Landlording Strategy: Student Housing

Innovative Strategies
11yFollow

Landlording Strategy: Student Housing

Alexander Merritt
Investor · Baltimore, MD · Member since 2014 · 163 posts · 51 votes

Hello BP!

I recently met an individual who has a few rental properties in his portfolio. The thing is, he is only marketing them as "student housing". The properties are located near a local college and he has worked with them to get on their preferred housing list.

A few things:

1) He says he only markets them as student housing and only places ad's in places where students visit / would see (like college sporting event programs). I guess he's able to get around the "fair housing" laws because he's marketing them as student housing so he doesn't get regular Joe's inquiring about them.

2) His leases are per college semester and he has parents co-sign and puts them as the primary

3) He doesn't do any background checks. He didn't really explain why not but I'm assuming it's because he probably figures that the parents are going to pay anyways. They aren't going to not pay and have their child be kicked out.

4) He collects a small deposit and security deposit at the time of lease signing and then the remainder of the rent for the semester by the end of the 1st week they move in. So payment is up front, just like you would pay for housing on campus.

5) The properties he has are a "per room" lease. Meaning, the propertty has 6 or so bedrooms but then everyone shares bathrooms and kitchen. I'm not really sure if that's even legal to do....?

He says it's great because he never has to worry about finding vacencies and it gives him time during the summer to do renovations since most of the units would be vacent, but his expenses are still covered for the year because he takes the "summer" months into account when determining the rent. I'm assuming the paperwork is a little more, but he says it's not too bad.

What are your thoughts on this? Does anyone else do this? What can you think of for pros vs cons?

1Reply
20 views

Most Popular Reply

Fred Heller
Real Estate Agent/Property Management · Houston, TX · Member since 2014 · 1k+ posts · 827 votes
11y

I have a friend who has an investment in a student housing building in Columbus. I don't know the specific details, but I do know that he's very happy with it. He did mention that having a good property manager was crucial to its success.

1Reply
See this reply in the discussion

13 Replies

Jump to latestLatest
  • Brandon Schlichter
    Real Estate Agent · Circleville, OH · Member since 2008 · 633 posts · 488 votes
    11y

    We are looking at buying a mixed-use property and converting it to student. What you're saying is pretty similar to what I've been hearing from others. Median income is much higher than a 'normal' unit, but you do have on/off season. One strategy I've heard is to rent to one, maybe two students are in it for the long haul and elect them as help for the unit over the off season, and give them a discount on rent (Same ones that want to hold part time jobs year long). 

    0Reply
  • Alexander Merritt
    OP
    Investor · Baltimore, MD · Member since 2014 · 163 posts · 51 votes
    11y

    @Brandon Schlichter 

    What type of property are you looking at? SFR or Multi-family? Would you rent out per unit (meaning 2 or 3 or 4 students all sign a single lease) or per "room" with shared kitchen bathrooms?

    0Reply
  • Brandon Schlichter
    Real Estate Agent · Circleville, OH · Member since 2008 · 633 posts · 488 votes
    11y

    It's a 4plex with one unit being a 4 bedroom, 3 bathroom unit (Very large overall).

    We would be renting a combo of per room, and maybe offer two to a room for a decreased rate. Shared kitchens, laundry and bathroom.

    0Reply
  • Sam Henry
    Investor · Baltimore, MD · Member since 2013 · 9 posts · 1 vote
    11y

    @Alexander Merritt, I'm working on a project similar to that in Baltimore. I think it's an excellent business model but I also think it will be more management intensive than most REIs want to deal with. Especially those that self-manage. Having a great property management team who is on board could make all the difference. 

    Is the individual that you mentioned investing in Baltimore as well? If so, which school?

    0Reply
  • Fred Heller
    Real Estate Agent/Property Management · Houston, TX · Member since 2014 · 1k+ posts · 827 votes
    11y

    I have a friend who has an investment in a student housing building in Columbus. I don't know the specific details, but I do know that he's very happy with it. He did mention that having a good property manager was crucial to its success.

    1Reply
  • Joshua Clark
    Warrenton, VA · Member since 2013 · 39 posts · 17 votes
    11y

    One of my friends owns about 13 homes near Western Michigan University. He has been renting to students for over a decade now as he has been growing his portfolio. He typically has a group of friends rent a SFR together, and gets the parents to sign the lease (this is of utmost importance according to him). He also advertises through the University housing office.

    He self-manages his properties, with the help of another mutual friend who is in the process of buying his second student-rental.  His homes do typically require a lot more repairs/maintenance after vacancies, but he bills the parents for damages.  Also, a lot of the students stay in his homes even during summer break, because they have jobs in the area and/or they just prefer to stay in the area rather than go back home.

    0Reply
  • Jon W.
    Flip and Buy/Hold Investor · Rochester Hills, MI · Member since 2013 · 245 posts · 105 votes
    11y

    @Alexander Merritt I have a student rental and I market to students near Michigan State University.  My property is blocks from campus and the bar and restaurant scene so rents are much higher and only students are willing to pay the extra money to be there.  Anyone not needing to walk to classes could move a mile away and pay MUCH less.  In my area the lease is for a year (really 11 months and 15 days) and rent is payed semesterly.  I have parents cosign and just do a criminal check on the students.  Most students don't have a reliable credit score or a rental history.  The lease signing period is 10 months before the lease starts so vacancy is 0.  It is a great scenario.

    Pros: Zero vacancy if you buy in the right areas where all of the students want to be, 4 rent payments a year (semesterly), ability to adjust rents almost yearly.

    Cons: High turnover (every year; sometimes two years), high taxes on rentals (at least where I am), rentals are in high demand from investors so it is hard to buy one that makes a decent return.

    1Reply
  • Andy Gross
    Baltimore, MD · Member since 2014 · 145 posts · 65 votes
    11y

    Be weary of the "per-room" lease. I would avoid it if possible. My family used to own some properties in College Park, MD, and the "per-room" lease inevitably resulted in monthly calls to the landlord (my dad) to complain about a fellow housemate. If you rent to a group, there is at least the hope that a group will come together on their own.

    0Reply
  • Colleen F.Pro Member
    Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
    11y

    @Brandon Schlichter   A 4 plex with one 4 bedroom unit and the rest how many bedrooms?  If you intend all student housing check  your target area for any unrelated people ordinances. Some college towns limit the number of unrelated people in a unit. I would also advise that with a 4 plex you consider parking depending on the distance to the university this could be a bigger issue.The mix if you get undergrads and  grads who you rent to can make a difference. 

    Since we do 9 month leases we don't have fair housing issues, I get inquiries but no one besides students look when they know it is not a 12 month lease. We also furnish which is where most of your damage costs go. Aside from what has been said I advise a social media check for students,  it tells you more then a standard background check. Myself I don't favor per student room rentals but i guess it depends on the property.  I would think it is more labor intensive to rent by the room and if it is not a rooming house  1 roommate may be so dirty you can't rent the rest of the rooms.  I know someone who would leave stuff out every time they called to say they were bringing someone over to look at a room. She had no roommate for a year..

    0Reply
  • Account Closed
    Real Estate Investor · Marysville, OH · Member since 2014 · 242 posts · 196 votes
    11y

    There is a guy in Ann Arbor who caters to students and I thought his website had some hilarious commentary on it. He owned a ridiculous number of houses so he must do really well. U of M students rent at 500 or 600 per room last time I checked. I'm sure it's management intensive but if you really show them who is boss and have a good system in place I bet it's the best money in rentals. His page is pretty fun to read too.

    http://www.danshouses.com/lease.php

    http://www.danshouses.com/maintenance.php

    Wall Street Journal

    Look, let us help you. We have all been there before. You are sitting in the classroom and the sign-up sheet comes along for the Wall Street Journal at the "Special Student Price." You have this vision of reading the paper every morning to prepare yourself for your future job in the business industry. You are pumped and you begin to scribble down all of your information, not thinking that you can just go on the internet and read the same information. Then reality hits and you see what you have done. You now have to bring your paper inside everyday no matter what. At first it is fun and then it just sucks. Picking up the paper is too much work. The paper then begins to pile up making your house look like crap and irritating your landlord. You then get a ticket from the city because you are too lazy to pick up your paper. This ticket is $120 for your first offense. You are then charged $50.00 from your landlord for them having to go online to cancel your subscription. JUST SAY NO! YOU WILL NOT READ IT! SPEND YOUR MONEY ON SOMETHING ELSE!

    0Reply
  • Alexander Merritt
    OP
    Investor · Baltimore, MD · Member since 2014 · 163 posts · 51 votes
    11y

    @Sam Henry 

    The investor I talked to is not in Baltimore so it's a different market. He's seems pretty risk adverse because he spends more on business structure than I think most investors do. For example he has a different LLC for every rental property and pays someone to do the taxes at the end of the year. He collects rent, does light repairs and some painting, but major repairs and reno he subcontracts out.

    @Jon W. 

    Yea it seems like a really great potential for profit if but with that comes extra work. I'm not sure it's something I want to start off with, but I'm still exploring it.

    0Reply
  • Joseph Sherer
    Investor · Nashville, TN · Member since 2014 · 57 posts · 13 votes
    11y

    @AlexanderMerritt It sounds like your friend has it down.  

    @BrandonSchlichter My experiences relying on students to do work for a discount have mostly ended in failure.  It's worth it to pay a pro.

    I think most everyone else here has hit on the high points so I'll just throw in some pros/cons from my experiences in the SFH converted to student college housing expience:

    pros- students produce more revenue (and profit) than families, even though the turnover is higher

    cons- students are lazy in general.  just keep that in mind when making decisions regarding maintenenace, scheduling showings, etc.

    thoughts- a good property manager who deals predominantly in students is crucial, if you're going to use a property manager.

    Overall- I have really enjoyed it over the last 5 years

    0Reply
  • Jeremy Tillotson
    Investor · Fort Wayne, IN · Member since 2014 · 1k+ posts · 515 votes
    11y

    @Alexander Merritt first be careful about advertising student housing, fair housing might have an issue. My thought is per room is the only way to go as we got alot more money that way. I loved doing it and am hoping to complete another one. I sold my last one as I got a great offer and it wasn't even for sale. I can give you some detailed pointers if this interest you. I don't want to post my entire business plan here but we did very well with them. 

    1Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free