Passive Income with Student Housing

Have you ever thought about getting into real estate for passive income? What type of property would you like to own? A house, duplex, quadplex, or maybe even an eight-plex? And, who would you market your investment to? These are all very basic questions that you should know the answer to long before selecting your property.

My wife and I have kicked around the idea of owning some rental properties. After much discussion, I think we are pretty open to the type of property, but our target market is for certain: college students.

Why in the World Would We Target Students?

College students are typically thought of as irresponsible, reckless, and nowhere close to dependable, so why would my wife and I decide to focus on this group to rent our investment properties to? Most people would assume that students would tear apart their beloved property and that the investors would certainly lose money because of the damages. This may be true in some cases, but based on our research, student housing is a very lucrative business for quite a variety of reasons.

Benefits of Renting to College Students

  1. Greater Chance of Payment – I know, you probably think I’m crazy, but I’m dead serious! College students often receive government or private loans that help them pay for schooling and housing. When the institution receives the loan, they deduct the amount that’s needed for the tuition and then provide the remaining balance to the student in a check! The student does absolutely no work, but presto, they have your rent check in hand!
  2. High Demand = High Rent – Rentals that are within a walking distance to the college are in high-demand for students. Since they are highly coveted, you can charge much more per month than a similar property that a few blocks further away from campus.
  3. Long (ish) Term Rentals – college students typically hunt for off-campus housing after their first year of college. This means that they’d like to find a place to rent for the next 3 orΒ 4 years! In terms of the rental world, this is a pretty long-term tenent.

Crunching the Numbers – Is the Student Housing Worth It?

Around my neck of the woods (with incredibly cheap real estate), a house that’s blocks away from the local college can be found for about $100,000. That same house can be rented for about $750 a month. At this rate, it would take about 11 years to recoup your investment.

Yes, eleven years is a long time, but deals can be found out there. A home in foreclosure could be swept up in the same area for about $70,000, but you have to learn to look in the right places and to act fast. With a $70,000 investment, suddenly your $750 a month rent check could pay for your house in less than 8 years, which is certainly worth your time.

Have you ever considered renting real estate to students? What do you think of the idea now?

13 thoughts on “Passive Income with Student Housing

  1. Great idea to generate income! I also agree that students or college students specifically are very good customer. Good job!

  2. I held two rentals in a major college town right off campus once. While tenant shortage was never a problem, what I discovered was that the “wear and tear” on your unit is nearly double that of a typical family tenant. My solution, after a while, was to focus on graduate students. A little older and less likely to put holes in walls on a dare!

    1. Haha. Yes, there may be an occasional hole in the wall, but I bet you still came out on top financially. Targeting the Masters students is a good idea.

  3. This is something that I’m considering doing myself while in college as part of my goal to graduate with a surplus, I just need to find a cheap house and someone willing to give me a loan with almost nothing down, not sure how I’m going to pull it off but I’m going to try!

    1. James – you should come up with some money yourself for that down-payment. While your idea is awesome, you don’t want to spend all of your money on interest and PMI. It just won’t pay. If you want some ideas about earning some quick extra money, check out my book, “101 Ways to Make More Money” at http://lifeandmyfinances.com. It’s free when you subscribe.

  4. I would love to buy an investment home in a college area for exactly the same reasons. In my experience as a renter for 3 years of college, my roomates and I were all extremely responsible — never once missed a payment. Other friends were the same way. I think college kids get a bad rep that’s completely undeserved.

    1. There are quite a few college students that wouldn’t do any damage whatsoever, but you’re right, sometimes they get a bad rap. I think student housing would be an amazing investment!

  5. I wanted to buy a house for myself while I was in school. It would be free housing and after I got a few roommates to pay me rent I would pull a tidy profit. I would be able to keep them in line so the wear and tear isn’t bad, then when I graduated I could sell and pocket the equity or keep it, hire a property manager, and keep receiving some income.

    To be honest, from what I said I think I am crazy to not do it, and I may still consider, but I hesitated and missed the chance to do it my first or second year. It is something I will look into for third year.

    As a student I can tell you that I would not pay $750/month for rent, no matter how close to campus. I think you would be better to rent it out to several students instead for less. $600 is considered expensive to us. Rent out your house to four students for $450 plus utilities and not only will you make more money but you are diversified in the rare chance a student couldn’t pay for a month.

    If you still think that you can demand a higher rent I would not push past $500 plus utilities. You may still get a couple students who will pay more than that but they will be less happy about it. Happy tenants are less trouble I’m sure.

    But you are right about student housing. The demand will be there as long as the school is there, so it is almost a can’t miss.

    1. It’s a pretty solid idea huh? I’m glad someone had the same thoughts as me on this one. Good luck finding your own rental! Even if it’s not a huge money maker, I bet you’ll learn a ton (way more than you learn from those books!). πŸ™‚

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