Can i do it? Should i rent to college kids? What would you do?

Question

Hello new friends! I’m completely new at all of this and I need some direction because my ADD brain can’t decide which way to go and quite frankly I’m exhausted from thinking about every avenue of possibility. I'm hoping that I might have what it takes to be a landlord for the first time! Lots of background info (probably too much) and a few questions will be sprinkled throughout this diatribe, just hang in there with me!

I own my home which was built in the late 1890’s. Great character, approx. 2500 sq ft, 9’ ceilings, 3 bedrooms, 2 full baths, updates made to all the major things (electrical wiring, furnace/water heater, windows etc) and the location is within walking distance to the train station, international airport and a college campus.

The town is old, the oldest in the county, and it shows. The street that I live on is kind of what I would consider “the other side of the tracks” but it was in my price range at the time I bought it as a 20-something with two little kids. Luckily, the town has been getting updated as the college expands and I am certain my property value will increase, so I obviously want to keep it.

I am considering renting to college kids (everyone I’ve talked to about this rolls their eyes at this point) but we’re talking about kids from affluent families for the most part. This isn’t the rowdy kind of college town. Obviously screening tenants carefully, looking for high GPA’s and having parents as co-signers are of the utmost importance should I venture down this road. My biggest concern is: do the numbers make sense?

Mortgage was taken out in 2009 for $100k at 5% with a current balance of $82k. Approx $3k in taxes escrowed in so my current payment is 880/month. I need to refi my mortgage to remove the ex-husband’s name from the deed….so those numbers will fluctuate a bit. Wondering what best option is for refi through my credit union – is there a best time of year?

The comps in my area that are already renting to college students charge approx. $500-$550 per student with everything included. My average on those utilities (water/sewage/trash/electric/gas/wifi/cable) are $550/month (for myself and 2 kids). As is stands, the current numbers (without considering the refi) mortgage + utilities = $1430.

If I rent 3 bedrooms at 550 each (1650) minus my current expenses (1430) my net gain would be about $220. That’s obviously not incorporating the unknown factors of being a landlord that are completely foreign to me. At this time I am not looking to have a PM and will be handling it myself. Side note: the master bedroom is enormous with a large walk in closet – wondering if two could share that space for more rental income.

Prior to any of this happening, I would need to invest some money into good vinyl flooring for the bathrooms and kitchen, some patchwork to horsehair plaster (this stuff is the worst!) and some minor cosmetic updates. I also have a great big attic that could be potentially turned into a 4th bedroom depending on what code requirements it would need. However, that would likely wait until I have one year under my belt. I’m staying cognizant of the fact that these are young adults and things will take a beating so I don’t want to put too much money in anything that is likely to get any more damaged than what my own two have done.

I’m also assuming that an accountant will be needed to make sure that I have myself prepared for tax time and covering myself against any legal issues. Is there pertinent info that I need to ask when looking for the right accountant?

Okay.. I think that’s enough information for now. So … if this were you, what would you do?

Antoine Martel · Answer

I wouldn't mind renting to college kids. While some people do not like it because they can damage a lot, sometimes you can get some really great college students to rent your place. They're adults too.

Jim D. · Answer

I started renting to responsible students a few years ago, and I'll never switch back to anything else. They create far less wear and tear than kids or pets will. Mine never have trouble paying the rent, as $550 is much easier for a person than if they're providing for a whole family and shouldering $1500 on their own. I think you can make this work well by doing three things:

1. It seems odd to include electric/gas/wifi/cable... I would definitely put those into the tenants responsibility. (A lot of young people don't even use cable anymore, they just use the internet.) We'll say that saves you $150/month.

2. If your city rental rules allow for 4 unrelated renters in a house, you'll almost definitely make more with students by using the large room as a shared room. Check the local rent comps, but you might get around $350 per person for the shared room, giving you an extra $150.

3. If you refinance the house on a new 30-year note, it will reduce your monthly payment by about $100 (assuming you still get a 5% rate).

I just ballparked those numbers, but if those three things work out in that range, that would give you cashflow of close to $600 per month before repair and capex costs (I'd put aside around $300 per month for those).

It won't be a huge monthly cash flow generator, but if you want to hold on to the property for long term appreciation and mortgage pay down, I think you can make this a pretty good rental hold.

Karen Margrave · Answer

I own a 4600 sq. ft. house on 20 acres in Redding, CA. Since 2009 I have been leasing it to groups of students that attend a local ministry school, Bethel School of Supernatural Ministry, and now to YWAM Youth with a Mission. The house has 4 Bedrooms, 4 Bathrooms, Great Room, Family Room, and what we used as a large game room. There are usually 14 students living in the house. I am not concerned about wear and tear, as I know it's a lot of people living there, and it's going to get worn down. However; the use for showers, sinks, appliances, etc. is heavy, though I haven't had to replace anything but a kitchen faucet in all these years inside the house, and outside, I bought a new pool sweep and pump.

I kept the house thinking we'd retire there, but my husband passed away last year, so I'm considering selling.

I don't think there's a lot of drawbacks from renting to students, and in fact, for me it's been a great move. Though, I rent to a group, you will be renting rooms. Make sure you have an agreement on the room so that if they break it they are evicted immediately, and you don't have to go through the normal eviction process. Talk to an attorney. Many sober living homes use that model.

Johann Jells · Answer

The OP already owns the home, though it is unclear whether it's a 2 family or she's moving out to rent it. I've rented to kids right out of college, and it's been fine.

Thomas S. · Answer

My opinion, including the assumption you have some equity in the property, is that you will have negative cash flow on this property. Expenses long term will far exceed any possibility of positive cash flow.

Even assuming you can off load utilities to the tenants I see no cash flow long term. Also consider what market rents may be when renting plus utilities. You need to research your market.

If you make the rough assumption expenses will run 40 - 50% @ 40% you will only have $110/month of positive cash flow which is far too thin even under the best scenario. This does not take into consideration the value of any equity you may have in the property, refinance costs, time need for hands on management of a student rental or the fact that students will place a very high degree of ware and tear on the property.

Bottom line is I do not see this as a worth while investment option unless you can refinance at a much lower rate with maximum leverage over 30 years.

Kevin McGinnis · Answer

I own a rental property in a college town, and my first tenants were 3 female college students. I had all parents co-sign, and had no problems. It looks like you plan on renting "all-in", including utilities. If it were me, I'd reduce the rent per room, and have them pay for all utilities. Otherwise, they will keep it 65 degrees during the summer (even when they are not home), and 78 degrees in the winter. Just my 2 cents. In multi-family, when a building gets converted from owner paying to tenants paying, utility costs sometimes drop 30% or more. Also, check local laws so you know how many un-related persons can rent at one time. In my area, it's 3. Even if I had 4 bed house, I could not rent to 4 unrelated college kids.

Can i do it? Should i rent to college kids? What would you do?

Can i do it? Should i rent to college kids? What would you do?

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