Finding lucrative niches is one of the keys to real estate investing success, and these days there are not many niches as potentially lucrative as the opportunities available in a college town. You have got a fresh crop of students coming into these towns every year, and your rental prices almost certainly will compare favorably to the residential fees charged by the local college or university. Additionally, you are apt to reap higher income by renting a multi-bedroom unit to several students, each of whom pay a share of rent, than if you rented that property to just one family.
“One of the big advantages is it is a fast-growing market,” says Nat Kunes, VP of product for AppFolio Inc., makers of web-based property management software.
To make your investment pay off, you need to understand the nuances of a college town market. College students represent a unique demographic, so you should start by educating yourself on how best to appeal to them.
Properties With Student Appeal
One trend that’s growing in many college communities is purpose-built student housing. “This is housing that is built with the sole intent of appealing to students,” Kunes explains. For instance, the property might include a downstairs lobby with retail shops, a Starbucks, or a satellite bookstore. Other amenities might include bike lockers or free Wi-Fi. An apartment in purpose-built student housing are also often set up “suite-style,” so that each occupant has a private bedroom and bathroom, which would be unusual to find in traditional apartment units.
While purpose-built housing has appeal to its targeted demographic, one of the other key considerations for students is proximity to campus. There are many students who want to walk or bike to school, says Kunes. “So you can win them over with amenities, and you can win them over through location.”
Be Aware of These Unique Circumstances
Though college town investing has many pluses, there are some unique circumstances that could possibly trip you up. Here are some of those complications and suggested steps for dealing with them effectively:
Wear and tear on your property. Some potential investors may worry about the possibility property damage from students having parties and overindulging in alcohol. However, Kunes contends that this supposed risk is largely overblown.
“There is a myth out there that students are going to trash the place, but the reality is with a college student, you get a co-signer (usually the parent), and that gives you some recourse in the case of damages.” Kunes concedes that wear and tear in student-occupied rentals is typically more extensive simply because there are more people sharing the unit. “So, you will probably need to increase your budget as far as fixing and renovating the unit is concerned,” he advises.
Dependence on the school calendar. Because student rentals are tied to the beginning of each semester, you’ll have considerably less flexibility regarding when you can start a lease. “It’s not like traditional housing where a unit can sit vacant for an extra month while you try to find a tenant,” Kunes says. “With students, it is pretty rare that they’ll be trying to find housing mid-semester, so if the unit is vacant at the start of a semester, it’s probably going to sit vacant for the entire semester, and that can be a big problem.”
To ensure your property does not go unrented, Kunes’ advice is to make sure you get your leases signed well before the start of the school year.
Rent collection. Having multiple tenants signing the lease can complicate the matter of rent collection. In response to this dilemma, Kunes has seen a growing trend toward leasing by the bed versus leasing by the unit. The advantage of this is that some students are willing to more for this option. “They don’t want to be responsible if their roommate doesn’t pay, so you can often get a slight premium when renting by the bed,” Kunes explains. The downside, however, is that you may have more trouble collecting from the delinquent roommate than if you had gone with the traditional rent-by-the-unit arrangement.
“Renting by the unit puts a little more responsibility on the tenants to work things out among themselves, and if someone is not paying, they have to figure out or find a new roommate,” says Kunes. There is no single right answer to whether you should rent by the bed or by the unit. Kunes advises that each investor weigh the pros and cons before making a determination.
Because of the nuances of college town rentals, it’s incumbent upon investors to do adequate research before moving forward. Chances are you’ll want to proceed based upon the success you can achieve in college towns.
“You should do your homework,” Kunes says, “but usually they’re a pretty safe bet.”
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