Guest Blogger Dixie Decker: Why You Should Invest in Student Housing
The simple answer is, we get 2 to 3 times the average single family rental rate coming in secured each and every month by multiple tenants and their parents!
We like to think it chose us, but basically when we got serious about real estate, we ended-up finding dumpy houses by our hometown University. The problem was we struggled to find “tenant home buyers” for a rent to own program. Everyone inquiring was college kids or parents wanting to just rent them for the 2-4 years they were in college and not necessarily own them… so the light bulb went off.
We did a brief research about campus and found almost 70% of the students had to find a place off campus to live due to the University not having enough housing on campus available. That 70% netted roughly 18,000 students who needed a home near campus.
The main question was, what do they pay to live in the dorms? You see, parents have been saving the entire student’s life for college. When we can offer their child a safe, clean place to live that provides more space, a private bedroom, private bathroom, and saves mom and dad money, it’s an easy sell and actually you get a waiting list and leases signed for up to 2 years in advance, which means little to no vacancy! Wow!
We set the room rates just shy of that dorm number for a clean, safe home close to campus, and the calls started coming in. The key for us was to ask the person calling to find their own friends to share the home with and come back to us to secure the whole house with one lease.
Here is the cool part, the heartwarming part…
When I got started in real estate I was scared-to-death to have to evict someone; a family, children, people down on their luck, even around holidays. How could I ever do this to someone? I heard horror stories of single family income earners and how they’d lost their job. They would call and beg for a few months to catch up and beg for their deposit back. It’s all they had left, etc. But what about me, now I would be stuck with an additional mortgage, and that scared me because I’ve been broke and down on my luck, and I couldn’t imagine…. OMG, would I go broke again?
I began to think how I could do this and keep my risk low. The answer was right in front of me. I just needed more people on the lease. That’s the key, in single family rentals you don’t get more money by having more people on the lease, but with students, you get more money for more people! Now I have multiple opportunities to collect rent. If one kid can’t pay, that’s ok. In order for them to all stay, someone has to get the missing student’s rent paid!
What happens if a kid drops out of school and mom and dad quit paying rent? It’s unlikely because the system we use has each student and their parents on the lease. Plus, we’re flexible in the fact that if someone needs to leave, that’s ok. We build it in for the students to have the ability to just replace themselves in the group, and we update the lease!
See how simple that is! (Shhh, I just gave away the biggest secret that makes us successful in not having any vacancies). You can thank me later.
Here’s the deal, get Rich in the Niche, or add another tool to the tool box. Maybe you just need this one strategy to make money while your kid’s in school, or maybe you’re heading off to college and want to make money while getting an education. That’s what I did.
I bought a house on a contract for deed, rented the extra rooms to friends and lived rent free!
During this election, I didn’t worry about who got elected or how it would affect my student housing portfolio. I don’t worry about the next recession. Why?
Here’s a thought…the worse the market gets, the higher the enrollment is. Folks are going back for higher education and staying in longer. And, it’s not just the 18-22 year olds, but up to 26 years old. And they all need a place to live, with a short commute. Students themselves stay consistent. How many people do you know getting ready for college, in college, or want to go back to college? Universities are bringing in new programs and growing the education side, but not the housing on campus, and if they are, it simply isn’t enough.
How about this thought… what about parties and damages to the properties? With the system, we’ve created, it’s fixed before it gets started. Here are a couple of key ingredients: most students rent houses after the first year, most of the partiers have dropped out by then and lost the support of the parents. We set the expectations up front with mom and dad involved as well as the multiple roommates. Human nature says there is at least one in every group that will almost force a good result and/or fix the problems internally in the group, because they don’t want to lose their safe place to live.
Funny Story, I had a group of football boys in a house (5 of them), and one day my 6 foot 5, 300 plus pounds (I am all of 5 ft. 1) lineman stands before me with the stove door in his hand. He says, “Please don’t tell my coach. How much to fix it?” I said, “$500 bucks,” and he bought a new stove. Boom, done!
Another huge incentive is the security deposit. It’s happily given back upon departure of returning the place in its move-in state (also saving you work, time, money, and a quicker turnover). Surprise is they’ll even clean the carpets and hire a cleaning lady (or mom) before they do their final walk through to depart. They don’t want to leave college with ruined credit after spending 10’s of thousands of dollars to get the dream job and parents don’t want their credit ruined either.
Many kids have never shared a room with a brother or sister or another family member, so they’re used to having privacy, whereas the dorms and the massive complexes don’t really offer. This gives them an option to have that same feeling they grew up with and parents really want them to have that same feeling.
This is our “long game” of the portfolio or our “hold-keep retirement inventory;” the mortgage is getting paid down, huge cash flow every month, multiple people securing it, very little risk, and very little work. It’s a goldmine in the niche. I have a ton of golden geese spitting off double or triple the cash flow of normal single family rentals, and that is why student housing pays off.