College students are a high-risk, high-reward market for real estate investors. The image of the rowdy party host in a ramshackle apartment may keep some investors away, but not all college renters are like that.
What’s more, college town real estate can be a lucrative investment if you find the right tenants and have the right strategies for mitigating risk and communicating your expectations clearly.
Great college rentals are possible, but not without knowing your way around the nitty-gritty of the market. Here are some guidelines for enjoying consistently positive ROI on your college rentals.
Today’s college landscape: mon-traditional students and off-campus living
First, it’s important to understand the specific characteristics of the current college student demographic and how that’s changed over time. Close to 74 percent of college-enrolled students today classify as “non-traditional,” which means they fall into one or more of the following categories:
- They’re financially independent from their parents.
- They have a child or other dependent.
- They’re a single caregiver.
- They don’t have a traditional high school diploma.
- They delayed their postsecondary enrollment.
- They have part-time school enrollment or part-time employment.
About a third fall into two or three of those categories. In other words, more and more college students today have credentials that make them qualified to rent, such as income and a credit or rental history.
Plus, there were over 18.4 million students in college as of 2017. And students are increasingly moving out of dorms and into more affordable housing in the surrounding area. The New York Times estimates a whopping 87 percent of college students live off campus.
That means more than 16 million students are looking to rent housing while they’re taking classes. And lots of annual housing turnover means there's always going to be a high demand for rentals in college towns.
But many college students looking to rent—traditional or otherwise—may not have rented before. That’s why it’s crucial to know how to get reliable tenants and communicate exactly what you expect from them.
How to find good tenants—and make your expectations clear
We’ve established that there’s a high demand for off-campus rentals from students of all kinds of backgrounds. But how can you find students who are a good fit to rent your property? And how can you ensure a hassle-free experience for everyone involved?
Here are some tips to keep in mind while searching for and communicating with tenants. While some of this may sound intuitive, it’s best to assume your tenants don’t know much, and offer too much information rather than too little.
1: Know the local laws and rental timelines
You’ll want to be in compliance with your town’s ordinances, and everywhere has different rules. For instance, some towns require specific registration to qualify as a student housing rental. For example, in St. Paul, Minnesota, to rent to St. Thomas University students, you’ll need to apply for a student housing registration from the city first.
And some cities’ zoning laws prohibit a certain number of unrelated people from living in the same residential housing. One example of this is in Milwaukee: University of Wisconsin student apartments in the city cannot house more than three students without a “rooming house” license. Be sure you’re familiar with local policies before you start listing your properties.
You should also familiarize yourself with the local college’s calendar and student housing cycles. If you have tenants staying until November, you probably won’t be able to find student tenants to move in after, when the school year is already well underway. And even if classes start in September, some schools might have rental timelines that require students to sign leases months in advance. Be sure to know when the peak demand season is.
2: Advertise online
“For Rent” signs might be able to generate some interest from students strolling by your properties on their way to class. But chances are, when it comes time for a student to find housing for the next year, they’ll search online.
Zillow, Craigslist, and Trulia are all popular among younger renters. Students who have never rented before, though, will likely start with a simple “Ann Arbor apartments” Google search and go from there.
To make sure your units stand out from the crowd, compose a compelling listing. Have a catchy headline with a unique feature and use descriptors that convey your unit’s best qualities. For example, college students probably want to be within walking distance to classes, so tell them how long it takes to walk to campus from the apartment. And be sure to have plenty of well-lit photos of all the main rooms.
3: Mitigate risk by requiring co-signers
One major challenge of screening potential college tenants is that they might not have proof of income, credit history, etc. To guarantee rent is always paid on time, require your renters to have co-signers on the lease. With co-signers, someone is legally responsible for paying rent if your tenants should come up short one month.
And it’s important to clarify in your lease that even if there are four people on the lease, each person and their co-signer are responsible for paying the entire rent. This means everyone is held accountable, which protects your financial interest.
4: Designate a main point of contact
In multi-roommate situations, it’s helpful to designate one person as your main contact for the house. That person can communicate directly with you and relay important information to their roommates. That way, you’re not dealing with a game of telephone, bouncing announcements back and forth between tenants. But it’s still wise to CC every tenant on all of your emails and communications.
5: Use property management software
Whether you have one property or many, it’s a lot of work to juggle all of your tenant management and keep your investment profitable. Property management software makes that work a lot simpler because you can keep track of everything in one place.
For example, if you’re renting to several people in one house, rent collection can get messy. Property management software streamlines payments so that rent from multiple renters is pooled in one place. One wire, one bank deposit.
Some platforms also streamline the process of posting listings online and offer a ticketing system for maintenance requests.
6: Walk your tenants through house rules
Be sure your tenants know exactly what’s expected of their behavior as tenants and neighbors. Even if that’s all clearly stated in your lease, it’s possible that your student renters won’t read it thoroughly.
Set up a face-to-face meeting to go over expectations about noise level, hours of contact, method of contact, maintenance, etc. If these guidelines aren’t in the lease, consider putting them in an addendum the tenants must sign, then emailing them a copy so that you have a trail.
What’s more, new renters might not know what their basic responsibilities are. Lay out all of their responsibilities, such as:
- Getting renter’s insurance
- Handling basic maintenance (like replacing light bulbs)
- Contacting the landlord when appliances break
- Cleaning
- Monitoring the thermostat
- Paying for utilities
7: Have a subletting policy
Not all students stay on a linear, four-year track; some take semesters off, some study abroad. Naturally, student renters might want to sublet at some point.
Be sure you’re ready for requests about subletting. When renters sublet, they don’t actually release themselves from liabilities—but students might not know that. Require tenants to inform you of any plans to sublet, and make sure they understand that any damages incurred by a subletter are the original tenant’s responsibility.
Your policy should also address the tenant’s ability to earn margin on your property. If a clause on subletting is worded vaguely, a tenant might think they can operate an Airbnb, for instance. Be clear that you prohibit this behavior.
The bottom line: set and communicate clear policies
While every college town is different, it’s likely that demand for student rentals will continue to grow as more and more students move off campus.
If you’re firm about student rental policies and communicate clearly and often, college rentals are a win-win for students and investors: students keep their homes safe, clean, and properly managed, and investors can rest assured knowing that their properties are being taken care of—and that they’ve made a good investment.
Laurence Jankelow is the co-founder and chief operating officer at Avail, an online platform for independent landlords and their tenants.