Should You Invest In Student Housing?
Student rentals can be a profitable way to invest in real estate; however, many experienced real estate investors have different viewpoints on investing in student rentals.
Pros of Student Rentals
There are many pros to student rentals and for many investors, it can be an amazing way to invest in real estate. If you are a new real estate investor, please keep an open mind about student rentals because there are controversial opinions in the real estate community.
The first major pro of student rentals is that they are always in high demand! College students will always need a place to stay while in school, and many students will choose to stay off-campus. Not only are student rentals in high demand, but many colleges generally increase in attendance every year, so the demand for student rentals is increasing.
Another important pro of student rentals is that rent rates are typically higher near colleges and universities. The rent rates are usually higher based on the location to the university and the number of beds and bathrooms available. Many students enjoy having the flexibility to walk or take the bus to campus, so keeping these two features are usually the more profitable locations for student rentals.
The next pro of student rentals is that you have the flexibility to organize your lease to maximize your profits—for example, many real estate investors who have student rentals will use the rent by the room method for tenants. Using this method for student rentals can maximize the investor's profit by charging the bedroom versus the entire property. This is a very important pro for student rentals because many investors can turn extra rooms and space into bedrooms for another student.
Cons of Student Rentals
Before making any investment decision, it is important to know both the pros and cons of that decision. Student rentals have cons that many investors highlight as to why this real estate investment strategy is not for them.
One of the cons of student rentals is that tenants are inexperienced renters. Most of the tenants will be students, so it may be their first or second time being a renter. This can bring challenges when it comes to how they behave and handle this new responsibility. This could lead to additional costs, as a landlord, due to potential damages because it's very common for college students to have big gatherings and parties.
Another con of student rentals is that many college students don't have an income; therefore, it's very important that you have co-signers or guarantors on the lease to make sure that the student will be able to pay rent every month.
In addition, student rentals typically have a high annual turnover rate. Having to turn over a unit every year can eat into your profits as an investor, and this is the biggest reason why many investors stay away from student rentals. You must have a solid system to transition between tenants because a lot of college students move every school year for many different reasons. Some landlords combat this con by simply increasing the rent to account for the high turnover.
Also, keep in mind that students are not in school for the entire year; therefore, it is common practice not to have month-to-month leases for student rentals. Ideally, year-to-year leases work best, so you are not missing out on any income during the offseason from the universities.