CREW caught up with student rental property expert Benjamin Bach to see what five things investors should consider before taking the student housing property plunge.
1.Sub-letting. Canadian landlords are now following the U.S. norm of presenting students with one-year leases, as opposed to the eight-month kind that was once the norm and followed school terms in this country. Tenants can either pay for four months of vacancy, or find a sublet, which can have its risks.
“It depends on if there’s specific wording in the lease that deals with that,” says Bach, “but typically the tenant is on the hook for the lease and that’s where you’d have the tenant sub-lease it. There’s always risk: often times a landlord or investors has done their due diligence on their initial tenant, but the sub-tenant you’re now dealing with someone that somebody else has screened. It might not be as thorough a background check as you’d have performed, so there could be some issues there.”
He does note that some universities with summer programs are a safe bet for landlords weary of letting students screen their tenants. “In Kitchener-Waterloo (home to University of Waterloo and Wilfred Laurier), there’s a pretty active co-op program that runs throughout the summer, so there are students around who want to sublet.”
2.Damages. The phrase “student housing” leaves many with scenes of Animal House dancing in their heads, but Bach says the hard-partying, property-damaging image of frosh doesn’t necessarily apply to all tenants.
“It is sort of a stereotype, but it goes back to who you’re renting to,” he says. “There are some student tenants who are a little rowdy, some who aren’t, and some who are studious and some who aren’t.”
According to Bach, developers are responding to potential property punishment with tougher buildings. “One of the interesting things we seen in Waterloo region and in some of the other markets is some of the new construction buildings are concrete .They’re built to withstand student abuse, so students aren’t punching holes in the drywall anymore.”
3.Location. Like any property, location is key. “In this case, you want it to either be walking distance to the schools or on a transit line. If you have a well-situated property and it’s nice inside, you’ll be able to rent it faster than properties that are a little further out. And with students you don’t just want to be close to the university, you want to be close to amenities for things like grocery stores, convenience stores, restaurants, nightlife, and laundry facilities.”
4.Rent. Students are often relying on part-time jobs or financial assistance to pay the rent, and unlike other tenants where landlords can assess their ability to pay the rent, with students it can be a gamble.
“A lot of times with student rentals, landlords are able to get security with having a parent or guardian co-sign, so if your direct tenant doesn’t come up with the rent, you have someone else responsible for it,” Bach says. “Typically we see parents being OK with that for student housing, and it provides landlords with extra security because you don’t get a guarantor or co-signer for traditional apartment rentals.”
5.Amenities. Amenities are getting to be increasingly important, and properties are becoming more competitive. “Students are looking for more than just what would be in a dormitory, so more than just a bed and a desk,” says Bach, who recently drove by a newly-built student housing development. “I could see ping-pong facilities, and I know lots of these buildings are creating things like games rooms and movie screening rooms.”
A lot of investors are attracted to student housing because they hear about the higher cash flow and great returns, and that’s definitely the case in a lot of the markets, but investors should realise that often times there’s more management associated with student housing, and you’re typically going to be renting out the units more often, say experts. For example, the best case scenario is you will have a student stay with you for three years, but it will more likely be a year or two.
It’s also getting harder to finance student housing, with a lot of the banks reluctant to finance older student housing. And remember, says Bach, every market is different; for example, the KW student market is different from the student market in Vancouver which is different from Toronto’s. As long as investors realise there’s more management and more tenant turnover, they can expect good cash flow.
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