that you’ll receive rental payments on time.
Student loans can be used towards housing costs and many students opt to pay their entire lease up front when they get their disbursement, providing you with guaranteed rent for the entire term.
Both of these scenarios provide some extra income security for you and yet another potential advantage of renting to college students.
This last advantage has less to do with renting a house to college students and more to do with owning property near a university.
For many of you, appreciation and long-term value plays a big factor into where you purchase rental homes. And if you think about it, properties near universities are a pretty safe bet when it comes to value increase over time.
Colleges are an important contributor to local economies and vice versa, local economies and government want to ensure they thrive. With that comes funding for projects to enhance the area, incentives for businesses to open nearby, etc.
All of these things contribute to the value of your investment property.
4 Cons of Renting a House to College Students
For all those advantages, renting to college students comes with its downsides, too.
Here’s what you should know before investing in student housing.
1. Higher Risk of Property Damage
Negligence is definitely not limited to student tenants, but with that said, it’s certainly a risk you will want to take into account.
It’s no secret that antics like keg parties, lawn games, and noise complaints are much more prone to happening when 18-22-year-olds are involved.
As they’re learning to live on their own for the first time and take care of things for themselves, there will likely be some excessive wear and tear in the process.
2. High Turnover Rates
Personally, I moved every single year throughout my four years in college, and so did most of my friends. The reality of high turnover is a very real consequence of renting a house to college students.
There are a plethora of reasons why students change their housing plans each year such as meeting a new friend they want to room with, needing to be closer to a certain part of campus or town, etc.
High turnover rates mean more work for you as the landlord or property manager, and a higher risk of vacancies – a cash flow killer. You have to re-rent the property every single year, and potentially do maintenance work like repainting, replacing the flooring, and so on.
3. Tenant Screening Challenges
As you likely already know, tenant screening is one of the most important functions you can perform as a landlord.
Thorough tenant screening is key to a successful renting strategy and helps prevent unnecessary issues down the road. But screening college students can prove to be difficult due to the fact that there really isn’t much to screen.
If they even have a credit score at all, it’s probably low, which doesn’t necessarily mean they’ve done anything wrong, it just means they haven’t had the opportunity to build credit yet. They likely have little to no previous rental history and if they do have a job, don’t expect an impressive income.
Overall, it can be really tough to qualify college renters. Good thing you can screen their parents instead, and require them to sign as co-signers on the lease agreement!
4. Added Risks During Extended Absences
Students almost always travel or go home for winter break, spring break, Thanksgiving, etc. This leaves your rental property vacant for prolonged periods of time, making it more vulnerable to break ins, vandalism, and other issues.
It can also mean frozen pipes during winter break, if the tenant leaves the heat off or low to save money while out of town!
Tips for Renting to College Students Profitably
Still interested in renting to students? Follow these steps to ensure you come out ahead when investing in student housing.
1. Add the Student’s Parent(s) as a Guarantor
Having the student’s parents co-sign the lease agreement is hands down one of the best things you can do to protect yourself in the case of renting a room to college students.
Make sure you screen the parents as if they would be living in the property, and that they meet all of your rental requirements. That includes credit reports, criminal reports, eviction history, income verification, and housing payment history!
2. Collect a Higher Security Deposit
But, requiring a higher security deposit commensurate with the risk you are bearing can be another way to protect yourself in the event of excessive damage at the end of the lease.
Our company’s philosophy is to NEVER charge less than one month’s rent, and we’ll even go up to 1.5 or 2 times the monthly rent depending on the perceived risk of the rental application.
The most important thing to remember when it comes to screening is to be consistent.
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3. Tenant-Proof Your Rental Property
This may seem to contradict our earlier discussion about college renters being less picky, but it has less to do with aesthetic appeal and more to do with saving you time and money.
It may cost more up front, but utilizing more durable products such as eggshell or gloss paint instead of flat paint, and LVT flooring instead of carpet or laminate could save you money in the long run. Think waterproof (and beer-proof) flooring!
Using finishes that can hold up to more wear and tear helps you tenant-proof your property and lengthen the useful life and prevent you from having to replace flooring or repainting between every tenant.
4. Conduct Quarterly or Semi-Annual Inspections
Checking up on your property and college tenants can be a little labor intensive, but it’s well worth the peace of mind.
During these visits you can check for any lease violations such as an unauthorized pet or resident, any unreported maintenance issues such as a running toilet or a leaky faucet, as well as any excessive damage.
Catching these things sooner rather than later is a great way to help protect your assets. And if you do catch a lease clause violation, you can start the eviction process before any more damage has been done to your property.
5. Outline Explicit Rules and Expectations in the Lease
Clearly state everything in your lease agreement.
For college tenants, you may want to emphasize lease clauses and rules like quiet times, noise complaints, maximum guest capacity, etc. Don’t leave anything open for interpretation and provide specific lease clauses and verbiage that details exactly what the tenant’s responsibilities are.
If everyone is on the same page from the beginning, it will be a much smoother experience for all involved.
6. Utilize Your Renters to Advertise
College students have major networks. Even small universities have several thousand people.
They’re absolutely going to talk about their living situations amongst each other, and, if you’ve been a solid landlord, you may find yourself getting referrals.
Capitalize on this!
Once your current student renter gives notice, offer a little incentive for them to spread the word about your property. This was an incredibly common occurrence when I was in school, and landlords would often have a new tenant lined up before the last one moved out, reducing vacancy greatly.
Feeling inspired or terrified, about the prospect of renting a home to college students?
Here’s a quick recap of the good, the bad and the ugly:
Renting to college students can have some major benefits for Landlords such as high demand, more rental income, and less picky tenants.
On the other hand, there are some downsides such as difficulty screening, high turnover rates, and high risk of property damage.
Luckily, you can mitigate those risks by requiring the students’ parents to sign the lease agreement as a guarantor, collect a higher security deposit, and outline explicit rules and expectations in your lease clauses.
Hopefully this in-depth look at renting to college students has given you some insight to help you determine if this investment strategy if right for you.
Do you currently rent to college students? Let us know about your tips, tricks, or pain points in the comments!