By Tim Collins
Picking the right place in which to purchase a student rental can be a tricky process. There are a variety of considerations to think about, over and above single-family home considerations. Get it right and you could be in cash-flow heaven, but get it wrong and you could be in for a tumultuous time.
Here are my top five considerations when deciding if a particular city will work for the student rental market.
First things first – will it cash flow? Clearly, if it will not cover all your expenses, then it would not make a good buy-and-hold investment.
The traditional way to measure viability of real estate is the one per cent rule (the monthly rental price should equal one per cent of the purchase price of the house). So, if the property costs $300,000 then you’d need $3,000 a month in rent. Also, start your research on what the students pay for rent – check Kijiji and the off-campus housing site.
*Expert tip: If you see For Rent signs when looking in neighborhoods for houses, give them a call. You can ask about rental rates, how many rooms are available (vacancies) and, if you’re talking to the owner and want to be bold, ask if they’re interested in selling the house. The answers to these questions will give you great market intelligence.
2. City Regulations
Are student rentals licensed in your city of choice? If so, you’ll need to find out what the stipulations are around number of rooms/students, inspections and fire safety, among other things. Give the city a call and they’ll be able to let you know all the details.
The outcome of this will impact your financials as well. For example, if the maximum number of students is four then four multiplied by $500 per month in rent will give you $2,000 in revenue. If you can get five or six rooms, it changes financials significantly.
Again, looking at online ads and talking to off-campus housing will help here. You don’t want to buy a house and find it extremely hard to fill due to oversupply of student housing. How many students attend that university or college? Is there a lot of available land nearby to build purpose-built housing? (This could impact your purchase in the long term.)
*Expert tip – Put up a great Kijiji ad very similar to the type of house you’re looking to buy to test demand (obviously, don’t include exact addresses).
Is it possible to buy houses in the area where students want to live? I like to buy houses within a 15 minute walk to the university or college (these houses are always in highest demand). If this isn’t possible then understand where the students want to live. Look for amenities, public transit and entertainment.
5. Property Type
There are a number of property types that aren’t ideal for students. It’s useful to look at the suitability of the available housing. Are these condos, townhouses, semis or detached? Start to look at room sizes and layouts which would work for student accommodation. In addition to bedrooms, there also needs to be common areas, kitchen and sufficient available bathrooms.
The age of the house will also impact what renovations may need to be done prior to renting it out.
Lastly, whatever you decide, try to speak to some local experts, including property managers and Realtors – they will likely have lots of great local knowledge.
Tim Collins is a real estate investor who focuses on student rentals, building his portfolio with joint-venture partners while helping others with coaching, online courses and workshops.
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