Thinking of getting started in duplex investing - target market- students

[William Wong]

Hello,

I was thinking of getting my start in real estate by purchasing a duplex and renting it out to students. There is a college town about two hours from where I  live. It is fairly small, only about 100,000 people and the University is the main source of direct/indirect employment.

I don't expect rapid increases in house prices but I do expect house prices to remain relatively stable.

I was wondering whether anyone has experience with student rentals. My main questions are the following:

1) What are the main things to look out for when renting out to students?

2) What were some of the mistakes you made and how might I be able to avoid them?

Thanks.

[Jeremy S.]

@William Wong

 @Helen Kirk

I have not invested in real estate to students however I just graduated college and have some experience from a tenant view point on this subject. I went to school north of Pittsburgh PA for some background on area.
For the first year it was mandatory to live on campus in really nice dorms, but they were small and cost around 6k-7k a year which is crazy when you only live there for less than 8 months. Most people move off campus as soon as they can. For three years I lived in a 4 bedroom house with 3 other guys. We were all on separate leases which helped, in my opinion, both us as tenants and the landlord. We had two roommates drop from the lease (after signing) in the very beginning. What was going to happen is me and my other roommate still only paid our rent ($450 per person) and those two people were still responsible for their rent unless they found people to replace them and take their lease. We had to approve of whoever took over of course though. We could of screwed those two people by not finding anyone and just living in that 4 bedroom house while they had to pay rent, but we found other people to live there to help them out. The renters also paid for water and electric. The landlord paid cable and internet. They made an absolute killing off of that house. They were bringing in $1,800 a month and I would be surprised if they paid anymore than 30K for the house within the last ten years.
Larger apartment buildings were also popular for students to live at in my college town and all of those companies used separate leases for each individual person. It makes it easier on everyone when a bad apple in the group wants out of the lease because it will not affect the other tenants and usually the apartment building had a list of one or two people who were looking to move in with one or two other people. It was often times hard to always have 4 people to go in on a lease.

There are pros and cons with renting to students from my experience:

Pros: 1. Students can use there federal loans, grants, or private loans as a proof of income and means to pay rent. This is commonplace. I did it for some of my rent and never was late. 2. When you rent to students especially renting houses they do not expect a very nice place (in general). There were multiple things wrong with our house, but we were young and had parties so we didn't care. Parties being mentioned we took care of the house and got back 100% of our security deposits after 3 years of living there. Bottom line many students aren't expecting a perfect place. All of us guys were pretty handy so when something small went wrong we would let them know, but we would just fix it. I do not know if you will find that to be true with a group of girls you may get many more calls if multiple things fail on your duplex. 3. Someone mentioned that they only live there 8 or 9 months out of the year. That is true, just make year long leases. It is an easy fix. Many times like my situation, I was paying rent, but no one was living there over summer so there is less wear and tear in that situation. Landlords will often get permission to do fixes during this time too since no one is in there, but rent is still coming in.


Cons: 1. DRAMA. There is constant BS a lot of times with students. A lot of people will want out of leases from fights or dropping out, etc. 2. Parties. There will be parties. How my landlord curved it at my place is they had security pass our house on the weekend since they had a huge apartment complex next door. I know this probably isn't feasible for you, but get creative and just enforce your lease. 3. Higher turnover than normal renters unless you have a competitive market for houses like my town did.


I feel that renting to students can be very profitable, but there is definitely a lot of risk. There was a handful of landlords that made an absolute killing in my college town. They were very successful. If the duplexes they had were in regular small town America they would get a fraction of rents compared to what they were getting. I just listened to a BP podcast that addressed this. I think it was 86. Give it a listen and good luck! Let me know if you have any other questions about my experience!