With the ongoing student housing shortage, becoming a student landlord can appear to be an attractive proposition. But, before you take the plunge, here’s what you need to know about this type of investment.
There are just a few weeks to go before the start of a new academic year for most tertiary institutions.
Soon, thousands of students will be heading off to universities across the country, with many requiring a place to stay.
With the ongoing shortfall of available student housing, however, it seems securing on-campus accommodation may not be an easy task for many students.
A recent survey of nine South African universities, conducted by The Times, revealed that out of 140 000 residence applications in the past year, there were only 68 419 available spaces.
An additional review compiled by the Department of Education, of 50 public colleges, indicated that for the 710 000 students, there were only 10 120 beds available.
With the demand for student housing exceeding the supply of on-campus accommodation, many students have no choice but to search for alternative housing outside of the official residences.
For property investors who have been mulling over the idea of This pent-up demand provides an opportunity for a profitable investment.
The advantages of investing in student accommodation:
- Reliable tenant pool
One of the most common concerns of landlords is the ability to attract prospective tenants for the foreseeable future.
University towns have high rental demand and as a result can offer a reliable tenant pool.
If your property is situated in a large university town, it is very unlikely that your rental home will remain without tenants for too long as there is always an influx of new students in search of accommodation.
- Steady rental income
The high demand for rentals in a university town means that there are likely to be fewer vacancies which will help to ensure a steady flow of income.
With the demand for accommodation outstripping the supply, your investment property is bound to be secure from a financial perspective - even in the event of economic setbacks and/or the falling of home values in other sectors of the housing market.
- Higher rate of return
A strong rental demand often leads to a high rental yield.
Because of the lack of on-campus student housing, many students are willing to pay a premium for private accommodation, especially if it is in close proximity to the university.
- The default rate is low
In many cases, students in search of a place to stay are often subsidised by their parents.
This cuts down the risk of default as parents are often more likely to ensure that payments are made in a timeous and consistent manner.
There is also the chance that the rental fees may be paid in advance as a lump-sum payment as some parents often find it easier to pay for an entire semester, as opposed to depositing money into the student’s account each month.
- Students are less fussy
Many university students don’t have extremely high standards of living and are said to be less fussy to deal with as tenants.
This is usually because many of them are living on their own for the first time and don't necessarily expect to live in luxury.
Students are more likely to take a property as it is and less likely to complain about any trivial matters they may come across.
- You don’t need to advertise
One of the advantages of being a landlord in a university town is that the area generally sells itself and won’t require much advertising on your behalf.
Student accommodation that is located close to the university and with easy access to public transportation is usually enough to draw applicants.
And in many cases, a student tenant often has a friend who is willing to move in right after them which means you won’t have worry about the hassle of marketing your property.
But, while the pursuit of high rental yields and an additional regular income might sound appealing, there are also several important risks to take into consideration before investing in student housing:
The disadvantages of investing in student accommodation:
- It may be difficult to find tenants during the off-season
During the summer holidays, you may experience a few months where your property is left vacant until the new term starts.
This is because students generally leave town between December and February to return home for the holidays.
If you haven’t planned to rent out your property during the holiday season, then you may be left without a rental income during this period.
- There may be the chance of excessive wear and tear
Student rentals are notorious for having their fair share of property damage and costly repairs.
Many students who live on their own for the first time might not understand the value or responsibility in maintaining and taking care of their home. Thus, there is the chance that your rental property could be prone to excessive wear and tear.
To avoid this, it’s important to consider setting a high security deposit to help offset some of the costs that this may bring.
- Tenant turnover is high
Tenant turnover in this sector of the property market is generally high because while there may be a large rental market in a university town, these tenants often stay for a short term.
Even if a student will be attending a university for four years, they often split that time between on-campus housing and off-campus housing and tend to change their living arrangements each year.
- You may have to be a hands-on landlord
Student renters living on their own for the first time, may not have much household experience.
This means there’s the chance you may have to be a lot more hands-on as a landlord than you may have anticipated.
Simple things like regular cleaning, using appliances appropriately or changing a light bulb might be a whole new experience for them and as a result, this may require you to be a lot more present than usual.
- Tenant screening can be a difficult process
Your typical screening criteria may need to be reevaluated when renting to students as most students don't have employment, rental or credit history.
Without verifiable income, references or credit history it can be difficult to determine if your student applicant will be a responsible tenant.
To ensure you are making the right decision, consider having the parents of the student be a guarantor co-signer on the lease agreement and conduct a screening of the parents instead.
If you do decide to take the plunge and become a student landlord, consider these 5 handy tips to ensure that your investment is a success:
1. Choose the right location:
Choosing the right location is important to ensure a successful investment. Student accommodation should ideally be within a safe neighbourhood and within walking distance to the university.
2. Keep accessibility in mind:
Many students don’t have their own vehicles and have to rely on public transport to get around. For this reason, it is important to ensure that your rental property is located in an area which provides easy access to public transport and amenities. Doing so will help to ensure that your property is always in demand.
3. Remember to include security features:
One of the main concerns for parents seeking student accommodation for their kids is to ensure that their child is in a safe environment. Incorporating safety and security features into your rental property, can help to ensure that your home is on their list of top choices.
4. Aim to be close to local amenities:
While the main aim of attending a university is to further one’s studies, students do however enjoy a social event or two. Providing student accommodation that is situated near to places of service and entertainment can be more appealing to students as compared to homes which are located a distance away.
5. Include extra features to the property:
Going the extra mile to ensure that your tenants are taken good care of will undoubtedly make your property stand out from the rest. Consider including extra features like a study desk, Wi-Fi connection or laundry facilities to enhance the appeal of your rental home and make their stay more pleasurable.