Rental properties are a great investment when bought below market value with great cash flow. College rentals can make a lot of money, but are very different from rental properties geared towards families. I own 11 rental properties that are all single family rental properties. Even though I do not own college rentals, I have been around college rental properties my entire life; my parents have college rentals as well as my sister. In fact, my sister used to manage over 100 college rental units when she was a property manager.
On the surface college rentals may look like they provide a lot more money than single family homes. Many areas see higher rents for college rentals, but college rentals can require a lot more management and maintenance than single family rental properties.
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What qualifies as a college rental property?
A college rental property is any residential rental property that is designed and zoned to be rented to college students. Most college rentals are located close to a college and marketed specifically to college students. College rentals can be multifamily apartment buildings, single family houses, houses that have been converted to multifamily or a store with an apartment above or below it.
If you are investing in college rentals it is important to make sure your college rental is zoned correctly. Many cities only allow a certain amount of unrelated people to live in a single family residence. That means it may be illegal to rent a four bedroom house to four college students if the house is zoned single family. If a house is zoned for multifamily, then it may be perfectly fine to rent a six bedroom house to six unrelated people. Always check the zoning before investing in a college rental property as it will greatly affect the value. Do not assume a house is zoned for college students, because it is close to a college. I have seen properties across the street from large universities that were zoned single family and not set up for a college rental.
Why do investors want to buy college rentals?
If a property is close to a college, an investor will usually get more rent from college students than from a family. Most college students will pay a premium to be close to school and to live with their friends. You could rent a single family property far from the college to college students, but you can’t count on that house to be always rented to students and you probably won’t get a premium on the rent. Since college rentals demand more rent than a single family home, many investors feel they can make more money renting to college students. In my experience, the higher rent will not always make up for the increased expenses that come with a college rental.
Are college rentals a good investment?
Even though college rental properties can demand more rent than a single family rental property, they may not make more money. A college rental property has many more expenses than a typical single family rental property. The first reason college rentals may not make more money is they need more maintenance.
I used to be a college student, and I can say from personal experience college students don’t always take care of their residences very well. College students may not intentionally destroy a house (although some will), but they are young and inexperienced with taking care of a house. When college students rent a house, it may be their first time on their own. They might not know how to take care of a house even if they have the best intentions. My sister has had students turn off the heat in the middle of winter for Christmas break. The pipes then froze and burst causing thousands of dollars in damage. This happened multiple times; not because the students tried to freeze the pipes but because they were trying to save on heating costs.
College students may not have learned how to clean well and they like to have friends over. That means the house will see extra wear and tear over a single family rental. Many families take pride in their home, while college students only need a place to live and party. A family might take care of minor repairs that are needed in their home without even telling the landlord. A college student may call the landlord for every single thing that could or does go wrong.
Unlike a single family residence, most college rentals have the landlord paying some utilities and yard care. Many college rentals are houses that have been split into multiple units and they don’t have separate water meters. The students will expect water to be paid by the landlord and possibly more utilities if they are not on separate meters.
College rental properties will have more turnover than single family rentals
In one of my single family rentals, I have had the same tenant for three years. My parents have had the same tenant in a single family rental for 11 years! On the other hand, college students are always moving and rarely stay more than a year in one residence. When you have a college rental, you have to expect turnover and you have to rent properties well before the current tenant moves out.
There is a very specific time that college students rent homes for the upcoming school year. Most college rentals are leased in the spring after school is over or in the fall right before school starts. If a home is not rented during these time frames, it may not get rented at all or the landlord may have to drastically reduce the rent. The best college renters are usually searching for a place to live months before they have to move to make sure they get a good place. That means homes have to be shown while they are being rented. The better your renters are, the better a house will show and the more rent you will get.
Most college rentals are sold to other investors, unlike single family rentals which can be sold to investors or owner occupants. Because investors buy college rentals, they want to buy a property that is already rented with cash flow. If a house is not rented, then it will be worth much less money than a house that is rented.
College rentals may bring in more income than single family rentals, but they have many more expenses. Depending on your market, a college rental may make more money than a single family rental, but in my market I prefer single family rentals due to the smaller expenses and less hassle.
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