Why invest in student housing?

I wrote this piece for the AAOA (American Apartment Owners Association). If you are not familiar with them make sure to check them out HERE

They had asked me to write a short article about student housing. This is something that is near and dear to my heart. Although as with all types of investing there are challenges, this is one area that both my wife and I find very rewarding and perhaps even live a little vicariously through the lives of some of these well travelled students (most are international). We love hearing their stories.

Hope you enjoy the read and will check out many of the other articles on the AAOA website.

My friend received a call, it was a Friday night at around 9:00 p.m. He had just set up his tenants in a student rental property the day before. The caller was a young woman attending a university in the area. She asked if he could bring over some toilet paper because they were almost out. He was a bit taken aback by the question. He let her know that she and the other tenants were responsible for their own toilet paper. The caller was a bit frustrated and said, “You told me this was an all-inclusive rental.”  

If you live near any postsecondary institutions, you will have demand for student housing. It can be a great way to maximize revenue from a property. 

Student housing is a broad topic, for the intent of this article, I am going to stick to the rooming house type model.  

When you rent a house by the room you can use spaces such as the living room or dining room and block them off as separate rooms, also if the house has a dry basement, it can be rented as a room. 

A regular 4 – bedroom house that might rent for $2500 per month could end up being a 7-room student housing rental, renting for $700 per room for a total of $4900/mo. 

In addition, revenue can come from coin-operated laundry (approx. $200 /mo.), Parking spaces $75 X 2 = $150/mo.), and storage in the form of a garage, attic, or basement (approx. $200/mo). 

That all adds up to $5450 per month VS $2500 (more than double). 

So, why wouldn’t you do this with all your rentals?   

Before you start chopping your rentals up into individual rooms, you are going to need to consider some of following: 

Additional Expenses  

Increased cost of Property management  

Increased and likely all-inclusive Utilities  

Cleaner – Best practice to have a cleaner to clean bathrooms, kitchens, & common areas. 

Snow and lawn Care 

Increased Insurance Cost 

Higher Interest rates – Often lenders charge higher rates for these types of properties.  

Writing Complex Leases – you may need to hire an expert 

You will also need to make sure your student rental is local code & by-law compliant 

Student rooming houses are not popular in many jurisdictions.  Most student-rooming houses are required to follow a special set of rules & requirements that are different from single-family dwellings.  

You will need to know about any restrictions on renting by the room in your area before you purchase or set up a student rooming house rental. 

I recently saw an ad for a student rooming house that said they rented 8 rooms.  In this particular area the maximum room rentals allowed would be 5, so if purchased based on an 8-room revenue model and a by-law enforcement officer got involved, it would turn into a 5-room house, which may make it cash flow negative.   

Bylaw change in my city  

I give credit to an acquaintance who at the very least influenced the implementation of a restrictive by-law in my home city regarding the amount of students that can occupy an apartment or house.  

He was buying two-unit properties.  He then jacked them up and put a new basement with rooms and a bathroom, then added another floor to the property.  He called them super duplexes and each floor had 4 rooms, so after construction, he turned two 3-bedroom apartments into a two-unit property with 16 rooms.  

The neighbors of these super duplex’s started to complain about noise, garbage, rodents, etc.  As is often the case in a university and hospital district you have professionals and their families living side by side with students.   

Long story short a by-law that does not allow more than 5 unrelated people to live in a single unit was put in place.  This by-law reduced the capacity of these super duplex’s down to 10 rooms per building.  Which dramatically negatively impacted the cash flow of these properties.  

Communication is King when it comes to renting to students 

I reviewed the previous room agreements from the seller of a property we were buying.  I said to my wife, wow, the list of rules almost sounds rude.   I was so young and naïve back then.  Most tenant issues are caused by the tenant pushing boundaries due to grey areas, this is amplified when you get into student housing.   You need to be 110% clear on your building rules and if you are dealing with co-signers as parents you need to be clear with them as well. 

A best practice can be to require a credit card number from the parental co-signer to be kept on file in the event their child does any damage. 

Some student damage you should expect in a student property would be burnt countertops, window screens, water damage in bathrooms or from windows being left open, broken door handles, and prepare for clogged toilets. 

You will also need to be clear on rules around guests, sometimes a “guest” could be perceived by the other tenants as a freeloader. 

Quiet time guidelines are important as well, we like to use 11 pm – 6 am.   

Smoking can also be a problem, especially weed.  For some reason, many people who smoke weed do not realize how bad it smells or how far the smell travels.  If your property is smoke-free, make sure you are clear on what that means.  

It is important to have all the rules laid out super clear and signed off on at the lease signing.  Go over them with each tenant. 

To sum it up 

Providing housing to students can be a great way to increase the revenue of a property.  You just need to have awareness of all listed above and a great property management plan.  

Until next time,

Design your landlord experience,

Michael P Currie

Landlord by Design – Get a copy of my latest book HERE!

Here is a little more about the American Apartment Owners Association

From the About Us section of their website:

In 2004, a team of professional property managers joined together to form the American Apartment Owners Association. Our goal was simple – to provide an online network of resources and benefits for landlords and property managers. Since then, AAOA has steadily grown and is now the largest landlord association in the country with more than 140,000 members nationwide.

As our association has grown, so have our member benefits and resources. We’ve consistently introduced new benefits to membership every year to address the growing needs of the property management community.

Whether you own a single rental unit or manage numerous rental units, we offer a variety of services including extensive tenant screening, credit checks, landlord forms, rental applications, and relevant real estate updates.

Our Mission

To provide superior property management services that will equip landlords to better manage their investment properties.

We understand on a personal level the challenges you face as a property manager or landlord, so we’ve made it our mission to make your job easier. We strive to equip you with the necessary tools to more effectively serve your tenants. We believe that educated landlords make happier tenants and in turn better-quality rental communities. By maintaining professionalism, utilizing our expertise, and investing into our commitment to you, we are able to work towards our mission successfully.

Our Resources

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The American Apartment Association offers over 150 essential state-specific landlord forms that are easy to download and print straight from your account. Additionally, many forms like our residential lease agreement offers an easy online guide to create and customize your document. Our members find that our forms have made their rental process much more efficient and thorough. We’ve taken out the guesswork for you by providing accurate and reliable forms that are legally compliant and easy to use, helping you to confidently rent and manage your property. We encourage you to review our full list of landlord legal forms to ensure you are using the right forms for your business.

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Perhaps the most beneficial resource we offer is comprehensive and instant tenant background screening services. If you’ve ever managed a rental property you know the importance of running a thorough tenant background check before you make a tenancy decision. Our tenant credit checks for landlords is solution-oriented and efficient, including reports such as credit checks, criminal history, and SSN verifications. Our FCRA compliant reports help you to drastically minimize your risk and find tenants that are reliable.

We understand that time is valuable for busy landlords and property managers. By simply entering in an applicant’s details, you’ll instantly learn whether your applicant has had evictions, criminal convictions, or financial hardships. Ultimately, the decision of who to rent to is yours, but our reports bring clarity and reveal red flags.

Our online service is simple to use for beginners, yet comprehensive enough to serve members with a high volume of units. If you’re new to our association or to property management, there is no need to worry. Our customer service is always available during business hours to answer your questions, so you’ll never have to wonder how to order or read a report.

We know your goal as a property manager is to find a tenant who will pay rent punctually and have a solid background, so we’ve incorporated tenant screening as a benefit for all our members. Select from four affordable tenant screening packages or order a standalone credit report.

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Landlords and property owners owning rental properties have to remain in touch with various kinds of vendors that deal with home improvement, apartment repairs, remodeling, and other essential services. The American Apartment Owners Association makes it easy for you to source the best of vendors for maintenance of your property by providing you with a state-based vendor directory that gives you access to countless approved vendors.

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We’d like to thank you for taking the time to get to know us. We offer free as well as upgraded memberships, so select your preferred membership today to start taking advantage of the assistance, education, and resources the American Apartment Owners Association has to offer.