Over the past number of years, the property management industry has seen a huge rise in activity concerning student housing. It’s been pretty amazing. In our college town of Chico, California there’s no doubt that the highest rents are achieved around our University; and we’re not just talking about a 10 or 20 percent increase to be close to campus. We’re talking a 100 to 200 percent increase in rents for prime locations close to college. It’s been a very fruitful investment for owners as rents have been driven up dramatically faster in neighborhoods within walking distance of the University than other locations in our community.
There are just more young people attending college now then there ever has been. This is partly due to our society placing a high value on higher education, as well as the federal government granting student loans to people who previously were not able to qualify through a private bank.
According to the National Center for Education Statistics the amount of students attending college will increase by 14% over the next 8 years. With more students attending college, and the ease by which money is available through student loans, it has caused demand for student housing to skyrocket over the past decade.
This phenomena has caused a number of investors to consider the niche of investing in off campus student housing. Before you do though, we wanted to share with you a few tips and strategies that you can employ when dealing with renting to students.
1. Always Sign a One-Year Lease
Students tend to go home in the Summer and if they have the opportunity, would only pay rent 9 months out of the year. The problem is, you didn’t calculate missing 3 months of rent a year when you determined your cash flow. Our town, and many other college towns turn into a ghost town in Summer and you’ll need a one year lease to ensure your property stays rented throughout Summer.
2. Always Sign a Joint Lease
A Joint Lease is a lease where each resident is fully responsible for the full terms of the lease. What this means is that if a student drops out of college and decides to go home and stop paying rent, the remaining roommates will still be responsible for paying the full amount of rent. It also means that if you post a notice and only one roommate sees it, legally, it is the same as all the roommates seeing it.
This is so important for you as a property owner because the students will police themselves. If Bobby cuts out early on his lease, Johnny is going to go after Bobby himself to make sure he pays his rent for the terms of the lease. If Bobby doesn’t, Johnny knows it will fall on him (and his parents who co-signed). This also means that if Billy adopted a puppy that ruined your hardwood floors and baseboards, it’s going to come out of the deposit of the entire property, not just Billy’s portion.
College students can sometimes be flakey and filled with drama. You don’t want to be caught chasing down every irresponsible student who cuts out on their lease. Let the roommates police themselves and sign a joint lease from the start.
3. Charge a High Deposit
In California, you can only legally charge two times the monthly rent for an unfurnished unit, and three times the monthly rent for a furnished unit. You may want to max this out depending on your property. Students can be HARD on your property. I’ve personally witnessed a group of rowdy college students take a beautifully remodeled Victorian home and turn it into a scene straight out of Animal House. Spilled jungle juice, late night wrestling matches, and 15 gallon kegs dragged across your floor can be par for the course on any given weekend. Protect your investment and charge a high deposit to cover any damages you may have to repair in turnover.
4. Leverage Technology
It’s 2017 and there are some college students who have never written a check in their lives. Everything is automatic bill pay, Amazon One click, Venmo, and PayPal. The digital landscape is changing so fast – if you’re not up on it, you’ll be left behind. Gone are the days of collecting rent checks at your office or getting checks in the mail. If you don’t have a resident portal, you need to get one fast.
Some student housing property owners are using technology for video surveillance and security purposes. There was a beautiful newly constructed three story student housing facility in our town. There were about 15 units. Some of the students decided to throw the most “epic party eeeeeever” complete with DJ, foam pit, and tons of alcohol.
In the aftermath of the party the property manager discovered their brand-new lawn was completely destroyed by the foam pit. Not to mention all the trash and broken bottles needing to be cleaned up. So, who do you charge for destroying the lawn? What unit was responsible? Who was partaking in this party? Which of the 15 units was going to fess up. The answer? You guessed it, nobody. With no evidence, who do you hold liable?
Now that property management company employs a security company complete with body cams. If there is ever an “epic party” at any of their properties, the security service shows up and all those in attendance get busted as the video shows what residents are participating and responsible. It’s a creative way to use technology to help manage the property well.
5. Most Students Don’t Qualify Financially – Get Co-Signers
Most of your students will have very limited rental history, some will have none at all. Couple that with a part time-minimum wage job (or no job) and no credit history and you have just about the most sub-prime candidate you could ask for.
You need to make sure they have a financially qualified co-signer that can be fully responsible for the rent. Some students will meet all of your financial obligations and won’t need a co-signer, but you need to be prepared to work a lot with the co-signers to get everything squared away from the start.
6. Put a “No Party” Clause in Your Lease
It’s no big deal to have a couple friends over to watch the big game, do a study project, or celebrate a birthday. But sometimes you’ll get those residents who love to get together with 100 of their closest friends. They need to know up front that your property will not be the party house.
Before they sign their lease sit down with them, have the talk, point out the no party clause in the lease. These no party clauses typically say no gatherings with more than 20 people are allowed on the property. You can also add a no-keg policy and if you want to throw in no-smoking you can do that as well too.
Student housing is in high demand. It’s a great niche for real estate investors to get into because if you get a location close to campus you can almost be guaranteed premium rents every year. It’s a little more recession proof because, at least for now, during recessions people still go to Universities even if they can’t afford it. Currently, online schools and certifications have not overtaken the University experience causing the student housing sector to soar. This seems to be a trend without an end in the foreseeable future.