Author Topic: Easy way to finding & investing rental property near university campuses?  (Read 1618 times)

TwistedEther

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Hi there, I am interested in investing about 150-175K in a university town rental property. I was hoping to find some kind of service that would match me with a potentially good agent and property manager. The goal is to get the house, let the property manager manage it, and earn a monthly income. I don't have the bandwidth to do too much homework other than doing some basic due diligence.  What do you suggest?  Is it worth doing it? Should I be doing something else that comes close to what I am looking for?  Do you know of any resources for what I am looking for?

Any advice would be greatly appreciated :-)

waltworks

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At this level of lazy/uninterested, you will need a time machine to travel back to about 2009 for this to work out for you.

RE investing is not hands off enough that you can *hire someone to hire someone to find you a property and then hire someone to rent that property to someone* and expect to make money.

Put it in VTSAX.

-W

Neo

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Have to agree with Walt here. If you're too lazy/dont have time to find a property you'll never be able to put in the work to actually own a rental property.

TwistedEther

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Thank you.  Your responses are fair enough and I couldn't argue otherwise.  I am ignorant, that is why I was asking.  I was looking for a service or a kind of professional who does the scouting for you, fully acknowledging that ultimately I still have to review the results and do some level of due dilligence.  Anyway, I take it that I cannot be that lazy.  Ok.

lhamo

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Before you buy a college town rental, try to find some people who own some and get their stories/tour their properties. You might luck out and get tenants like me and my sister (responsible people who will mow the lawn and take care of the garden and let you know when something needs repair), or you might get more typical college age tenants who like to party and will wreck the place. In many cities you have to be very careful about not discriminating so you can't necessarily just pick your preferred tenants.

The only way I would be comfortable buying a college oriented rental was if I lived nearby and my kids were living in it/managing it as a way to subsidize close to campus living. But I live in Seattle so the numbers don't work right now. Maybe if we have another crash.

rothwem

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In addition to agreeing with Walt and Neo, I’ll mention that renting to college kids is about the hardest type of RE investment out there when it comes to “buy and hold”.

The pros are:

-Endless pool of renters
-Relatively secure rent stream if you get parents to co-sign

The cons are:

-They will probably break your stuff
-They will piss off the neighbors and you WILL get calls at night
-They move out just about every year. It’s very unusual for a college kid to live the same place more than a year, then you’re stuck with the cost of the turn.
-You have to keep the place looking nice because their parents come by and don’t want their kids living in a shithole. However,
-Did I mention they will probably break your stuff?

In addition, it depends on which college town you’re looking at, but the property near campus is usually EXPENSIVE. I looked at property in Chapel Hill (where UNC is located) and there’s no way you’re making a profit there off of SFH rentals.

Jon Bon

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Time Machine +10000

or

Just wait until the next recession.

That being said college rentals can be a good way to get started IMO.

Here is the secret........grad students

All the pros and none of the cons. So find the fun college part of town, and find a place about a mile further out. That is where the grad students live!

clarkfan1979

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I have two college rentals. I bought them in 2007 and 2012. It's been a great income stream for me. I also unexpectedly experienced lots of appreciation. The first doubled in price in about 10 years (182K to 365K). The second one only took about 4 years (95K to 190K).

If you are going to take advice from someone on this topic, make sure they actually own a college rental. It seems like most of the advice comes from people who don't have any direct experience with college rentals.

I teach college and have lived in college towns for most of my adult life. I interact with college students on a daily basis due to my job. I think this gives me a competitive advantage. If you want to play in the college rental game you need to familiarize yourself with all the details. It's a very different game than renting to families.

I haven't had a problem with college students breaking my stuff. However, if they do break something it comes out of the deposit. Based on past experience, I typically give about 75% of the deposit back.

My step-father owns a 45 unit apartment complex. Based on his experience young children do more damage than young adults. However, the cost of repairs are always taken out of the deposit. 

Turnover might be slightly higher than families. My average stay is two years. It's always a one-year lease with an option to re-new if there are not any major headaches. I have never "not given" the option to re-new for a 2nd year. However, I did recently deny one group the option to stay a 3rd year. I felt like their circumstances had changed. Most of them graduated got full-time jobs and wouldn't be getting a co-signer.  They also had a hard time being at the house for repairs.

Even though the average stay is two years, I have averaged 0% vacancy over the last 11 years. Higher turnover doesn't always mean higher vacancy. The rental needs to follow the academic calendar so move-in/move-out day is typically the same day every year.

The biggest pro is that you are pretty much guaranteed payment of rent. I typically have 3 students with 3 parent co-signers. For my rentals, state law says that everyone on the lease including the co-signers are responsible for the full amount of the rent.

TwistedEther

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Thank you for the detailed response @clarkfan1979

Your story is very insightful and inspiring! If you don't mind me asking, are the rental properties close to where you live? And do you actively manage them or use a property manager?  With a regular 2 year turnover, it must require active management.

tralfamadorian

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I don't have the bandwidth to do too much homework other than doing some basic due diligence. 

VTSAX and possibly invest in student housing complex syndications if/when you can become accredited.

I also do some college rentals. Like clarkfan, I also haven't had issues with student destructiveness but I know the towns I invest in very well. Where do the frat guys like to live? What streets do the engineering phd's prefer? Etc.

clarkfan1979

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Thank you for the detailed response @clarkfan1979

Your story is very insightful and inspiring! If you don't mind me asking, are the rental properties close to where you live? And do you actively manage them or use a property manager?  With a regular 2 year turnover, it must require active management.

I live in Hawaii and one rental is in Colorado and the other is in Florida. I have family close to both rentals. We visit Colorado and Florida each twice a year, once in the winter and once in the summer.

I get to "write off" my travel to visit my family because my rentals houses are in the same town. I always stop by the rental for at least one day to check it out and do some minor repairs. Then it becomes a legitimate write-off.

I manage myself. However, I have a good handyman in each location, which are difficult to find when the economy is doing well. I have cycled through a few no so good handyman's over the last 3-4 years.

rothwem

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I have two college rentals. I bought them in 2007 and 2012. It's been a great income stream for me. I also unexpectedly experienced lots of appreciation. The first doubled in price in about 10 years (182K to 365K). The second one only took about 4 years (95K to 190K).

If you are going to take advice from someone on this topic, make sure they actually own a college rental. It seems like most of the advice comes from people who don't have any direct experience with college rentals.

I teach college and have lived in college towns for most of my adult life. I interact with college students on a daily basis due to my job. I think this gives me a competitive advantage. If you want to play in the college rental game you need to familiarize yourself with all the details. It's a very different game than renting to families.

I haven't had a problem with college students breaking my stuff. However, if they do break something it comes out of the deposit. Based on past experience, I typically give about 75% of the deposit back.

My step-father owns a 45 unit apartment complex. Based on his experience young children do more damage than young adults. However, the cost of repairs are always taken out of the deposit. 

Turnover might be slightly higher than families. My average stay is two years. It's always a one-year lease with an option to re-new if there are not any major headaches. I have never "not given" the option to re-new for a 2nd year. However, I did recently deny one group the option to stay a 3rd year. I felt like their circumstances had changed. Most of them graduated got full-time jobs and wouldn't be getting a co-signer.  They also had a hard time being at the house for repairs.

Even though the average stay is two years, I have averaged 0% vacancy over the last 11 years. Higher turnover doesn't always mean higher vacancy. The rental needs to follow the academic calendar so move-in/move-out day is typically the same day every year.

The biggest pro is that you are pretty much guaranteed payment of rent. I typically have 3 students with 3 parent co-signers. For my rentals, state law says that everyone on the lease including the co-signers are responsible for the full amount of the rent.

I understand that you work with college kids daily, but you can get tenants that pay reliably that AREN'T college kids.  Other than your peace of mind due to multiple co-signers, what's the advantage to the college rentals?  It sounds like that's a market you were deliberately aiming at. 

I say this as someone who owns a duplex that's 1.2 miles from NC State's campus and have only had bad experiences with the undergrads I've rented to.  Grad students are pretty great to rent to, but they're generally really frugal and you can only attract them with rents that are at the very bottom of market.  I wasn't really planning on targeting college students despite the proximity to campus, FWIW. 

As far as the security deposit and damage goes, in NC, you can only charge 2x month rent on a security deposit.  I can think of a number of stupid college kid antics that would blow right by a two month's rent amount, especially if you're not DIYing the work and have to call a contractor to do the repairs. 

clarkfan1979

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Yes, I agree that grad students are great, but they are generally the most frugal. I think there is a common misconception that grad students have more money than undergrads. On average they have less because they are typically not getting money from mom and dad.

I target rich kids (juniors and seniors only) by buying single family homes close to campus that show better than the typical college rental. I'm not sure if the typical rich parent would be excited about a duplex. They can be a little snobby.

Rich parents want their kid to live in a nice place and are willing to pay extra for it. Most of my competition doesn't put in the extra time for the small details to make houses shine. It's not expensive, just details. For example, fresh coats of paint in the bathrooms every 1-2 years, electrical outlets always have covers, landscaping not overgrown, etc..

When you have a 4 bedroom house each kid will gladly pay $50-$100 more to live closer to campus. However, you are not going to get a family or young professionals that will pay $200-$400 more to live closer to campus.

On my rental application I will get kids driving brand new 30K cars or 40K SUV's, recently purchased by their parents.

I get more rent by targeting rich college kids. That's my game.

Apple_Tango

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My friend is in Knoxville, TN and she just bought the 3 bed 2 bath house she was renting. Total purchase price was $80,000. The landlord had just put on a new roof and just done a new HVAC, plus bought a new dishwasher.

Her and her husband will be there for another 3 years for the PhD thing, all told they rented the house for 3 years and plan to live in it for 3 more. Then they plan to rent it out to grad students!

Sounds good to me :) I feel like with 80k thereís not much that can go wrong.

FiftyIsTheNewTwenty

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Re: Easy way to finding & investing rental property near university campuses?
« Reply #14 on: September 01, 2018, 07:03:06 PM »
I lived in a college town for several years, and looked into all kinds of investment properties.  Friends were into it at every level of the market.  It seemed to me too that the student market is the hardest to make money at -- not for beginners.

One problem is, the bottom end of the market is overpriced -- too many inexperienced hopefuls without much money, watching too many house-flipper shows, and not enough junk for them all to play with.

The best opportunity I saw was in decent rentals for young faculty, postdocs and their spouses, and young professionals.  Somewhat upscale, low-maintenance townhouses with garages -- the kind often bought by retirees -- would rent for well above cost.  You'd have several good prospects within hours of listing, and they'd tend to stay 2-5 years before buying something or moving on.

cchrissyy

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Re: Easy way to finding & investing rental property near university campuses?
« Reply #15 on: September 01, 2018, 08:24:27 PM »
My college town rental attracts visiting professors or researchers. The reasons are a mix of location, layout, and price point.

clarkfan1979

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Re: Easy way to finding & investing rental property near university campuses?
« Reply #16 on: September 02, 2018, 10:27:52 PM »
If you are located near a R-1 institution you are going to get many professionals associated with research that are not tenure track faculty. If it's smaller school that is not producing research the renter pool is basically faculty and students with very little in between.

FINate

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Re: Easy way to finding & investing rental property near university campuses?
« Reply #17 on: September 02, 2018, 11:27:34 PM »
I have rented to college students until recently. I agree with Walt and others about getting a time machine. We bought at a great time during the housing crash.

Our area has an extreme housing shortage right now, yet the local U keeps growing enrollment. At the same time we're getting spillover demand from Silicon Valley (20 min away) as people get priced out there *and* realize they can live near the beach and the redwoods for less.

But the factors making our property a good investment (timing, housing shortage, proximity to high-paying jobs) are not universal. YMMV so to speak. In fact, I would estimate that without these factors our property would have been a money loser once we account for expenses (something is always breaking) as compared to something totally passive like VTSAX.

I typically rented to grad students, preferring those in STEM fields. A bit more mature, and typically far too busy with school to spend a lot of time partying. There was frequent turnover, but typically those returning the following year would find new housemates. Again, it helps that there's a housing shortage in my city, super easy to fill vacancies, I wouldn't assume that this is normal in every college town. They didn't break stuff so much as failed to do any upkeep whatsoever, a lot more wear and tear than normal.

We've taken our rentals off the market. Housing shortage naturally led to increasing rents, and now it looks likely that the city will impose very strict rent and eviction controls. 'Cause, you know, if there's a shortage of rentals it makes complete sense to make it less desirable to be a landlord /sarcasm. So we've withdrawn our units until after the election, will reevaluate then.

In short, it can be very lucrative if you buy in the right market at the right time. But success isn't guaranteed and it's not something to go about lazily. Nor do I think it's something you just outsource to someone else, you have to do your own homework.

rothwem

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Re: Easy way to finding & investing rental property near university campuses?
« Reply #18 on: September 04, 2018, 06:26:06 AM »

We've taken our rentals off the market. Housing shortage naturally led to increasing rents, and now it looks likely that the city will impose very strict rent and eviction controls. 'Cause, you know, if there's a shortage of rentals it makes complete sense to make it less desirable to be a landlord /sarcasm. So we've withdrawn our units until after the election, will reevaluate then.



This makes no sense. You’re just letting your houses sit?

FINate

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Re: Easy way to finding & investing rental property near university campuses?
« Reply #19 on: September 04, 2018, 07:52:55 AM »

We've taken our rentals off the market. Housing shortage naturally led to increasing rents, and now it looks likely that the city will impose very strict rent and eviction controls. 'Cause, you know, if there's a shortage of rentals it makes complete sense to make it less desirable to be a landlord /sarcasm. So we've withdrawn our units until after the election, will reevaluate then.



This makes no sense. Youíre just letting your houses sit?

It makes perfect sense. The controls being proposed are draconian and we would effectively lose control of our property. Not only would rent increases be limited to CPI, but we would also not be able to control who is subleasing (and when the master tenant departs the sublease would become the master tenant even though we've never vetted them), our 3/2.5 units could end up with 7 (or more, the lawyers are still trying to figure this out) people in them (again, something we would not be able to limit), and if we wanted to pull the units off the market (e.g. to sell or do owner move-in) then we'd be looking at paying "relocation fees" in the range of $15k each, and in certain cases we would not be able to regain occupancy of the property at all.

Yeah, no thanks! It's worth a couple of months of lost income to wait and see what happens. This is another wonderful thing about being solidly FIRE - not a problem to plan around dumb stuff like this. We did an owner move in on one of the two units earlier this year (sold our primary residence for a very good price, great time to sell), so right now it's only a single unit sitting vacant.

rothwem

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Re: Easy way to finding & investing rental property near university campuses?
« Reply #20 on: September 04, 2018, 08:11:14 AM »

We've taken our rentals off the market. Housing shortage naturally led to increasing rents, and now it looks likely that the city will impose very strict rent and eviction controls. 'Cause, you know, if there's a shortage of rentals it makes complete sense to make it less desirable to be a landlord /sarcasm. So we've withdrawn our units until after the election, will reevaluate then.



This makes no sense. You’re just letting your houses sit?

It makes perfect sense. The controls being proposed are draconian and we would effectively lose control of our property. Not only would rent increases be limited to CPI, but we would also not be able to control who is subleasing (and when the master tenant departs the sublease would become the master tenant even though we've never vetted them), our 3/2.5 units could end up with 7 (or more, the lawyers are still trying to figure this out) people in them (again, something we would not be able to limit), and if we wanted to pull the units off the market (e.g. to sell or do owner move-in) then we'd be looking at paying "relocation fees" in the range of $15k each, and in certain cases we would not be able to regain occupancy of the property at all.

Yeah, no thanks! It's worth a couple of months of lost income to wait and see what happens. This is another wonderful thing about being solidly FIRE - not a problem to plan around dumb stuff like this. We did an owner move in on one of the two units earlier this year (sold our primary residence for a very good price, great time to sell), so right now it's only a single unit sitting vacant.

Right, but the elections aren’t until November, and an legislation probably won’t be passed until at LEAST 6-8 months after that. Assuming you have a unit vacant that nets, what, $2500/month (assuming California here), you could lose $20,000 waiting for the sky to fall. Then, IF the legislation is passed, your home value will drop and you’ll be left holding the bag. If it doesn’t pass, then you’ve just given up a bunch of money for no reason.

Seems like the best bet would be to sell or rent. Holding still is the worst of both worlds.

FINate

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Re: Easy way to finding & investing rental property near university campuses?
« Reply #21 on: September 04, 2018, 09:50:54 AM »

We've taken our rentals off the market. Housing shortage naturally led to increasing rents, and now it looks likely that the city will impose very strict rent and eviction controls. 'Cause, you know, if there's a shortage of rentals it makes complete sense to make it less desirable to be a landlord /sarcasm. So we've withdrawn our units until after the election, will reevaluate then.



This makes no sense. Youíre just letting your houses sit?

It makes perfect sense. The controls being proposed are draconian and we would effectively lose control of our property. Not only would rent increases be limited to CPI, but we would also not be able to control who is subleasing (and when the master tenant departs the sublease would become the master tenant even though we've never vetted them), our 3/2.5 units could end up with 7 (or more, the lawyers are still trying to figure this out) people in them (again, something we would not be able to limit), and if we wanted to pull the units off the market (e.g. to sell or do owner move-in) then we'd be looking at paying "relocation fees" in the range of $15k each, and in certain cases we would not be able to regain occupancy of the property at all.

Yeah, no thanks! It's worth a couple of months of lost income to wait and see what happens. This is another wonderful thing about being solidly FIRE - not a problem to plan around dumb stuff like this. We did an owner move in on one of the two units earlier this year (sold our primary residence for a very good price, great time to sell), so right now it's only a single unit sitting vacant.

Right, but the elections arenít until November, and an legislation probably wonít be passed until at LEAST 6-8 months after that. Assuming you have a unit vacant that nets, what, $2500/month (assuming California here), you could lose $20,000 waiting for the sky to fall. Then, IF the legislation is passed, your home value will drop and youíll be left holding the bag. If it doesnít pass, then youíve just given up a bunch of money for no reason.

Seems like the best bet would be to sell or rent. Holding still is the worst of both worlds.

You're wrong. I know you mean well, but I'm extremely aware of the tradeoffs involved. I've gone over the ballot measure with a fine toothed comb, with the aid of a real estate attorney. If passed it goes into effect immediately. Oh, and rents get rolled back to Oct 2017. In the context of a $1.5MM property, forgoing ~$6-7k of rental income to get clarity on a long-term decision is peanuts. Besides, if it passes we're likely looking at a few months of fixing the place up, along with some more work with the attorney to prepare the place for a TIC sale, which would put us into the late winter/early spring which is a good time to put RE on market in this area.

Long haul

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Re: Easy way to finding & investing rental property near university campuses?
« Reply #22 on: September 04, 2018, 04:55:53 PM »
What area is this?

One thing about college rentals is the competition. As in giant new complexes being built. Area specific, but take a good look around before you jump in.

Yes the rents are higher, but summers can be terrible. I've tried to time my leases, with some luck, however it is a very seasonal type of real estate. Miss renting before school season or have one come open after the semester starts and it could sit for sometime. Very fickle if you have serious competition.

clarkfan1979

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Re: Easy way to finding & investing rental property near university campuses?
« Reply #23 on: September 04, 2018, 07:27:43 PM »
What area is this?

One thing about college rentals is the competition. As in giant new complexes being built. Area specific, but take a good look around before you jump in.

Yes the rents are higher, but summers can be terrible. I've tried to time my leases, with some luck, however it is a very seasonal type of real estate. Miss renting before school season or have one come open after the semester starts and it could sit for sometime. Very fickle if you have serious competition.

If you have a nice single family home close to campus you will get a 1-year lease. Graduation requirement also influence summer occupancy. Some universities require students to have a certain number of summer classes as a graduation requirement. Big apartment complexes are not my competition. The typical rule of thumb is dorms in your freshmen year, apartment in your sophomore year and if you are lucky you can get a house close to campus during your junior and/or senior year.

People who rent from me do not want to live an apartment. They already did it and want to move on. 4 bedroom apartments will rent for $2,000/month and 4 bedroom single family homes will rent for $2400/month. You get a yard, garage, better parking and more privacy. Part of this is also supply. There are many more apartments available close to campus than single family homes. New apartments seem to be built every few years, but they are not building new single family homes near campus.