pros and cons of buying rental property in college town

Off-campus housing in a college town is consistently in demand. Wherever there is a university, there will be hundreds of students who need a place to call home — at least for the year. If you’re looking to begin renting or expand your scope as a landlord, college town property is an excellent investment.

However, you should understand the nature of college rentals before committing — it’s different than leasing to standard tenants. This guide will take you through all the pros and cons of renting to college students, as well as the best ways to manage your properties and mitigate any potential risks.

Benefits of Buying Rental Property in College Towns

As far as renting goes, the areas surrounding universities are moneymaking opportunities. The units are in a prime location, and most students will be more concerned with practicality over style, especially if it’s their first apartment. If you can take a property and make it suitable for tenants, then you’ll have no problem finding applicants and filling any vacancies.

There are many benefits of renting to college students, staff and professors, including the following.

benefits of buying rental property in a college town

1. Units Sell Themselves

In most cases, college towns are lively communities. They often have a broad range of surrounding activities and businesses, such as restaurants, galleries, a variety of shops and nightlife. Colleges are geared toward attracting young people, and the rest of the town typically follows suit. Since the neighborhood is already working to draw in youthful crowds, you won’t have to spend as much time and money on marketing. The availability itself will practically do the work for you.

College towns also tend to promote walking, especially in larger cities where students are less likely to own or need a car. Generally, areas surrounding universities are more heavily patrolled by campus security and city officers. Even if your renters aren’t young students, they’ll likely appreciate being in a location where walking is less of a risk. Also, if the property you rent is in close proximity to the academic buildings, the distance will make your units even more desirable.

2. Large Pool of Applicants

College property is consistently in high demand. Every year, there’s a new flood of students who need to find living arrangements. Most universities have a large percentage of undergrads and postgrads who relocate from other cities. Additionally, there are staff members and professors who move for job opportunities. The constant supply of potential renters means there will naturally be a larger pool of applicants for every local property manager.

While some colleges offer on-campus dorms, they are hardly competition. College students are getting their first taste of freedom from home, and having an apartment of their own is an exciting prospect. There’s nothing like living where all the action is. And even though there is generally a quick turnover rate for student tenants, finding replacements shouldn’t be difficult. Faculty, staff, graduate students and interns who accept positions with the university will be more inclined to stay around longer.

3. Market Rental Rates

Buying rental properties near colleges is an investment, like any other area of real estate. As the economy fluctuates, so do the values of housing and rental rates in different areas. But, since your rentals will be in consistently high demand, you’ll have the advantage of a stable value. With that kind of reliable need, you can charge market rates without driving away applicants or seeming like a crook. You’ll likely be right alongside the standard set by other local properties.

low vacancy rates for rental property in college town

4. Low Vacancy Rates

Despite the quick turnover and seasonal breaks, college town properties have consistently low vacancy rates. In the fall of 2018, the vacancy rate for student housing in the U.S. was at 2.6%, a figure that is projected to drop even lower. While the percentage increases over the summer months, it isn’t a lasting change. Also, your student tenants may stick around over the breaks to continue working, take summer or winter classes or have access to the university resources.

If you want to secure tenants even in the offseason, you can have them sign full-year leases. You’ll still have plenty of applicants who intend to stay, whether they need or want to. Yearlong leases are also attractive prospects for individuals who work at the university.

Risks of Renting to College Students

While there are plenty of benefits to renting to college students, there are also a few risks involved. The differences between leasing a standard apartment and offering units to students are significant, so you should know what you’re getting into as a landlord beforehand.

Here are some of the potential risks involved in renting to college students.

1. Tenant Turnover Rate

While there will always be incoming students, all of them are bound to graduate or leave at some point or another. The amount of time they stay can fluctuate from a few months to well over the standard four years, depending on their program. In some cases, tenants may even need to terminate a lease early, which can leave you in a tight spot when you were expecting the rental payments. Consistently needing to advertise the space, prepare it for new occupants, screen applicants and choose responsible tenants can take a lot of time, attention and money.

2. Off-Seasons

Universities go on a break between semesters. Classes are limited, less staff is required to run the campus and even some of the smaller stores close up. If the area surrounding the college is more rural or majorly focused on the student population, the town might seem deserted in the summer and winter. Selling rentals during these periods can be a challenge, especially considering the summer break typically lasts several months. Students won’t want to pay for times they aren’t using the space.

3. Property Damage

One of the largest concerns of most college town renters is property damage — and rightfully so. It’s not uncommon for student housing to take on heavier wear and tear than a standard unit. For one, young tenants tend to be more neglectful of maintenance and cleaning, especially if it’s their first apartment. They may also host parties and get-togethers on the weekends, and depending on the people they surround themselves with, the unit could see a significant amount of damage.

4. Not a Passive Investment

If you’re looking to rent out a unit and forget about it until the lease is up, then college town property is not for you. Student rentals need to be properly maintained and monitored at all times, as well as repaired quickly if necessary. For most tenants, it’ll be their first time living away from home or in an apartment rather than a dorm, so it’s likely that they’ll have a lot of questions that need answering.

You’ll need to be attentive and available as much as possible. From broken appliances to interpersonal conflicts with roommates or noise complaints from neighbors, college properties require a lot of management.

How to Minimize the Risks

how to minimize risks of renting to college students

While there are risks involved with renting to college students, you can mitigate them in several ways. You need to be fully prepared to take on the responsibility and know what to do when faced with difficult situations. If you know how to prevent problems before they can begin, you’ll have a much better rental experience overall.

As a college town property manager, you should:

  • Tailor the lease: Not all leases are created equal, nor should they be. Leases for student renters should be clearly defined, specific and in the best interests of you and your tenants. Include signature spaces for co-signers and clauses for noise, maximum occupancy and damages. If you prepared the lease on your own, it may be a good idea to have it reviewed by a lawyer, just so you know you’re covering all the bases.
  • Have parents or guardians co-sign: Whether or not your tenants are minors, you should have co-signers — the students’ guardians — on the lease. Including them will ensure there is a second responsible party in the case that the student can’t pay or becomes problematic.
  • Be ridiculously specific: It may seem silly to include details that should be common sense in the lease, but it’s necessary. Detail everything you could be held liable for if it isn’t in writing. Some potential restrictions might be prohibiting burning candles and weapons, or even odd rules like no climbing on the roof if there’s a point of access.
  • Require the student to pay utilities: New renters might not understand the value of water and electric. But, making payments their responsibility will make sure they learn to be mindful of how many lights they leave on and how long they shower. It’ll also prevent them from racking up an exponential bill for you to pay.
  • Screen tenants and guardians: When you’re considering applicants to potentially take on as tenants, perform a thorough screening process for the students and their guardians. Should you need to lean on the co-signers, it’ll be helpful to know they’re reliable backups. As far as the student goes, look for prior dorm or apartment evictions, legal issues or disciplinary probations and contact their references. For co-signers, pay attention to credit scores and legal issues.
  • Hire a monitor: Even if you trust your tenants to the fullest extent, it’s always a good idea to hire someone as a property monitor. Similar to a resident assistant in a dorm, this person will simply keep an eye out for any troubling behavior or potential issues. Offer a free rental in exchange, and you’ll probably have more than a few interested students.
  • Rent by room: Rather than having a single lease agreement for each unit or property, rent your spaces by room. It’s more convenient for you and the rest of your tenants, especially if any issues arise. With individual leases, you can evict a single tenant, or a student can terminate their lease without affecting the others.

If you follow all of these tips diligently, you will have a much lower chance of complications later down the line. It won’t always protect you from taking on a tenant that turns out to be irresponsible, but it will allow you to quickly recognize issues and create a solution.

How to Screen Student Tenants

When you screen applicants for a rental, there are standard questions you may ask or steps you take to ensure the individual is a responsible tenant. However, there are a few different variables you need to consider when the applicant is a college student. Generally, the screening process for a student should be similar to a regular one, but more thorough and inclusive.

For every serious student applicant, you should:

1. Check Their Histories

Before you agree to take on a student as a tenant, you should conduct a background check first. It will give you a good idea about their character and how responsible they are. Take a look at their employment history, credit score — if they have one — and legal records. Hopping from job to job, a low score and prior offenses may signal that the individual will be unreliable. On the other hand, a stable job situation and clean reports are a great sign.

2. Contact References

Ask the potential tenants to include several reliable references — this does not include close friends and family — on their applications. Once you have their contact information, follow through and call one or all of them. Former landlords and employers will be able to tell you how responsible the applicant is and what it might be like to take them on as a tenant. Whether their account is positive or negative, you can make a more informed decision.

how to screen student tenants

3. Screen the Co-Signers

If you really want to be thorough, you should screen the co-signers — the students’ legal guardians — as well. Not only are they some of the applicant’s biggest influences, but you may also need to rely on them should the tenant fail to fulfill the lease agreement. Conduct a background check just as you would with the student, although your focus should be mostly on credit score.

4. Watch for Early Red Flags

If you pay close attention, you may be able to spot a few warning signs of irresponsibility before taking a student on as a tenant. Some red flags to look out for include:

  • Nervousness about being subject to a background check
  • Multiple stories about troubles with past landlords
  • Neglecting to list any references on their application
  • Guardians who micromanage their student
  • Being unclear about the number of roommates they’ll have
  • General lateness and disorganization
  • Omitting responses or including lies on their application

One or more of these factors may indicate the student would be an unreliable tenant. You can save yourself a lot of trouble by paying attention during the applications and screening process. However, if a student exhibits one of these traits or behaviors, it does not necessarily mean you should reject them outright. You have to consider any of these instances alongside their references, screening and application.

Types of Investment Properties in College Towns

Although apartments seem to be the most prevalent form of college rental, you have several options in terms of property type. Depending on the university location, whether the area is rural or urban and what the surrounding residencies are, one kind of unit may stand out as most desirable. Your choice should also reflect your investment budget and the amount of time you’re willing to put into the property.

College town investment properties include:

  • Single-family homes: If you want to appeal to a broad pool of applicants, a single-family sized home is attractive to small groups of roommates, graduate students, college professors and university staff. It’s a more desirable option than an apartment, and vacancy likely won’t be an issue. The property will also be easier to sell if you decide to stop renting.
  • Multi-unit properties: Classic staples of older college towns and cities, multi-unit properties are a lucrative option. Duplexes, triplexes and quads house more tenants in less square footage than a single-family home, but they are relatively comparable in terms of the mortgage rate. Because of this, the property may earn you a better return than alternative options.
  • Apartment buildings: Landlords who want to commit to student rental and have the capital to invest should consider purchasing apartment buildings. As long as you keep the units occupied and maintain the property well, it will pay itself off and bring in revenue consistently.
  • Fixer-uppers: Remodeling a property can pay off big time in the long run. With the right tools, supplies and knowledge, you can turn an outdated single-family home into a duplex that’s perfect for college students. Just be sure to check zoning laws before committing.

In addition to having several options to suit your needs, you’ll also have the advantage of investing in a valuable market. Rental rates for student housing in the U.S. is growing steadily by about 3.3% each year, meaning your purchase will pay itself off over time, and you’ll be able to make a solid profit. If any of these sound like golden opportunities to you, consider buying investment properties in college towns.

However, you’ll need careful management to complement your units, especially if you take on several properties at once. Leasing in a college town can be a challenge, but you don’t have to do it alone.

Let American Heritage Property Management Help You

When you’re ready to take on college rentals, American Heritage Property Management can help you manage any unit. Since 1981, we’ve been providing full-service property management for landlords across Central Pennsylvania and in the Baltimore Metro area. Our company cares for over 3,000 units and is still growing.

Our experienced professionals take care of everything from tenant screening to preparing lease agreements to overseeing daily operations. We even have a licensed maintenance division that can handle issues 24/7. We also provide access to an in-house network of real estate agents, insurance providers, mortgage representatives and settlement officers.

Partner with American Heritage, and you’ll have all the tools you need to rent property in a college town. To get started, contact us for more information.

AHPM can help you manage college rentals

Posted by: heather on August 8, 2019
Posted in: Uncategorized