College towns offer excellent investment opportunities, but a lot of investors are apprehensive about the thought of college students as tenants. While it’s true that college students aren’t necessarily the tidiest demographic, the fear of out of control college students isn’t a reason to overlook an opportunity for a cash flowing investment.
Just because you own property near a college or university, it doesn’t mean that your house will be destroyed in some “Animal House”-type party. The fact is, college towns attract a lot of different types of graduate and undergraduate students, faculty, and professors. With any rental property, you want to be located in a community near a major employer with a high population of renters, and college towns are exactly that. So, let’s take a look at the pros and cons of buying in a college town.
Pros:
High Demand
College towns attract a lot of new and temporary residents, either students or faculty, who are going to rent instead of buy. If your property is in walking distance of classes, you will have a huge built-in demand for your property. If it’s in on a street with a lot of foot traffic, you can count on getting interest with a “for rent” sign out front.
You Can Always Charge Market Rate
If you’re renting your property to students, you’re probably going to have a turnover every year or two. While that has its drawbacks, the good thing is that it will allow you to raise your rents to market value every time. You’re going to be surrounded by other properties that are also keeping their rents at market value, so you won’t have major disparities in what you and your neighbors are charging. Frequent turnover also means you won’t have to worry about any regulations in your market that restrict the amount you can increase an existing tenant’s rent.
Low Vacancy Rates
Even with turnover and long summer breaks, college town rental properties have consistently low vacancy. If you have your tenants sign year-round leases, which we recommend, they are free to spend their summers wherever they like and it won’t be your concern.
Cons:
Tenant Turnover
When you own rental property in a college town, you should expect that your tenants will move out every year or two. It’s also not unheard of for students to drop out and break their lease, so hang on to all of your marketing materials and be prepared to advertise even if your tenants are in the middle of their lease.
Your Rental Window
Depending on the school’s academic calendar, you probably only have two short windows when you’ll be able to attract new tenants. Most students line up their housing for the fall right before they leave for the summer, so the end of the academic year is the time to market to new renters. Your next best bet is to find tenants when they return at the end of the summer.
It’s not “passive” investing
Some rental properties can be in the set it and forget it category with an occasional issue, but college student tenants are high maintenance. For some of them, it’s their first time living someplace that isn’t a dorm or their childhood home, so they may have more questions and less patience.
Property Damage
Here is the main thing that most investors fear: pizza stuck to the ceiling, holes in the walls, and half the graduating class doing keg stands in your property. While this is an exaggerated example, the fact is that college rentals generally experience heavier wear and tear than other types of rentals. It’s still a slim possibility that your tenants will throw a party that winds up on the local news. Rather than shutting down a solid investment opportunity, implement some safeguards.
Helpful Safeguards
Renting to college students can offer some unique challenges, but there are workarounds and safeguards you can implement to make this a win-win arrangement.
Preventing Damages
Make sure that your tenants know that they’ll be on the hook for any damages. At move-in, do a walkthrough with your tenant(s) in which they document any existing scuffs, damages, or existing disrepair. Some of these people will be first-time renters, and this step will impress upon them the importance of being responsible tenants. Also make sure that you get at least one month’s rent for a security deposit.
Tailor your lease
In a roommate situation, have every tenant sign the lease, but make sure that one of the renters is personally responsible for the entire rent. That way, if one tenant drops out or stops paying rent, the other tenants will have to come up with the outstanding balance. Other things you can put in your lease are rules about loud noises after a certain time, cigarette smoke, or no gatherings with more than a certain amount of people.
Co-signers
The majority of college students have little to no credit history, so you’ll need a parent or guardian to co-sign their lease.
Screen Your Tenants
Co-signers are great, but you also want to make sure that you’ve got good tenants. Don’t assume that just because someone is young that they don’t already have an aggrieved landlord or a mountain of credit card debt in their wake. If they have any rental history, make sure to contact their previous landlord for a reference. Also, you will need to do credit and background checks. It’s okay if they don’t have any credit history, but even with a co-signer, you would still want to avoid anyone who has left an apartment worse for wear or needs a few more years to become financially responsible.
Utilities
Make sure that the gas, water, and electric are all under your tenant’s name. If younger people don’t have to pay for their utilities, they might be happy to leave their lights on all the time or to set the heat to “Tropical” in the wintertime.
Try Attracting Graduate Students or Faculty
Graduate students, teaching assistants, professors and other faculty tend to be quieter and more responsible than undergraduate students. Look for ways to market specifically to these groups. That can include bulletin boards in faculty rooms, online groups for graduate students and faculty, or leaving flyers where faculty and graduate students will see them.
