The business of renting to college students is one of those things that scares away many investors. Images of heavy damage, beer soaked carpets and over-crowding keep people away from what in reality could be some of their most profitable rentals.
Like any rental property the key to success is proper management. For several reasons we'll go into below we recommend professional management for college rentals unless a person has a great deal of experience in property management AND lives in the vicinity of their rentals. That said, renting properties to college students can be a little gold mine of cashflow.
The first thing to understand about college rentals is that they are longer term rentals than most people realize. Two semesters may be nine months or so out of the year but most college rentals are either eleven or twelve month leases, depending on the custom in a particular town. Even with eleven month leases the rents generated while leased and the extremely low vacancy rates of well run properties more than make up for that missing month each year.
When renting out to college students there are some things to consider that are unique to college rentals. This is where experienced property management really comes into play. Consider the lease itself. Do you write one lease to a primary tenant and then have them be responsible for collecting from roommates? Generally this is a situation you want to avoid as much as possible. A much better strategy is to write a lease where each tenant is severally liable for the entire lease amount. What this means is that each tenant is responsible for the whole lease amount should one tenant be unable to pay, move out, etc. Depending on local and state law this may have to be accomplished in a specific way, e.g. one lease with multiple signors, multiple leases and so forth. It's important to do this correctly and bind each tenant to the entire lease amount wherever possible. When the tenants know they could be liable for rents outside their own portion they will generally do a much better job of self-policing each other and will be much quicker in letting management know of potential issues such as early move-out of a fellow tenant or property damage.
College towns and colleges themselves can also impose rules that need to be considered. Some college towns might have ordinances that say that there can be no more than four unrelated persons in a rental property for instance. This little rule could make a five bedroom home up for sale not quite as attractive as appears at first glance. Commonly there are additional taxes (however they're labeled) to be paid on college rentals as well. A college itself might also dictate that first year students must live on campus thereby limiting your pool of rental prospects.
At first glance some ordinances and college rules might seem unenforceable if challenged. Unless, however, you want to be the one to go to the expense to challenge these things in court it's a better idea to simply know the rules as they exist and work within them. There are plenty of tenants available in nearly every college town to make college rental ownership a very attractive long term investment.
The big plus side to college rentals, of course, is the high rents they generate. College rentals are thought of as "price per room". Normally an investor might look at a house and think in terms of rent per property. A three bedroom house in a normal rental area might rent for $1200 per month. That same house as a college rental might go for $500 per bedroom, or $1500 per month, and cost less to purchase than the "normal" residential rental!
Another plus of college rental ownership is that they are very easy to sell if kept in good condition. In addition to investors there are "part investors" who will purchase a college property for their own son or daughter to live in while attending college. These purchasers are "part investor" in that they will usually rent out the extra rooms to other students while their own child is attending. Once their child graduates the property will go up for sale.
Lastly, note that there are prime times of the year to rent out a house or condo close to campus. Property managers maintain lists year-round and will rent well in advance of actual move-in. It's very common to have next year's tenant in place a full six months or more prior to the school year beginning. This is a luxury unheard of in most rentals.
Colleges are short of cash. Enrollments have steadily been increasing but the cash just isn't there for most colleges to build new student housing. Private investors can pick up this burden and do very well for themselves in the process. Step one is to talk to an established property manager in your chosen college town (or towns). There's really very little to be afraid of and a lot of upside potential to look forward to.