Student Housing: Studios & Universities

[Shane Pearlman]

I am looking at an opportunity in Minneapolis (north of como) a few blocks from the University of Minnesota. Decent building and a lot of the big capital expenditures (roof, boiler, windows...) have been recently upgraded. The building has 10 studios, 5 one bedrooms and 1 two bedroom. The deal appears to have solid upside.

All of my experience is with 3br and 2brs. I have always seen the 1br and studio units as the same work for less money. With the exception of major city cores (Seattle & SF where my wife and I have most of my properties), they seem to also attract a lower income & higher turnover demographic. 

How does this play out within walking distance of a university? If mom and dad are paying the bills and a hefty deposit / odds are very high of 1+yr tenants due to student lifecycle, do I need to factor higher repair / turnover than usual? Are studios actually attractive to the student demographic? I always remember wanting to share with people for social reasons.

Anyone deep into the student housing side of the business and can share their experience?

[Account Closed]

This is exactly the type of building I managed next to a university in Santa Clara, CA.

I managed a 26 unit building, I was the resident manager, so I rented out 25 units.  6 were 1 bedroom units, and 19 were studios.  Most were very tiny, about 250 square feet.

This building was originally an old hardware store, and during the WW II housing crisis in the Bay Area, made into as many units as it could handle, with a few one-bedrooms thrown in.  Because of the way the building was, the studios were not a uniform size.  Most were, but then to fill in weird end unit spaces, some were bigger, and/or had bigger closets, etc.

The owner didn't like renting to students, but shortly after I took over management, the housing crisis happened.  And we revisited renting to students.  The beautiful thing about renting to students, if there is a major college/university close by, is that you will always have a market for your units, regardless of the economy.  And if your units are close enough to walk to the college, they will be in demand, and will fetch a higher than market (for non-students) price.

What we quickly learned, was that undergraduates were very high maintenance, and very destructive.  We didn't have problems in the studios, but we did in the one-bedroom apartments.  They were big enough to party in.

So, what we learned to do, was target grad students.  For us, we learned that our best grad students were law students.  I understand med students are also great, for the same reasons, but the university next to us didn't have med students.  The reason these students are so great, is because they are exhausted LOL.  All they do is study and go to school.  And they spend most of their time at school - in the library, etc., and basically use the unit to eat and sleep, and sometimes study in.

They also will very likely stay several years, if you can target 1st year law students (or med students).

This can be done by finding out how to advertise in their departments at the college.  For us, the law school had a facebook page, and after I went and met the housing director for the law school, she was happy to advertise our vacancies on their facebook page.  The university also had a website for off-campus housing.  If you can avoid advertising on Craigslist or anywhere else, or even on campus where undergrads will see your ads, then you can avoid having to rent to anyone else.  It's legal to only advertise to law students.  It's not legal to advertise to the public at large, and then say you only want to rent to law students, for example.

We also offered to our current tenants, a $100 rent credit if we rented to someone they referred.  So, I had law students looking for tenants for me.  I'd let them all know when I had a vacancy, but they would come to me with friends that were looking for a place to rent. I often had a waiting list.

Another thing I learned, was that students need to be able to sublet their apartments over the summer.  If you allow them to do this, they will continue paying rent, without moving over the summer.  They will normally have internships in other states or even other countries.  They won't want to lose their apartment, but they can't afford to pay the rent while they're gone.  So, I allowed them to find another student for the summer, and what I did was gave them written permission to have a long-term guest over the summer.  I kept them responsible for the rent (they usually gave me post-dated checks for the months they'd be gone), and I didn't get involved in their personal sublet deal with the summer tenant.  My tenants told me they often actually made a profit, LOL.  And I never had a problem doing this.  My written permission to have a guest made the subtenant feel "safe," that they weren't breaking any rules, but my permission said if there were problems, they'd be kicked out.

The subletting tenant is usually a student who is coming to your university for their summer internship, or they are students who are on-campus students who need to leave for the summer (or it's cheaper for them to do so).

For our one-bedrooms, I usually had a waiting list with my studio tenants, who might want a bigger apartment, or to move in with a friend to save on rent.  But, for the most part, my one-bedrooms were rented to non-students.

It was imperative that our building was quiet for our law students.  So, I dealt swiftly with noise problems.  Normally I could get a tenant to comply.  But, if they didn't, the way we were able to manage any problems quickly, was by having month-to-month agreements.  Regardless of having only MTM agreements, we had few vacancies, once we targeted the law student crowd, and allowed subletting.

So, I think you are on to something.  And I wouldn't worry about the other rentals in the area.  If your building is within walking distance, you will always be a preferred location.  And I wouldn't worry about being cheaper.  Your location will demand a premium rent.  Especially, if you do MTM agreements, and run a quiet building.  Word will get out.  And you will have a waiting list.

Our apartments were really bare bones.  No balconies, no grass, not enough off-street parking (though there was enough parking with street parking, as our residents could get resident stickers), no dishwashers, no disposals, no on-site laundry.  But, they were clean and well-maintained, quiet - and right across the street from the university.

For what it's worth, engineering students are also great.  Business students, including MBA students for some reason don't stay long-term as a rule.  Nurses are great tenants, so nursing students probably would be, too.

If I can answer any other questions, let me know.  But, I think this would be a fantastic investment.  As long as that college is there, you will have a market, no matter the economy.  But, grad students are way less headache, if you can pull off marketing just to them.