Seven Reasons College Rentals are a Great Investment

There are many niche markets you can get into as a landlord.  We have both single-family and college rentals. By far our favorite type of investment property is the student rentals.  As a matter of fact, the majority of our properties are student rentals. We feel good knowing that we are providing a nice, quality place for young adults to live and study.

We aren’t talking just apartments—most of what we have are single-family homes that we have rented out to multiple college students instead of a family. The students have given nicknames to some of our houses which adds to their college experience and helps to create a local brand for the house that can help keep it occupied.

This is often the first home the students have had other than their parents’ house or the dorms. There is something exciting about that for them and us both. But, before you jump into providing quality housing for students you have to ask yourself—is renting to college students for me?  Well, only you can decide that, but here are the top reasons we like it.

1.  Cash Flow

The typical single-family house located in a college town and near areas students like to live can often produce a higher rent with multiple student tenants than if it was rented to a family.  According to an article on “an average house in a good location near a college town can yield 30-40 percent higher rents than the same house five miles away, and these types of rental properties can hold their value for years to come while generating massive amounts of profits by renting to college students.”

Real World Example: Some of our houses rent for $1200 to college students.  If we were renting them to a family we would only be able to charge $800.  We are receiving 50 percent more yield by renting to college students! However, not all houses are created equal, and you have to know if local zoning allows you to rent to multiple students. The location and size along with zoning regulations are important determining factors.

2. Steady Supply of Renters

There are a lot of college students out there.  Student housing providers have a large, captive pool of prospective tenants. Often the students are anxious to get out of cramped, expensive dorms and find their first place as an adult! And despite current debate about the value of a college education, the steady supply of college tenants isn’t expected to dry up.

The NCES (National Center for Educational Statistics) reported that in the Fall of 2015 the total undergraduate enrollment in postsecondary institutions was 17 million students.  That was an overall increase of 30 percent from 2000. (Undergraduate enrollment increased by 37 percent between 2000 and 2010 and experienced a 6 percent decrease between 2010 and 2015.  This drop may reflect older students who had gone back to school during the Great Recession finishing their degrees and re-entering the workforce—our analysis, not the NCES’s.) 

The NCES projects the student population to increase by 14 percent between 2015 and 2026.  That means there should be 19.3 million young adults looking for a place to live—a 2.3 million increase.

Projected Student Enrollment by the Millions Broke Down by Gender

You don’t have to limit yourself to universities either.  Students at community colleges and trade schools may also provide a great resource for rental income. 

3. Recession Proof

Some say that college rentals are recession proof.  The truth is that nothing is recession proof, but college rentals may be recession resistant.  When the job market gets lean then not only do recent high school graduates head for college, but so do older non-traditional students. College rentals are an attractive way to diversify your portfolio for hard times.

 4. Dependable Turnover

The number one complaint about owning college rentals seems to be the increased amount of turnover. It is natural to dislike turnover, because in the rental business turnover equals work. Turnover makes your passive income investment less passive, especially if you are a DIY landlord. Having a good system to deal with turnover in place makes the difference between kayos and a smooth transition.

One of the ways we mitigate our workload is to set all our college rental leases to expire with the end of the school’s semester. That’s when the dorms close and most other landlords’ leases in our area end. The date our leases expire is like Christmas—we know it is coming all year long. We will be writing more about our efficient turnover system in the future, which includes posting upcoming vacancies, collecting rental applications and conducting interviews, scheduling showings, and the move in/out inspections.

Once tenants are in place, they’re most likely going to stay put. You’re unlikely to get “surprise turnover” throughout the school year where your tenants unexpectedly decide to move out. Students need a super good reason (family emergency, health crisis, bad roommate disagreement) to move in the middle of a semester so it just doesn’t happen that often. You might get the rare occurrence of this, but if you structure your lease correctly, the outgoing student will continue paying you rent or the remaining student tenants will have to chip in to cover the entire rent.

The predictable timeline for college rentals makes it easier for us to schedule our vacations, any large projects we want to complete, etc. at our slower times. We surge for a while and then things quiet down.

5. Potential for Zero Vacancy

A major reason turnover is dreaded in the single-family market is vacancy and lost income between tenants. But with college rentals, there is potential for zero vacancy!!

Most single-family landlords expect to lose about 5% of income due to a house being empty between tenants. They might take this time to clean and do repairs and show the house while empty. This works because there are people looking to rent single family homes at any given time.

With college rentals, most students need to move all at once—at the end of the spring semester. Students being turned out of the dorms have to have a place to go. Students graduating are leaving the area. And anyone else wanting to switch housing knows they need to do it then. The last couple of days of the spring semester there is a rush. Students are on the tail end of finals and everyone is being uprooted for new homes at the same time. Very few students move at other times in the year.

All of this turnover at the same time means no gap between outgoing and incoming tenants! But you have to be prepared. You show the house in advance while it’s occupied. And you have to make sure your outgoing tenants don’t linger and have everything cleaned up before their lease ends. You may need to do some minor maintenance in the first days after your new tenants move in.

Communication and scheduling (of move-ins and move-outs) are key at this busy time.

6. Often Lower Risk Rents

Often parents are the ones paying students’ rent. Even when they aren’t the primary source of income, the parents often act as a backup if the student cannot come up with the rent money.  This is an added level of security for collecting rent that you don’t get with single family rentals. We have had more trouble collecting rent from some of our adult tenants than we have had with our student tenants.

Additionally, renting a house or apartment off campus is usually cheaper than renting student housing on campus. It is a win for both parties. According to recent U.S. News data posted on choosing to commute everyday is a “move that saves commuters money on room and board, which averaged $10,814 for ranked colleges during the 2014-2015 school year.

7. Making Money While We Sleep (or while we Play)

Rental properties aren’t completely passive investments when you’re self-managing, but the reward is much greater than the hours we invest.  An 8-5 job takes an entire day, especially when you factor in your commute. While we have a busy couple of weeks when we need to find new tenants, and another busy few days as the houses turn over, there are some weeks when we don’t spend any time on them and they make money while we focus on other things in our lives… like catching up on sleep (or playing games with the kids).

Would you ever consider renting to students?

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