I’ve recently spoken to a few REIA groups here in Philadelphia about my property management business. They asked me to speak on my take on the Philadelphia Student Housing Market as an investment, and I thought it would be a good idea to share this info on the Grow Property Management Blog.
My property management company has been in the student rental management business for about 12 years and at present I have 50 units (mostly duplexes and SFHs) within blocks of the University of Penn, Drexel, and Temple University. I started property management, and since then I have rented to about 1,000 students.
I think the age and maturity level of the students and the fact that the parents are most times the decision makers makes this niche the hardest to buy and invest in. I have come across a lot of Philadelphia property management companies and landlords that made the decision never to rent to students again after transacting with them. Though profitable, renting student housing can be a huge PITA.
Most of the students don’t really know much and a lot of them have been babied for far too long. It sometimes gets so bad that my company gets texts in the middle of the night because a student isn’t getting along with a roommate, I’ve gotten a report from a student complaining that his heart was not functioning only to find out he did not even turn on his thermostat, and there are lots of other reports like these ones.
If we’re being honest, most college kids don’t really know what the real world is like. Most of them have never had to live alone, so it is quite understandable that they’re ignorant about certain things. But that does not mean you cannot successfully handle them. Here are four reasons why you should rent to students:
1) Cash Flow
When it comes to cash flow, students actually pay more than other people. By my estimation, they pay between 20 to 100% more. I own an SFH home that I rent for $1725 and maintain with 60k, a duplex that I rent for $5,000 and maintain with 170k, and a duplex that I rent for $5,000. I don’t pay utilities and all these leases are for one year. I get 99.9% of my response from students.
The location, price, and start date are all designed to suit Philadelphia students. Occasionally we get professionals and families but most of them end up not coming back when they realize they can get a more affordable property outside the campus area. There’s really no reason to pay twice the price when you can get a nice 1500-2000SF SFH around Philadelphia for about $1200-$1500.
2) Their Credit Rating
College students have great credit ratings because they hardly ever miss their rent deadline. Since I started this business, only four students have defaulted on their rent payments. I’ve earned more than 4 million dollars in leases and only $3500 from that was unpaid. This is more than 99.9% and I don’t even employ parental guarantors.
3) Easier To Raise Rents
Raising a $100/monthly rent for a family might be a big deal. But if you raise a $100/monthly rent on a duplex that is shared by four students, it comes down to $25 per person. Splitting the rent makes it easier to raise your rents when you’re leasing to students as against non-students.
4) Consistency Of Tenant Base
Nothing short of a catastrophe will stop our city universities from existing. About 5,000 to 6,000 new students resume every year come to Philadelphia in search of housing. I know their schedule, from when it is time to move into when it is time to move out. Military bases and companies sometimes shut down and change bases, but this is not likely to happen with Philadelphia University.
There are countless reasons why a landlord would choose not to rent to a student, but here are my own top four reasons:
1) Dealing with Parents and Guardians
A lot of investors find it surprising that the parents are my least favorite part of student rentals and not the students themselves. No matter how well-meaning their intentions are, they tend to escalate issues whenever they get involved, whether it’s a repair issue, the leasing process, neighbor complaints, etc.
This can be attributed to the fact that they don’t always get the complete story from their children. Communicating and dealing with 6 different 19-year-olds living together in a property is tough enough, I’d rather not deal with all 12 parents if I can avoid it.
2) Dealing with Neighour
Like everywhere else, no neighbor wants to deal with students. They have so many expectations, like not parking in the yard, no loud parties, and so on. Though these are the things you ordinarily expect from a good neighbor, especially in Philadelphia; it is hardly realistic to expect this when you’re dealing with students.
Most of these people live about 3-4 blocks from 25 bars and about 30,000 students. I’ve put certain measures in place to curb some of these behaviors by setting large fines in the lease, but the prospect of paying a $1,000 fine does not always dissuade them from such behaviors.
3) Tenant Irresponsibility
It is almost impossible to get students to admit that they did anything. They lie a lot, you’ll hear things like “It was that way when I got here” or “I don’t know what happened” whenever there is any damage to your property.
I’ve had to fix more than 100 broken windows over the last decade and only about four students have ever admitted to breaking any window. This does not necessarily mean they’re bad kids, a lot of us were like this in college, they’re just kids.
4) Constant Turnover
I get turnover from 80% of my properties every year. Though one of the advantages of renting to students is that they’re never around on Christmas Eve or during the holidays so you don’t have to worry about getting a call, the downside is that the summer is usually busy, especially considering the amount of turnover accumulated within an 8 to 10 week period.
We have tried expediting these turnovers by making use of the same ceiling paint, wall paint, and trim paint for the entire property. Student rentals are not for people looking to go into long-term rentals. In all my years in the business, only one group has stayed for more than 2 years, and they only stayed for 3 years.
Hope this article is helpful enough for those thinking of going into student rentals.