College Rentals, Worth the Investment?

The Up Side:

Buying property in a college town presents both an opportunity and a dilemma for investors. On the upside, you can almost guarantee a large pool of prospective tenants, ensuring a positive monthly cash flow. But, you can also expect a high turnover rate, and you might not get your property back in the same condition. According to Forbes, university settings are a great place to invest at the middle to high end, attracting graduate students, junior faculty, and administrative staff who might not be interested in or able to purchase a home yet. And, according to Balance.com good schools are often located near thriving areas with banks, restaurants, and other activities, making them attractive investment now and for resale later.

Considerations When Searching: For those reasons, I'm currently considering the purchase of another college rental property, located just steps away from a Virginia law school. Having owned similar properties near Georgetown University in Washington, DC. I know they can prove profitable or problematic, especially if you pack your place with unreliable undergraduates out on their own for the first time. As suggested by Forbes, I leased to graduate students, and although they were admittedly a little harder on the historic seven figure row houses then a typical family would have been, overall the international students were pleasant to deal with, responsible and paid their rent on time.

Management: While I chose to manage the properties myself, I would suggest hiring a management company because, while students are less demanding, they can be quite needy. If you decide to do it yourself anyway, consider appointing one tenant as a spokesperson for the group.

Here's why, one day I received six messages about a chipped porcelain sink and a blown light bulb. Appointing a group spokesperson for repairs makes communication a lot more efficient. More Pros and Cons: When it comes to avoiding vacancies, college towns provide constant demand for decent housing, which in turn helps to keep rental prices stable. And since the summer season can be slow while school is out, Balance.com suggests that you require a year-long lease rather than month-to-month. Balance.com also warns that student loans are defaulting at an unsustainable rate. A fact you should factor into any buying decision.

Limited Credit: Even at the graduate level, students don't always have established credit, leaving parents to co-sign rental agreements. One way around that complication is by buying property near a nursing school or significant teaching hospital. I did that in DC and added my property to the school's housing list. A decision that may allow you to be paid directly by the institution, rather than the individual.

Roommates: In a shared property, roommates need to get along! I've found that you have a much better shot at having a happy group of tenants if you locate students who are already looking to live together, rather than filling your property with a bunch of strangers and hoping they become friends.

After They Move Out: Once the students move out, you can either sell the property, keep it for passive income or for use by your own children when they go off to college. If you decide to sell, I've found that it's worth the money to do a major cleaning and remodel at a high level, before it goes on the market. And once you do, market the property as a regular, single family home, rather than a group home or college housing.

The bottom line? If you are going to rent to students, do your homework first.