College enrollment is up on many campuses, but as enrollment grows, many campuses are woefully behind in building new and expanded on-campus housing for growing student populations, pushing many students into privately owned off-campus units. This, in turn, places greater pressure on local real estate markets and property managers who must absorb and service a growing and complex population of student renters.
According to a recent report by AppFolio, with data commissioned from Axiometrics, the student housing market is strong and growth is anticipated through 2017. Due to the lack of on-campus housing options, privately owned, purpose-built student housing properties are the leading housing choice for college and university students – offering great value and opportunity for real estate investors and property managers alike.
Benefits and Challenges of Renting to Students
There are several benefits that come with renting to college students. First is that there’s big demand, especially in certain college towns, such as fast growing campuses like Texas A+M, which saw a 15.4% increase in enrollment, adding 8,000-plus students to the small city of College Station, TX (pop. 106,000). Beyond the growing demand for off-campus beds, which is anticipated to grow in 2017, our report found that the average rent for off-campus housing was cheaper than on-campus rent in all but one market (College Park, MD), making off-campus options a financially attractive option for students. In addition to competitive rents, student tenants are generally a safe bet to make rent payments as they often receive financial assistance from their parents. Finally, students are often less fussy about things like updated appliances, property aesthetics and maintenance.
Renting to students comes with certain challenges, too. Students are a complex tenant population in that many leases last only a year and they’re notoriously difficult to vet due to thin credit and background checks. Once a lease is signed, student communication habits have a tendency to challenge the most hands-on property managers, making texting and easy to access rent payment portals a must.
Minimizing Risk and Best Practices
Do not let these challenges dissuade you from getting into the student housing market; the anticipated growth and recurring stream of potential tenants offer great opportunity for the savvy investor and property manager. We’ve identified a few best practices that can minimize risk and capitalize on market potential.
· Leases: When developing a student lease, requires co-signers (often parents) regardless of a tenant’s rental history. Be sure to include clear language and clauses on noise, maximum occupancy, and damage and repairs.
· Rules: Evaluate the property’s potential trouble spots and address them in the lease. These include roof access, burning candles indoors, charcoal grills, fireworks and firearms.
· Screening: Despite thin credit and tenant histories, still conduct a regular tenant screening on both students and parents. You should also check with the college if your prospective tenant has been evicted from a dorm.
· Rent by the Bed: Develop your leases and rent collection to rent by the bed. This guards against a scenario where one roommate leaves school or has to be evicted, making it difficult for the remaining tenants to cover his/her portion of the rent.
It’s Time to Get in the Game
Demand for student properties will remain high. Our report indicated that several markets are poised to see tighter supply in 2017, underpinning what makes this market so attractive. Looking ahead to the Fall of 2017, many of the university markets in our report are poised to deliver fewer beds than they did in 2016. This drop in supply will drive demand as enrollment at many of these colleges is anticipated to grow.
One particular market that caught our eye, College Park, MD, has zero beds scheduled for delivery, which is remarkable due to University of Maryland’s growing enrollment, its proximity to attractive DC real estate market and the fact that the Terps are the only student population in our report paying more for off-campus housing.
On top of the sustained growth in the student market and dwindling supply in some of the hottest markets, student housing properties near major universities with NCAA Division I teams playing in competitive conferences have caught investor interest, increasing the likelihood of more supply entering these markets beyond 2017. But, in the short term, the demand will only grow as supply catches up with growing enrollments.
When managed effectively, student housing properties can be an attractive addition to any portfolio. The growing and dynamic pool of potential tenants, financially secure parents as co-signers and a less demanding and selective student population can outweigh the challenges and liabilities that come with renting to students. Sure, every college town has its Animal House, but sound leases and engaged property managers will ensure your investment isn’t put on double secret probation.