Buy and Rent out Housing for Students: Get Good Grades When You Do Your Homework on this Investment Opportunity

Dorm rooms at the University of Connecticut (UConn) in Storrs, Connecticut.

If you’ve had a child attend college—or one is doing so now—you know how expensive a dormitory room and board can be. Off-campus housing that many students desire after freshman year may be pricier but also could be less costly, depending on the location and whether it’s an apartment in an amenity-rich high-rise building or in a simple duplex or fourplex or condo building.

 

The good news is that most college towns have a surfeit of options close to the campus since developers have recognized the target-rich student housing market, which also includes graduate students and faculty members.

 

Somebody else has also spotted the opportunity: savvy parents and other entrepreneurs who have dollars burning a hole in their wallets and who have heard about or witnessed this demand.

 

They understand the advantage of investing in a rental property, even if they don’t live nearby. They understand that it can become a rent-free option for their college student-child to reside in while in school or a cash cow chance for you if other students rent it out.

 

In the best cases, owners may even hold on to the investment long after their child graduates and keep seeing dollars roll in. In a Houzz.com survey—”Have you purchased real estate in your child’s college town?”—many parents said yes and made it clear the investment offered a healthy return. For example, one replied, “Now the unit is rented and has proved to be quite lucrative.”

 

But there’s another opportunity to make money. Many parents want a place to stay when they head to the school to drop off their children, visit them during parent weekends, at graduation or if they are alums and attend sporting events. “These are all very popular times for rentals to be occupied,” says Melanie Fish, a spokesperson for the HomeAway property sharing site.

 

To make the soundest investment rather than see the property sit vacant or not be cared for properly requires doing your homework. Here at GREEN, we’ve done some of your work with the following list:

 

Pick a location. Most students want to be close by, which means within walking or bicycling distance. The closer to the campus, the less need they will have for a car, says Fish.

 

Know what’s permitted. Before you buy, be sure short-term rentals are permitted by the town or city if that’s the route you plan to go; more are setting stricter rules. If you’re purchasing a condo, be sure the board or HOA permits rentals. If you’re purchasing a small home, duplex or four-plex, let neighbors know your plans; they may fear a group of students descending on their area. Relay this message to them directly and introduce yourself rather than have neighbors find out from another source, Fish says. Also share that you will have rules and enforce them.

 

Choose the size. Is the place just for your child or another student? Many college kids like to live in packs, so a two- or three-bedroom with one or two bathrooms may be smarter. Know that developers build most dormitories with single “beds”—or separate rooms and bathrooms for each student—since that’s what most students like. For nonstudents such as parents or alums, a home or apartment with three or four bedrooms (and a few bathrooms) may be the most appealing. Such configurations will be viewed as good value by those traveling together who want to share costs, Fish says.

 

Choose the condition. Unless you’re very handy or want to take on a significant remodeling project or know of someone else who can do the work, it may be better to purchase a unit or building in decent shape. Painting is one thing; putting in a new kitchen or bathroom is another. Of course, the better the condition, the more you’re likely to pay upfront… but you may also be able to charge a higher rent. Weigh various costs and your timetable for making it available.

 

Furnish it. Even if you know it will be used by parents or alums, there’s no need to make the furnishings extremely lavish or delicate. A good fresh paint job, a clean kitchen and bathroom with decent appliances and fittings, and nice but not over-the-top furnishings such as a sofa, chair, rugs, tables, lights and firm mattresses—some of which you may even have stored away in your basement or attic—might be more than adequate. You also should provide basic tableware, a few pots and pans, small appliances like a toaster oven and so on. Also, provide basic cleaning items. Because many use bicycles around campus, offer a place to store their bicycles safely. Some may also want a parking spot, which will depend on the type of building and location, but inquire about possibilities. Laundry equipment in the unit or a basement is a plus that will help your unit attract interest. In fact, all these items will help your unit stand out and garner good reviews, says Fish.

 

Set a price. If you’re going to rent it for the school year or entire calendar year, check what the competition charges. If you envision it more as a periodic rental, go online to the popular sharing sites and check the competition. Know that you may be able to charge a premium for certain times of the year such as homecoming and football games. In 25 major college football markets such as Ann Arbor, Michigan, home of the University of Michigan, the average nightly rental rate was $473 for a game weekend or almost $200 more than on a nongame weekend, says Fish.

 

Get security deposits. You’ll want to treat this as any other rental and ask for three months’ worth of payments when a contract is signed—one for the upfront security deposit that will be returned if there’s no damage, plus the first and last months’ rents. Quite often parents provide the funds and sign a contract. If the student signs and writes the check, consider having a parent co-sign in case of damages or problems. Besides using a check, many prefer to pay through an online method such as PayPal. If you’re renting it out only part of the time, your typical security deposit to ask for is $1,000.

 

Advertise your unit. Take a multi-front approach. Advertise it in a university magazine or campus newspaper and on the online sharing sites.

 

DIY or property manager. If you live nearby, you can check in and fix many problems or hire a handyman. If you’re miles away, you may want to hire a local property manager. A graduate student may be available for this job and like the idea of earning extra funds. If your child is living in the unit and renting out a room to peers, a property manager may remove potential stress on your child. On average, short-term rental property managers charge 15 percent to 30 percent of rental income, Fish says.

 

Establish rules. Make them very clear in a written contract that you have students and parents sign. Decide if you want to permit pets. They can be destructive, but many millennials are very attached to their animals these days. Conversely, one parent responding anonymously to the Houzz.com survey question took a different view. “NO pets. NONE. NONE. NONE,” was the reply.  Also, set hours regarding potential loud noise and rules about parties or large gatherings. Set limits on the number of guests who may stay overnight. Decide who pays for what such as utilities, cable service and trash removal. And have an easy way for students or any renter to reach you—by phone, email, text, or all three.

 

Let your lender and insurance carrier know. Mortgage rates for an investment rental usually are different and higher than for pure residential use. Same holds for homeowner insurance rates and umbrella coverage so let your carrier know your plans.  

 

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