Your Guide to Investing in Student Housing

Expanding your rental home portfolio requires consideration and strategy beyond just finding a home that is rentable and affordable. Each property is an investment and some locations offer a unique business model that you can benefit from. Affordable housing near any college or university, for example, will immediately become a candidate for student housing, a potentially profitable but more volatile form of property rental.

Student housing is livelier, faster-paced, and more accident-prone than typical investments, but also potentially very rewarding. Let’s dig deeper to find out if student housing is a smart investment for your landlording style.

What It Means to Rent Housing to Students

Students in college and university – and their friends already in the job market – are young. They are often renting a home without parents for the very first time, maybe with a little practice from the dorms. They don’t know how to fix things, many students have not yet learned how to clean, and late rent payments with a fantastic (often real) excuse about exams and all-nighters are par for the course. But if you have a thick skin and a sense of humor, student renters also provide never-ending demand. If the university continues to operate, you will have new students every year and may even develop a waiting list for properties near campus.

Pros and Cons of Student Housing Investment

Pros of Renting to Students

  • Endless demand and wait-listing
  • Chain referrals from good student tenants
  • Reliable rent when paid by parents
  • Low cost-cost amenities chosen for durability
  • Small and unusual properties included
  • Never-ending entertainment value

Let’s take a look at the pros of managing student housing. The biggest benefit is that demand is endless. It’s so endless there are wait-lists for near-campus housing and when students change plans mid-year, another roommate is ready to hot-swap and take over the lease. Students tell their friends about great places and you may even get a chain of good, studious tenants who refer each other to your property each year.

Expect students to be inexperienced at rent payment, but often with parental backup. Some parents will even sign the lease. You can choose between durable, low-cost housing for most students or luxury student housing for parents who insist on sponsoring the best for their collegiates. You can also choose properties that would be less appealing as family homes, like small and strangely designed houses, as students are not picky and often like strange spaces.

As an added bonus, students make entertaining and interesting tenants, so if you don’t mind the antics, you will rarely find student housing to be boring.

Cons of Renting to Students

  • Inexperienced renters
  • Untimely rent payments
  • Increased rate of damage and repairs
  • Increased cleaning requirement during turnover
  • Demand for short-term (semester) rentals
  • Roommate hot-swapping

All the pros aside, student housing is challenging to run. You will need energy – or an energetic team – to keep up with minor repairs like dents in the drywall and loose faucet handles. Expect excessive calls for repairs (and drain clearing) or eerie silence with inexperienced young renters who don’t know when to call for maintenance. You may get lucky with a run of reliable young students or unlucky with a pack of partiers. 

Student housing is most adaptive with 6-month leases and even if you enforce a 1-year lease policy, expect hot-swapping of roommates because students are tied to the semester-based schedule.

Special Legal Considerations for Student Housing

Your city or state may have specific regulations when it comes to renting to students or to residents below 18 or 21 years old. Because students do not yet have their full rights  (ex: to drink, book hotel rooms, or rent cars), and some freshmen are still 17 and legally minors, you will want to write your lease carefully and proceed with caution. In most locations, there are no special rules for renting to students and young adults, but the penalties for renting a hazardous unit may be increased if perceived as taking advantage of inexperienced tenants.

With this in mind, use safety and transparency as your rules of thumb. Write a clear lease and make a habit of going over it with new student tenants regarding both their responsibilities and what they can ask of you – like timely repairs. You will also want to pay special attention to safety and repairs during turnover. If the unit is never empty, be sure to schedule annual or biannual inspection-repair visits.

Choosing the Right Property for Student Housing

What kind of houses can you choose for rental student housing? This is an important consideration. The good news is selection is one of the perks for student housing investment. There are exactly three requirements for student housing:

  1. Near to campus (or the bus route)
  2. Safe and livable
  3. Durability

Location and Livability

Students will live just about anywhere, but it must be close to campus, on the bus route, and decently livable. Performing your legal duties as a landlord will more than fulfill most students’ demand for property quality, but location is key. The closer your properties are to a college campus, the more students will want to live there.

Any House, Any Size, Any Style

Students will stay in small houses, homes with strangely shaped rooms, lofts, attics, basements, and homes with no yard. The usual family-friendly considerations need not apply and most students are especially spry if there is a knee-wracking staircase or even a ladder to the loft. Students expect to live closely packed together, to share multi-bedroom homes as roommates, and to take over buildings by moving in with friends.

Interesting apartments are, in fact, one of the rights-of-passage for young adults renting their first homes. Many want to come away with a few strange tales about the attic apartments and strange campus houses they lived in during their wild college years. Older boarding-house-style homes, which are hard to rent room-by-room to any other demographic, are considered excellent student housing. Apartment buildings and townhouse rows can quickly become overrun with student tenants as roommates and neighbors.

Student Housing Durability

The final deciding factor for student housing investment property is durability. Can the house take an endless stream of energetic, inexperienced tenants who may party, exercise, and do unpredictable school projects on premise? The good news is that if you’re ready for light renovation, most homes have the “bones” to be durable student housing, and just need a fresh coat of gloss (read: washable) paint and new laminate board flooring. Throw in a few heavy couches and bed frames, and you’re student-ready.

Create a Custom Student Lease Agreement

Students are not your typical renters, and leases can be written with any terms that are most convenient to the two parties. Write your lease in a way that helps students become better renters by outlining the rules, using plain language, and providing a few training wheels and safety bumpers in the policies to help them learn without creating conflict or debt.

  • Make it a visual syllabus – easy to read
  • Outline house rules
    • Quiet hours
    • Drain care
    • Trash day
  • Flexible rent payment dates and penalties – training wheels
  • Included utilities or links to utility providers
  • Room for roommates
    • Wait-lists and referrals
    • Hot-swapping leaseholders
    • Guests and long-term guest policies
  • Copies available on request and online

How to Screen Student Tenants

Screening student applicants can be challenging because they do not already have a rental or credit history. Most have just taken their first big financial step in life – by taking out student loans. How do you screen a student tenant with no financial history to show their suitability? It is possible to ask more holistic questions while respecting the fair housing laws about certain personal details.

Ask Student-Housing Questions

  • Do you have roommates ready to move in with you?
  • Do you require roommate match-making?
    • see – your waitlist and other applicants
  • When does your school term begin?
  • Will you be staying through the summer?
  • Do you see yourself in this home for your duration at this school?
  • Do you have pets, or do you plan to get a pet?
  • What are your personal quiet hours for sleep or studying?
  • What is your field of study or chosen degree?

Have Parents Co-Sign the Lease

One of the cleanest solutions is to have a parent co-sign the lease and take responsibility for timely rental payments. From there, you can do the usual tenant screening checks on the parent to confirm sufficient income, a reliable credit score, and a good rental history.

Managing The Revolving Door of Student Housing

Student housing is a profitable and extremely active way to invest in rental homes. students change their housing situations every semester and every summer break. You may have students who stay put for all four years of school and students who only stay for a few months before hot-swapping their lease with another resident.

Fortunately, you don’t have to manage your lively student housing investments solo. With online tools like LandlordStation to streamline your property management and help students keep up with online bill-pay, helpful documents, and maintenance requests, you can simplify the effort of managing student housing.

To discover online property management through LandlordStation, contact us today!

Tenant Bankruptcy: How to Protect Your Rental

Tenant bankruptcy is one of the more frightening things that can happen to a landlord. You may find yourself unsure if your tenant can or will pay their rent any longer, and ambiguities in the law can make it difficult to know if you can (or should) evict your them.

We’re here to help you tackle those questions. This article will cover:

  • How to proactively protect your rental
  • Types of bankruptcies tenants are most likely to file
  • Recouping lost rent
  • Lease options after the bankruptcy is filed

Be aware that laws may change quickly, and that there may be state or local-level laws that affect how landlords can handle bankruptcies. Always check with the most recent version of the law, and you may want to hire a lawyer if you have questions.

Avoiding Problems Down the Line

Let’s start with the best-case scenario: avoiding problematic tenants.

Tenant Screening is your first line of defense to protect your rental property. The score on the credit report will give you an at-a-glance description of the client’s credit, but don’t stop there. Look at the entire credit report to give you a broader understanding of your potential tenant’s credit history.

Armed with that information, you’ll be able to answer applicable questions like:

  • Does the potential tenant have a history of late payments?
  • If so, how long has the tenant’s credit been suffering?
  • Are the late payments due to a one-time emergency or are they a trend?

Multiple bills that have gone to collections in the credit report can be a red flag.

A tenant screening will help you form an educated opinion about the tenant’s ability to pay rent and avoid bankruptcy. If you’re unsure about anything in the report, you can ask them for clarity.

No matter how diligent you are in your screening process, you cannot predict every scenario. Even the best tenant may lose a job or be overwhelmed by expensive emergencies. Some will get back on track quickly, while others find themselves too far behind to catch up. Let’s take a look at the kinds of bankruptcies you may encounter from your tenants.

Kinds of Tenant Bankruptcies

There are several kinds of bankruptcy, each with its own considerations.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is sometimes called a “straight bankruptcy.” It’s most commonly filed by individuals, but it can be filed by a business as well.

When an individual or a business successfully files for Chapter 7 bankruptcy, the court appoints a trustee. This individual handles the liquidation of the entity’s assets so that all creditors can be paid back as much as possible.

Chapter 11 Bankruptcy

A Chapter 11 Bankruptcy will not liquidate assets. The entity will retain complete and independent control of their finances, but they must pay back their debts in full (plus some extra). They are given some extra time to do this.

If they fail to pay their debts, the Chapter 11 bankruptcy may be converted to a Chapter 7 bankruptcy. If that happens, the court will assign a trustee and order the liquidation of assets and the payment of creditors.

Other Types of Bankruptcies

You may also see some other types of bankruptcies.

Chapter 12 deals with small-business fishermen and farmers and Chapter 13 is a rehabilitation program that focuses on regular wage-earners.

But these are more unusual, and most landlords will encounter Chapters 7 and 11.

Recouping Lost Rent

If you get that dreaded call that lets you know that your tenant has filed bankruptcy, your first thought will likely be how to recover any lost rent. To answer that question, first we need to understand how claims are filed.

Pre-Petition and Post-Petition Claims

The process of filing for bankruptcy is called “petition”.

Pre-petition claims are financial burdens that are put on a tenant before they file for bankruptcy. Post-petition claims are financial burdens placed afterward.

Rent is considered a claim, but when that rent was due will depend on what kind of claim.

There’s a chance your tenant will remain in your property after filing for bankruptcy. Any rent due during that time is a special type of post-petition claim called an administrative claim. Administrative claims are high-priority claims that tenants must prioritize paying off.

Alternatively, if money was due before the tenant filed for bankruptcy, that is a type of pre-petition claim called an unsecured claim. Unsecured claims are typically low priority for tenants to pay off, in comparison with other claims.

Now comes the big question:

Can I Still Collect Back Rent?

The court will institute what’s called an automatic stay when the tenant files bankruptcy. This means that most creditors cannot pursue any collection actions against the entity without the permission of the court. However, as the entity’s landlord, you are not subject to this restriction. You may still collect back rent as you normally would.

Remember that because back rent is an unsecured claim, it’s considered a low-priority payment and you may never get all of it back.

Terminating the Lease

Tenant Bankruptcy isn’t easy on anyone. If the tenant can’t pay you, they accumulate more debt and you lose income. Terminating the lease may be an option.

When the Landlord Terminates the Lease

There needs to be a breach of the lease to file a notice to quit or start the eviction process. Often this will come in the form of late or nonpayment.

There are some landlords or property managers that will add a clause to their lease stating that filing for bankruptcy breaches that lease. Keep in mind that many jurisdictions do not permit you to terminate a lease because a tenant has filed bankruptcy, and you may not put additional requirements on a tenant (such as increased rent or fees, or requiring payment in cash rather than a check) due to their bankruptcy.

Terminating the lease on your end may be tricky because of this, but there’s a chance that your tenant will want out as well.

When the Tenant Assumes (or Terminates) the Lease

Chapter 7 bankruptcy, in particular, lets the tenant decide whether they wish to assume or terminate the lease. This means that they can reconsider the financial obligation of the lease in light of their current situation.

If they decide that it’s too heavy of a burden in their current state, they may choose to terminate the lease within 60 days without a breach of contract. If they cannot decide during that period of time, they may file a request for an additional 60 days to decide, so long as they give an explanation of their circumstances and the court accepts this.

In response to this request, you are within your rights to explain to the court the stresses that this puts on you as the landlord or property manager. If the tenant chooses to terminate the lease, they agree to pay all outstanding rent within a reasonable time (which may vary by the locality, but is often within 60 days).

If the tenant requires additional time to pay, they’re going to have to make a motion for that with the court.

Re-Leasing

If your tenant gives notice of termination, you cannot stop them from terminating the lease. In this scenario, you should start showing the property immediately. You may have already lost money during this period, and the last thing you want is to have your property sitting empty.

Because of how the re-leasing process works and how long it can take to get a new tenant into the property, most landlords try to block any motions from the tenant to extend the 60-day period of assumption or termination of the lease.

Three months is a very long period of time to not know if you’re going to need to start screening new tenants.

Conclusion

When your tenant files for bankruptcy, it can initiate a period of uncertainty for you, and possibly even create conflict between you and your tenant.

There’s no doubt that it’s going to be difficult, but if you educate yourself about the bankruptcy process and what it means for you, you’ll be able to save yourself and your business potential financial losses—and a lot of headaches. Again, you’ll want to familiarize yourself with local and federal laws. Reach out to your legal counsel if you need clarity at any step along the way.