So today we're going to look at a particular type of market for owning
rental properties, college towns.
So buying rental property near college or university
can be an excellent investment opportunity.
But a lot of investors will automatically
rule out the idea of having college students as tenants
because they're afraid that their property is going to turn into an Animal House.
And while that's true, the college students aren't the tidiest demographic.
Today, we're going to look at the pros and cons of buying in a college town.
But first, if you're enjoying our content, please be sure to like this video
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OK, so let me start with full disclosure I'm a little biased
because I've owned a number of student properties
and I currently own several, including a property
in Flagstaff, Arizona, next to Northern Arizona University.
In my experience, just because you own a property near a college or university,
it doesn't mean that your house will be destroyed
in some night of 1000 keg stands a fiasco.
The fact is, college towns attract a lot of different types of people,
including graduate and undergraduate students, faculty and professors.
Also, college towns fit some important criteria I have
when I'm looking to buy a 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.
Right now, there is actually a huge shortage of student housing
due to the increasing student population,
which is actually increased by 39% just over the past decade.
So now let's take a look at the pros and cons of buying a rental property
in a college town.
This first pro is a big one, which is that
there is almost always high demand for housing in college towns.
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 the classes or the campus,
you will have a huge built in demand for your property.
If it's on a street with a lot of foot traffic,
you can count on it getting a lot of interest with a
for rent sign just out front or in the window.
Another advantage is that you can always charge market rate for your property.
If you're renting to students,
you're probably going to have a turnover at least every year or two.
While that has its drawbacks for sure, the good thing is that will allow you
to raise your rents to market value each and every time
you're going to be surrounded by other properties
that are also keeping up with the rents and market value, too.
So you won't have a big difference in what you and your neighborhoods
are charging because of the frequent turnover.
So frequent turnover also means
that you won't have to worry about any regulations in your area
that limit how much you can increase and then existing tenants read.
Unlike other markets in submarkets, properties near colleges have a very low
vacancy rate, even with high turnover and long summer breaks.
Vacancy is typically very low
if you have your tenants sign a year round lease, which we always do.
You won't be scrambling to find new tenants in the summer,
so those are the pros.
Now here, of course, are the cons.
When you own a rental property in a college town,
you should expect higher turnover and therefore higher expenses.
Your tenants will probably 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 your marketing materials because you never know
when you'll suddenly have to advertise your property.
The other drawback is that you only have one or two short
windows to rent your property out.
Most students
line up their housing for the fall right before they leave for the summer.
So at the end of the academic year, that is the best time to market
to your new renter.
Your next best bet is to find tenants when they return at the end of the summer.
The next thing you need to be aware of
is that this is far from what I would consider passive investing.
Some rental properties can be in the set it and forget it category
with an occasional issue.
But college age tenants are definitely higher maintenance.
For some of them, it's their first time living someplace
that isn't a dorm or even out of their childhood home,
so they may have more questions and less patience.
Last but not least, we need to talk about property damage.
It's the main thing that most investors fear pizza stuck
to the ceiling holes in the wall.
While this is an exaggerated example, the fact is
that college rentals generally experience heavier wear and tear than other types,
rather than altogether avoiding a solid investment opportunity.
Implement some safeguard.
first, make sure that your tenants know that they'll be on the hook
for any damages at move out, do a walkthrough with your tenant
in which you both document any scuffs, damages or disrepair.
Also, make sure that you get at least one month's rent for a security deposit
and require that they have renter's insurance 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 do to put into your lease are rules about loud noises
after certain times, restrictions on smoking or limiting the number
of the maximum number of people in the property
and even the number of cars that they can park in the parking lot.
Next up, make sure that you have a cosigner on the lease.
Typically, this is the parent.
The majority of the college students have little to no credit history.
So you'll definitely want to have their parent or guardian cosign their lease.
And while cosigners are great,
you still want to make sure that you've got good tenant.
You will need to do a credit and a background check.
It's OK if they don't have any credit history.
But even with a cosigner, you still want to avoid anyone
who has left an apartment worse for wear
or needs a few more years to become financially responsible.
Another way to protect yourself is to 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 set the heat to tropical in the wintertime.
So that's my pitch for owning a rental property in college town.
Please, if any of you have any experience with this.
Let us know what it was like for you in the comment section,
and we'll be sure to address that and some of our lives.
Thanks again for joining us. Until next time.