It was midnight. My son was passed out beside my wife Steph and I. The other two kids were off with friends for the weekend so we’d been able to make our way to Hamilton to work on our new student rental. And that’s where we were – side by side, sitting on the floor with Allen wrenches in our hands building furniture. We finished at about 2am, pumped up our air mattress and collapsed onto it in the middle of our now furnished common room.
We had students moving in the next day and we needed to get the whole house ready for their arrival. There was a lot to be done to welcome them to their new home.
Student Rental Investing is not glamorous, but it’s lucrative. It’s a great strategy for me – giving students a great place to live when they leave home – and making a great income to do it. Because of this business, I’ve left my job and am a full time real estate investor. But, it’s not for everyone. Besides the fact that you may not want to build or move furniture, there are some other things to consider to tackle this strategy successfully.
Here are 5 Ways to Minimize Hassles and Make more Money Student Rental Investing:
1. Make Sure It’s the Right Strategy for You
Student rentals can provide very strong cash flow. In many cases you will have 5/6/7 students living in a house paying you $400 – $500 per room. When you’re buying a house for $300,000 and generating $3,500 per month in rental income – you will be spending time considering what you’ll do with the more than $1,000 positive cash flow each month.
The cash is great but it comes at a cost – your time. You’re dealing with young adults who are away from home for the first time, and have no idea about maintaining and running a house. Phone calls because ‘the internet is down’ to light bulbs being out happen quite often. You’re also going experience more turnover than other buy and hold strategies. While university programs can run from 1 to 4 years, if you can keep the same group in the house for 2 years straight you’re doing well.
One of the biggest challenges is ensuring you keep a single lease in place so a student house doesn’t become a rooming house. Even though it’s one lease, it’s multiple rent payments to collect each month. There are lots of simple processes in place to help, but you’ll still need to be on top of all of those.
2. Financing & Legislation
Financing is one of the most challenging aspects of this strategy. Some lenders have offered options for student housing mortgages in the past but these typically have more stringent stipulations on borrowing. The downpayment is also likely to be in the 25%+ range. The other option is to buy a single family home and convert it to student housing at a later date. For either of these options I would recommend speaking to an expert in the field and also a mortgage broker.
Each city will also have different legislation detailing how it zones these types of dwelling. Some will regulate the number of students per house and also have rules on maintenance, fire safety standards, insurance, parking, noise etc. In cities that license student housing the cost is typically circa $500 for the first year and then it drops slightly in subsequent years. Make sure you do your own due diligence in your particular city, so that you are fully aware of all your costs and responsibilities in advance.
Where do the students want to live? Many students rely heavily on walking, biking or public transportation so the closer to the University or College, the better. But, sometimes right around the corner isn’t the most desirable area. You have to find out where students want to live, and if there is a need for more housing in that area. Best place to start your research is the schools off campus housing office. They should be able to give you a variety of information including where people want to live and also typical rents.
Ideally, your opportunity will be in finding out if there is a shortage of housing on campus or near campus and then determining what you need to do to fill that void. (How to find great real estate investing deals might be an article you’d also like to check out.)
My favourite strategy is to take a walk. I walk from the school and look at the housing within a 15 min walk or less. That allows me to focus in on the best options. Students will take the bus if necessary and a lot of universities include public transit in the tuition fees but I find the closer I can be to the University, the more rent I can charge and the more demand I will have.
Watch in your area – usually the houses closest to the school will be the first to be rented. You can actually see the university from one of my houses and the kids love that.
4. Get Help
Managing your own student rental takes a lot of your time. If you have to add a lot of travel time to get there from where you live then you can expect this to become a part time side job.
You need to be visiting your properties at least monthly to look for and issues (damage, cleanliness, water/ leaks). In addition to that there will be regular calls from the students, for many small things that come up including inter house politics! Then there are the time intensive periods of the year when you are showing the house to groups, collecting deposits and signing the lease.
If you don’t want to handle all of this on your own, a local property manager who is comfortable and experienced with student rentals is going to be extremely useful to you in manage the property. I think of a good property manager as someone who can create a protective forcefield between you and the tenants, whilst still keeping you in the loop when necessary.
It’s important to sit down with your PM and get on the same page. Do they currently deal with Student housing? If so get some references, student rentals are more time intensive and higher maintenance for a PM. Understand and set an expected response time. e.g. a tenant call should be returned within 2 hours if urgent or 24 hours if not urgent. When you evaluate and sign the SLA (service level agreement) set expectations accordingly with the students.
Also understand how the property manager prefers to communicate with the tenants. Do they prefer a phone call, email or text? Students tend to prefer to be able to text so having a property manager that is ok communicating that way – or has a way to receive texts – will be important.
If your property manager is going to handle tenant placement, you’ll want to review your tenant selection criteria (groups/ individuals, couples, etc), and agree on an application form that gathers all necessary information. Discuss the financials including when you’ll get your rent payment (set a specific day of the month), what $ value your approval needs to be given for expenditures and placement costs for filling houses. Lastly maintain regular communication with your PM. Investing in student rentals is more hands on than other strategies so stay in touch and be proactive.
5. Maintenance/ Cleaning
Mom isn’t around to clean up after the kids anymore. Add to that, there are lots of extra people in the house. Students need to know when garbage collection days are and where to put the garbage. Additionally ensure there are adequate bins provided for both garbage and recycling. The cleanliness of the house should be monitored regularly to avoid and issues with pests entering the home.
Students who are adverse to cleaning may be prepared to contribute to a cleaning service once a month. There is typically a lot of mess left behind at move out time so be prepared to get rid of or recycle old furniture and beds. You or your property manager should be there at that time to oversee things and ensure the house is left in good condition. (Here’s a fun video Tim shot on the subject of keeping student rentals clean.)
Maintenance Starts with Good Materials:
If you’re renovating a house to make it suitable for students, that’s a great time to select appropriate materials. Commercial grade laminate flooring is perfect, and the newer vinyl tiled type flooring is solid and cost effective for bathrooms and the kitchens. Larger maintenance tasks should be tackled in the summer when it’s likely that some of the students will vacate the house. It makes sense to pick a project to work on each year to continuously be improving the rental. Frequent upgrades will increase the likelihood of tenant retention and will make the house easier to fill with a new group in the future. I’ve seen many examples of houses that are rented to students with no further investment made and they deteriorate rapidly.
On Sunday, after my wife Steph and I stayed up late building furniture, it was amazing moving in the students and seeing how proud and pleased their parents were to have their kids moving into a quality home. Some parents even said this was nicer than where the kids lived now. That was rewarding. The $1500 a month positive cashflow we’re getting from the property is pretty nice too. You can understand why in the month of March alone I’ve added three more of these properties to my portfolio.
Today’s article is a guest post from Tim Collins. Tim has been investing in real estate since he was 20 years old. Tim is the authority on student rentals and is regularly featured in Canadian Real Estate Wealth Magazine. He focuses on building his student rental portfolio with joint venture partners, whilst also helping others with advice and guidance through speaking engagements, workshops & studentrentalinvesting.com.