Student Rental or Standard Rental---Which is best?

[KrustyKrabs]

Hi,

Which scenario is better in the investors point of view?

SCENARIO A:

Rent main floor 3 bedroom suite to a single qualified tennant (standard yearly lease), while living in the upper suite. Combined rent approximately $1050
or,

SCENARIO B:

Rent main floor 3 bedroom suite by the room to students, while living in the upper suite
Rent approximately $1200 (assuming fully rented)

Glen

 

[brentdavies]

HI, here is my 2 cents worth of knowledge

In Edmonton, Nait (north west) which offers 2 yr courses, the students typically rent for only 8 months of the year. They may keep the suite over the summer, ( due to the tight supply), but are gone by may the next year. In one 20 suite apartment building with all small 1 bedrooms, we used to be at 50 % vacancy during the summer (90ès). In the tighter rental market, we now are only 15% vacant during the summer. In 2 bedroom apts in the area, we dont rent to students and have zero vacancy. One of the reasons Grant McEwan College built a large dorm on their downtown campus.

At the U of A, the students tend to stay over the 3 summers for their 4 year courses. Both areas are tougher to rent in May, June and July. Both area also experiance midnight moves in December and January, especially with 1 st year students, when they drop out after a few months.
Grad students are ideal, as they are mature, do not generally party, and are good tenants. They tend to stay longer and more stable.

Higher maintenance costs, as 1 st years are away from home for the first time.

Students can be good renters. You can get better rents starting in august, as students will pay a premium ( their parents money)

Good Luck

 

[KrustyKrabs]

QUOTE (brentdavies @ Mar 13 2008, 06:42 AM) HI, here is my 2 cents worth of knowledge

In Edmonton, Nait (north west) which offers 2 yr courses, the students typically rent for only 8 months of the year. They may keep the suite over the summer, ( due to the tight supply), but are gone by may the next year. In one 20 suite apartment building with all small 1 bedrooms, we used to be at 50 % vacancy during the summer (90ès). In the tighter rental market, we now are only 15% vacant during the summer. In 2 bedroom apts in the area, we dont rent to students and have zero vacancy. One of the reasons Grant McEwan College built a large dorm on their downtown campus.

At the U of A, the students tend to stay over the 3 summers for their 4 year courses. Both areas are tougher to rent in May, June and July. Both area also experiance midnight moves in December and January, especially with 1 st year students, when they drop out after a few months.
Grad students are ideal, as they are mature, do not generally party, and are good tenants. They tend to stay longer and more stable.

Higher maintenance costs, as 1 st years are away from home for the first time.

Students can be good renters. You can get better rents starting in august, as students will pay a premium ( their parents money)

Good Luck

I guess my main concern would be the hassle of possibly having to find new student tenants each and every school year. With 3 rooms to fill, that would be a lot of interviewing and credit checks which I believe would cost me too much time, and possibly money. In either case I believe the cash flow would be about the same as long as the students sign one year leases.

Since time is as good as money, I am leaning toward finding a qualified tenant to live in the 3 bedroom suite (main floor), and I will live in the upper 3 bedroom suite.

If anyone else has any opinions, please let them be known.

Also, would anyone know of any personal tax implications of this plan? Since I plan to live on the property, is it still considered an investment? Do I form a sole proprietorship to handle the landlording of the property? Am I entitled to any tax write offs?

 

[TomNamestnik]

Hi there,
I love student rentals, and in my personal experience, even with the turnover being more frequent, I have experienced a lot less headaches with the students. Very important factor to help you with your decision is the location. Student rentals are funny, you can be one block to the wrong side, and your vacancy rate goes up, your price per room goes way down. If you are in a prime student location, I would stick with the students.
As far as the credit check, you will find that a lot of the students don`t have any credit history yet, so think about the value before you spend the money. I educate my students on the importance of building a good credit rating, and paying your rent on time is one way to get a good start.
If your property is not conveniently located for the students, stick with somebody that has a job.
I have also rented to young people who should have been in school or working but decided that the social assistance is the way to get ahead in life. My thought was I can help these kids, give them a good place to live, money is easy as the agency will pay you directly, and on time...however, lesson learned, the amount of management overhead was not worth the "easy money". I learned very quckly and will not make the same mistake again. Had that been my first investment, I don`t think I would be doing this any more, but thankfully I had some very good experiences behind me already, so I needed a good lesson.
I hope this helps.

Tom Namestnik
www.selecstudentrentals.com

 

[KrustyKrabs]

QUOTE (TomNamestnik @ Mar 14 2008, 06:13 AM) Hi there,
I love student rentals, and in my personal experience, even with the turnover being more frequent, I have experienced a lot less headaches with the students. Very important factor to help you with your decision is the location. Student rentals are funny, you can be one block to the wrong side, and your vacancy rate goes up, your price per room goes way down. If you are in a prime student location, I would stick with the students.
As far as the credit check, you will find that a lot of the students don`t have any credit history yet, so think about the value before you spend the money. I educate my students on the importance of building a good credit rating, and paying your rent on time is one way to get a good start.
If your property is not conveniently located for the students, stick with somebody that has a job.
I have also rented to young people who should have been in school or working but decided that the social assistance is the way to get ahead in life. My thought was I can help these kids, give them a good place to live, money is easy as the agency will pay you directly, and on time...however, lesson learned, the amount of management overhead was not worth the "easy money". I learned very quckly and will not make the same mistake again. Had that been my first investment, I don`t think I would be doing this any more, but thankfully I had some very good experiences behind me already, so I needed a good lesson.
I hope this helps.

Tom Namestnik
www.selecstudentrentals.com


Thanks Tom, good to know what to watch out for.

I guess what I meant about the credit checks was more for the students parents, since it is my understanding that it is best not to rent to student unless the parents act as guarantors.

The particular property that I had in mind is in a transitional neighbourhood with all amenities and transit in walking distance, however, the university itself would require about a 1/2 hour walk or a several minute bus ride.

Given the fact that I am completely new to this, I have to admit that I am suffering from analysis paralysis....but I am not sure that it isn`t a good thing. I guess I will crunch the numbers another time or two and then perhaps call the vendor.

Best of luck

 

[Mike Milovick]

Definitely rent to students. I have managed both student and non-student portfolios.

Reason 1.
Parents typically co-sign lease. Student doesn`t pay, parent does. Johnny Lunch Bucket bounces his rent cheque, you are paying mortgage that month out of your pocket.

Reason 2.
Parents typically co-sign lease. Students damage something (they do not when parent co-signs) and parent pays.

Reason 3.
Students are typically not as knowledgable regarding rental legislation as "professional tenants." Bad student is gone in a year. Bad tenant can hang on and cause misery for years.

Reason 4.
Students typically do not have pets, smoke or small children.

Reason 5.
Vacancy can be better managed. Regular tenant can pick up after 60 days notice anytime at end of lease. Student is leaving either at end of April or end of August. And replacement students will rent starting May or September.

Reason 6.
Students typically pay premium over family for unit rental.

Reason 7.
Students typically go home for summer. My properties are usually fully rented year round - but half occupied over the summer. Can`t beat that.

Reason 8
Property work load on student housing revolves around "marketing" and "outgoing/incoming" activities. Marketing is done January to February - typicaly. Outgoing/incoming either end of April or end of August. Its really not a year round management endeavour - its very predictable.

Reason 9.
With "zero down" residential purchase options available, super first time home buyer incentives, and low interest rates, it makes me wonder who is coming to your door to rent - and why - if they are not a student? As such, in my opinion, the quality of residential tenant has greatly deteriorated in the last five years.

Try student housing out. I think you would be pleasantly surprised.

Mike Milovick

 

[KrustyKrabs]

QUOTE (MikeMilovick @ Mar 15 2008, 11:25 AM) Reason 8Property work load on student housing revolves around "marketing" and "outgoing/incoming" activities. Marketing is done January to February - typicaly. Outgoing/incoming either end of April or end of August. Its really not a year round management endeavour - its very predictable.

Try student housing out. I think you would be pleasantly surprised.

Mike Milovick

Hi Mike,

Does this means that it would be too late to market the rental unit for this coming fall students? If I decide I can move on this property, I could at least expect 60 more days to pass before closing, is this a potential vacancy problem? Perhaps I should wait until the fall to buy?

Also, if you don`t mind me picking your brain, how is student selection made in relation to gender? If I have a 3 bedroom unit to fill with 3 students, do I have to pick a gender before marketing, or will I do that after I have signed the first lease. For example leasing to a female first will then require the remainder of the tenants in that unit being female?

Sorry if that sounds like a dumb question, but better asked now than should have been asked later on!

Thanks,

Glen

 

[Mike Milovick]

QUOTE (KrustyKrabs @ Mar 17 2008, 05:43 PM) Hi Mike, Does this means that it would be too late to market the rental unit for this coming fall students? If I decide I can move on this property, I could at least expect 60 more days to pass before closing, is this a potential vacancy problem? Perhaps I should wait until the fall to buy? Also, if you don`t mind me picking your brain, how is student selection made in relation to gender? If I have a 3 bedroom unit to fill with 3 students, do I have to pick a gender before marketing, or will I do that after I have signed the first lease. For example leasing to a female first will then require the remainder of the tenants in that unit being female? Sorry if that sounds like a dumb question, but better asked now than should have been asked later on!

Thanks, Glen

 

[Mike Milovick]

Hi Glen;
Regarding your questions - if you move on the property, and it is not rented, I would suggest a completion date in July - if the property requires clean up - and a completion date in August - if its just aesthetics - in order to get the property rented for September.

Typically, there are always "last minute" shoppers.

Regarding student selection, landlords have preferences -ie. male or female. Interestingly enough, as a landlord in my marketplace, you could as landlord, choose "female only" or "male only" in your advertising. Obviously could cause problems and the universities have since stopped this.

I typically rent out to groups so they figure this thing out for themselves. If I am renting to singles, I point out gender differences if the confirmed tenants are different right up front. I also tell prospective tenants that they could have a gender opposite as a roommate to keep my rental options open.

Mike.

Hi Mike, Does this means that it would be too late to market the rental unit for this coming fall students? If I decide I can move on this property, I could at least expect 60 more days to pass before closing, is this a potential vacancy problem? Perhaps I should wait until the fall to buy? Also, if you don`t mind me picking your brain, how is student selection made in relation to gender? If I have a 3 bedroom unit to fill with 3 students, do I have to pick a gender before marketing, or will I do that after I have signed the first lease. For example leasing to a female first will then require the remainder of the tenants in that unit being female? Sorry if that sounds like a dumb question, but better asked now than should have been asked later on!

Thanks, Glen

 

[Mike Milovick]

Another rule of thumb is to buy location that appeals to the laziest of students. Half hour walk or bus ride does not cut it in my market place. Keep in mind, student actually has to get to the place to rent it. Very few will walk that distance, in my opinion. Students also like to live around students. Closer to the university, the better.

QUOTE (KrustyKrabs @ Mar 14 2008, 04:20 PM) Thanks Tom, good to know what to watch out for.

I guess what I meant about the credit checks was more for the students parents, since it is my understanding that it is best not to rent to student unless the parents act as guarantors.

The particular property that I had in mind is in a transitional neighbourhood with all amenities and transit in walking distance, however, the university itself would require about a 1/2 hour walk or a several minute bus ride.

Given the fact that I am completely new to this, I have to admit that I am suffering from analysis paralysis....but I am not sure that it isn`t a good thing. I guess I will crunch the numbers another time or two and then perhaps call the vendor.

Best of luck

 

[EdRenkema]

Mike,
Thanks for your clear summary on merits of student rentals.
Judging from your advice 455 Albert comes up 4star on all fronts, I wish I could get more in that location. Meanwhile all working out with some challenges but the cashflow makes it worthwhile.

Ed R

 

[KrustyKrabs]

Hi Mike,
Thanks a lot for your advise, I really do appreciate it.

I feel now that it is probably not the time to choose this property, due to the half hour walk, as you mentioned, and the fact that since this property isn`t exactly among a slew of other student rentals, and that the coming Fall school year is upon us (that seems weird to say, but in real estate, it is true).

Too bad though, because if I could keep it rented, I figured on a $248 per month cash flow after using the Property Analyser. Not to mention that the current vendor is extremely motivated, as far as I could tell thus far.

I could carry the property myself for the first year if need be....at least then I`m not paying rent to someone else.

But, I can honestly say that I am in no great hurry, I am more interested in doing things right the first time, than rushing into something half-cocked. Mosty I am too scared right now to do anything, so I had better get back to reading REIC again.

Best of luck to you.

Glen

 

[bigbabba]

I know I am a little late

Mike I found your post very informative, some of your logic is the reason I am looking for student rentals instead of your average family rental.

if a house is lets say a 5-10 min walk to UW, what kind of rent can one ask for per room?

 

[housingrental]

Generally around $400-$450 per person plus utilities but varies based on size/condition/location - expect same property a five minute walk to be rented at a higher rate, and easier than one a ten minute walk - same depending on area around school if ones is a dominant student area/easy to ammenities.

I rented this year so of more expensive single rooms for $540 utilities included and some of my cheaper single rooms for $359 utilities included (New building / better location / ensuite bath vs Older basement small room / worse location)