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two female university students walking acrross a lawn- why invest in student rentals?

Why Invest in Student Rentals?

Why invest in student rentals?  For real estate investors looking into a viable real estate investment, student rentals are a popular choice.

To put things in perspective, let’s look at some statistics:

  • Canadian universities draw in 1.4 million students from 82 university institutions across Canada.
  • 5 million  students are enrolled in Canadian colleges and universities every academic year
  • International students paid 40% of all Canadian tuition fees and accounted for $4 billion in revenue.
  • Currently, approximately 265 000 international students are studying in Canada.
  • Canada’s international strategy intends to double the number of international students and researchers to 450,00 by 2022
  • University campuses have 114,297 beds, mainly for first-year students only.
  • 44% of college students reside off-campus

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 to 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 does the trick.
  • Student rentals are pretty much recession-proof, whenever there’s a downswing in the economy, there is an influx in enrollment
  • It may not be necessary to have parking 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, as opposed to 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

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 laundry, shower facilities, etc.
  • Difficulty collecting rent from an international student who defaults

As a student rental landlord,  you will need to 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 everyday issues

How can you bypass some of these issues?

  • For Canadian students, many parents are willing to co-sign, which eliminates 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 down the mortgage and gaining equity.

Before investing in student rentals ask yourself…

Investing in any property involves a little soul searching with an eye on your exit strategy. Before investing, ask yourself a few questions first;

  • Do you want a rental property kept in pristine condition?
  • Do you have protection against property damage and defaults?
  • Do you have the patience to deal with first-time tenant issues over and over again?
  • Do you have the time to ensure your investment is kept in good repair, or can you absorb the cost of property management fees?
  • How is the municipality taxing your investment? What restrictions are in place for this type of investment?

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 student rental? What has been your biggest lesson? I’d love to hear about it nelda@neldaschulte.com

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.

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