Short-term rentals (STRs), including student rentals, can be a lucrative option for real estate investing if done correctly. 25 critical criteria for investing in short-term rentals and student rentals boost your profits with strategies that help you get the most from your rental investment.
Consider The Pros and Cons
Pros of Air BnB’s and Vacation Rentals by Owners (VRBOs)
- You don’t have to deal with long-term tenants
- You’re paid at the time of the reservation
- If you have an in-demand property, the average monthly income can be much higher than the monthly rent for long-term tenants
- Airbnb and VRBO have their own platforms for instant advertising
- Short-term rentals can also cater to people who; are having a house built and need a short-term property to tide them over, need a place to live during renovations, are traveling into the city for a medical procedure, moving to the city, and need a place to live while looking for a long-term rental or while buying a property
- Here’s a link to a video from seasoned short-term investor Maria Rekrut
Pros of student rentals
There are many pros to student rentals, including an ongoing rental pool regardless of the economy, higher cash flow, community loyalty, manageable expectations, steady income regardless of defaults, and parents covering the cost of rent, to name a few. Here are 10 pros;
- New college students arrive each year, so the pool of renters never runs dry.
- You can charge higher rents. Suppose you rent your three-bedroom house for $1500-$1700 a month with a student rental; a three-bedroom house could rent for $2850-3000/month.
- Once you rent to members of a specific community, you can have a steady flow of your student rental as they spread the word within their families/communities.
- Students are not expecting luxury accommodations, and safe, clean, functional housing near the university and amenities do the trick.
- Student rentals are pretty much recession-proof; whenever there’s a downswing in the economy, there is an influx in enrollment
- Parking may not be necessary since many students rely on public transportation.
- If one student defaults on their rent or moves out, you do not lose the entire rental income, unlike a single-family dwelling where a vacancy or default means you are paying the entire mortgage and utilities.
- Since many students leave for four months over the summer, you could rent out the rooms on Airbnb or short-term rentals to budget vacationers or summer students.
- Guaranteed entry and exit dates, which allow you to prepare and plan for vacancies
- Parents may co-sign (if Canadian), or rent may be paid by parents rather than students, which means less difficulty collecting rent
- Here’s a link to a video from a savvy Canadian student rental investor
Cons Air BnB’s and Vacation Rentals by Owners (VRBOs)
- STRs need a well-organized maintenance team
- STRS still requires a method of screening so that you can control who has access to your property
- STRs are not passive investments; they require work to meet vacation rental standards and maintenance to keep them at a high standard
- Many municipalities are implementing legislation and taxes for Air BnB and VRBOs
- As a student housing investor, your rental property is the link between home and adulthood. Chances are you will be dealing with young adults who have lived with mom and dad paying their bills and picking up after them
Cons of student rentals
As a student housing investor, your rental property is the link between home and adulthood. Chances are you will be dealing with young adults who have lived with mom and dad paying their bills and picking up after them. You will need to be prepared to deal with;
- Inexperienced renters
- Young adults who may or may not have adult communication skills
- Irresponsible behaviour
- Mitigating disputes between tenants
- Hygiene and cleanliness issues
- Damage costs
- Inexperience with finances
- Annual turnover
- Breach of lease agreements including sneaking in additional tenants, boyfriends/girlfriends, allowing friends to use the laundry, shower facilities, etc.
- Difficulty collecting rent from an international student who defaults
As a student rental landlord, you must provide training/education on house rules and cleaning, wear and tear, and maintenance responsibilities.
Also, because there is typically a higher foreign student population with different cultural norms, you need to be aware of the differences and provide education. For example, in many countries, toilets are a hole in the floor with footpads; people who see western-style for the first time, don’t understand that westerners sit rather than stand on toilets.
Tips for dealing with student rental everyday issues
How can you bypass some of these issues?
- For Canadian students, many parents are willing to co-sign, eliminating many financial worries of non-payment of rent.
- Always take a security deposit.
- Compile a tip sheet for first-time renters on common issues such as not turning the thermostat off during the winter, turning lights off when the room is not in use, garbage, recycling days, cleaning responsibilities and expectations, etc.
- Go over the house rules verbally and provide a copy of them to each student tenant.
- Create a cleaning expectation checklist and schedule
- Automate electronic rent payments
- Automate keyless entries
- Have charge coin-operated or card-operated laundry facilities
Another final option is to house hack with your kids. You buy the student property, your kids and a few of their friends move into the house, and you partner with your kids to buy the property. When their degree is up, they have gained first-hand experience as a homeowner and landlord while paying the mortgage and gaining equity.
Would you like to receive articles, tips, and events? My news blast will help!
Due Diligence Tips
- If you are working with a realtor, make sure they know and understand the short-term rental market to discuss supply and demand, regulations, tourism, seasonality, ideal locations, and cash flow.
- Have a thorough property inspection of the house. Older houses in treed neighbourhoods face issues with tree roots growing into and destroying the sewage pipes, electrical upgrades, and home components such as washers, dryers, dishwashers, toilets, appliances, etc., wearing out with age. What may look like an excellent price could come at high repair and replacement costs.
- For turn-key short-term rental investments, ask for three years of rental and income records.
- Talk to friends or colleagues who have been successful for insider insight.
- Prepare a budget based on expected expenses and operational/capital maintenance costs- then calculate the number of nights per month your property needs to be rented to turn a profit.
- In your budget, include all expenses:
- Short-term rental insurance
- Principal/interest on the mortgage
- Cleaning services
- Entertainment package (TV, Cable, Internet)
- Furnishing the property
- Consumables (coffee, tea, condiments, etc.)
- Finishing touches (matching towels, chocolates, or a bottle of wine, concierge services)
- Plumbing, heating services
- Property Manager
- Check out Airdna.co, which provides data on how much rental income you can make, vacancy rates, frequency of rentals, and duration of rentals.
- Make sure the new property allows for short-term rentals. Many condos and townhouses prohibit short-term rentals; some municipalities actively restrict short-term rentals. Check the condo by-laws and municipal regulations for STRs.
- Investigate popular areas and consider future developments in places you consider investing in, such as neighbourhoods zoned for conference centres, wedding facilities, access to downtown or hospitals, sports teams, colleges, universities, vacation areas, and public transportation.
- Does your STR have adequate parking? Consider the type of guest renting your property; would they require a parking stall or multiple parking stalls?
- Oversaturation – are certain areas becoming oversaturated? Check out Air BNB or VRBO advertisements to assess how much competition is in your area.
- Ask tourism departments for inbound statistics; they can provide stats for top seasons, popular areas, and demographics of tourists.
- Make sure the market can support your STR, and if not, are there opportunities to find regular tenants?
- Research local taxes, taxable charges, and how to file taxes. Do check with your accountant or tax specialist for accurate information on which expenses can lower your l taxes.
- When advertising – take good pictures or videos. People select properties based on the images.
- Stay competitive – look at your competitor’s ads and see how your property, services, etc. compare.
- Advertise on Airbnb, VRBO, Booking.com or create your own website and advertise with hospitals, wedding venues, event planners, etc.
- Establish a profile for your ideal tenant, minimum and maximum numbers of guests, set a minimum age, set minimum stays, set house rules, and set cleaning fees, and additional guest fees.
- Security – install cameras on the property’s entrances and remote/keyless entries to track who is coming and going .
- Cover your legal bases with an LLC to create limited liability, a rental agreement that protects you for limiting liability in case of a guest or contractor is injured on your property and umbrella insurance coverage.
Before investing in a student rental, ask yourself;21. Do you want a rental property kept in pristine condition?
22. Do you have protection against property damage and defaults?
23. Do you have the patience to deal with first-time tenant issues over and over again?
24. Do you have the time to ensure your investment is kept in good repair, or can you absorb the cost of property management fees?
25. How is the municipality taxing your investment? What restrictions are in place for this type of investment?
Short-term rentals and students can offer an amazing opportunity to diversify your income. However, it takes upfront scrutiny, organization, and planning to make your rental investment profitable.
Student rentals can be a lucrative investment; however, like all investments, you need to consider risks to determine whether it will give you a worthwhile return.
Do you own a short-term rental or a student rental? What were the most critical criteria? I’d love to hear about it [email protected]
Are you struggling with the wrong landlording forms or, worse yet, not landlording forms? These 10 Essential Landlord Forms help you separate the good tenants from the bad tenants and increase your profitability.
Would you like to receive articles, tips, and events? My news blast will help!