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Investing Strategies

Student Housing: Best Practices for Finding Awesome Tenants

futileClass is back in session, folks.

That’s right… You’re about to get schooled – again!

Today’s lesson represents the fifth installment of our ongoing series about student housing investments, in which we join Mr. Overachiever himself for another engaging chat about his favorite strategic niche.

Yes, I’m talking about the one-and-only Doug Fath.  We’ve introduced this unique “renaissance man” several times throughout the course of this series, and his list of accomplishments is so long that our fingers are starting to hurt from all the typing.

(Seriously, Doug… Do you ever sleep?!)

With that in mind, don’t hesitate to check-out one of Doug’s previous lessons, if you have any doubts about his qualification to teach today about Best Practices for Finding Awesome Tenants:

Feeling inadequate yet? Yeah, us too…

…which is exactly why we want to soak up everything this guy has to teach us about successful real estate investing!

So read on, dear Mogul, as Doug explains the best ways (free and paid) to find student housing tenants, including one surprising method that he thinks you should probably try to avoid.

lineupStudent Housing: Best Practices for Finding Awesome Tenants

Doug: So here’s a good question for every student housing investor to consider: How, exactly, do you rent these properties out? Where do you find your students?

What we've found is that the free ways have actually produced the best results for us to find tenants.

That is, posting ads on Craigslist and the like…  And we post fliers around campus. Oftentimes, in order to post fliers around campus, you need to get approved by the university. Usually it's through student activity center. You've got to go show them your ad, have them approve it and then there's designated places around campus where you can post fliers. We do that.

The third thing is, usually the university has housing fairs. You definitely want to check with the university. Find out when their student housing fairs are. Oftentimes there are criteria you have to meet in order to participate in the housing fairs. And the criteria aren’t difficult, but they will show that you're a legitimate person – that you're basically doing the right things that you need to do.

So if you're required to have a rental license, you're showing them that you have a rental license. Don't be concerned about the criteria. In my experience, it's just been basic stuff that you have to meet in order to participate in the college housing fairs that they offer.

Some of the paid ways that we've done in the past have been magazine and newspaper advertising. Although, quite honestly, we really haven't done that in years. One of the things that we haven't done for renting is to use Google Add Words and PPC. My opinion is that's a bit too expensive for what we are looking to do, especially since the free ways have been so affective.

This year, especially with social media, one of the paid ways we've been using a lot more aggressively – one with which we've seen decent results – is advertising on Facebook.

FacebookJP: I was thinking about Facebook, because you can drill down so specifically that you could only show your ad to people who say that they are currently enrolled in that school.

Doug: Exactly. And that's one of the beauties about Facebook advertising. You can get so drilled down; you can be really specific with people that are only registered in that school. You can even get specific if you want it to be male or female; you can narrow it down to certain age groups. There is just a lot more specifics you can get into with the Facebook advertising which has made it valuable.

We certainly haven't mastered Facebook advertising yet, because this is the first year we have done it, but it's been a good tool that’s produced results and I plan to continue to tweak that. I feel as we move forward that Facebook will probably end up becoming one of the primary leasing tools for us. Right now it's one of them; it's just not the primary.

JP: What about college campus newspapers?

Doug: I am glad you brought that up. Yes, we have and we actually have gotten good results from that. For the most part, we've really moved away from the paid advertising because we've found the free advertising to be so much better. It definitely is a good tool, and even though as I said we moved away from it, again, markets are different.

You've got to test it. I just ran through about six different ways that you can advertise, and as for the best ways that we've found, I'd suggest incorporating and testing out all of them in your market.  Then, obviously, see what produces the best results and slow down with the other ones – and focus on the ones that are producing the better results.

The other thing we do – and I realize this may not necessarily be for everyone – but with Wealthy Passion, my educational company, I am passionate about investing. I'm passionate about financial education, so at the colleges that we're investing in, every year I speak on campus.

professorI speak on campus to the entrepreneurship community and to the real estate fraternity, which is one thing I just love doing. It's another way for people to get to know me, students can get to know the company and it gets our name and our brand out there. Again, I realize that that's not going to be for everyone, but for those of you that like speaking, you can certainly do that.

Also, through developing that relationship with the university, we also get free interns from the university that actually work in our real estate business, and they help us out. The intern that was just with us was really spearheading the Facebook campaign and advertising that we were doing.

Using college interns is a great way for you to provide value for them, and for them to understand and learn the business that you're in – and it's also helpful for you, because you get some free labor in your business and your investment activities.

JP: Two of the most common objections or concerns that people would have to investing in student housing specifically… One would be: I'm scared to death that these crazy college kids are going to trash my house and I'm going to end up paying a whole lot more to get it repaired every time I have turn over. 

And the second is the turnover rate, because you've got college kids for a maximum of four years – plus you've got summers and you have a built in vacancy. What are your responses to those two concerns?

Doug: The concern about trashing the place is typically the most common thing that I get asked about. They think of the movie Animal House and all these concerns, but again, that just hasn't been our experience. I think it's because of the way we've gone about it where we run it as a business.

Make no mistake about it, real estate investing is a business, and it has to be run by a business. I mentioned earlier about having a lease where mommy and daddy cosign, and then, in addition to that, you also have joint and several liability, so that every tenant is responsible. We also collect one month's security deposit.

Now, when I first started, I had the same concern, too. So I used to collect two months’ security deposits, and after doing that for a few years and ironing out our system again, it never exceeded one month's security deposit. So we ended up changing that to one month's security deposit and last month's rent, instead of two months security deposit. We found that that protects us. And, again, you also want to be giving your tenants a quality place.

jacuzziThe other thing that we have on our lease is that we do quarterly inspections. Why that's important is, again, these are college students.  Sometimes this is the first time that they are living on their own, and they need to be trained in certain situations or you need to explain things to them.

By having these quarterly inspections, it gives us an idea of: are they doing anything that they shouldn't be doing? Anything that's damaging the property? Let's say they are doing something. Now that's something that we're able to nip in the bud three months into the lease as opposed to not being aware of it and that going on for an entire year. At that point the damage would be a lot greater.

In addition to that, regarding our maintenance person, anytime they go in to take care of something, they are our eyes and ears as well. So they are looking at: is there anything that is looking like the students are doing that they shouldn't be doing?  Anything that's going to cause a problem, that's damaging the place? If it is, that information comes back to us and we can have a conversation with them. That's really helped us not have any issues with tenants trashing a place beyond the security deposit.

About the turnover rate, you are correct that often times the turnover rate is a lot more than with perhaps renting to a family. Because they are students, oftentimes they are going to be living in your place only for a year. Or depending on if they're a junior or a sophomore, for maybe two or three years, at the most. And that is just the nature of the beast. But because the cash flow is so good, even though you're paying for that turnover, and you have to paint and do the things that you need to do during turnover, it still is highly profitable.

The other thing that we've started doing to minimize the turnover rate is when we're choosing tenants, trying to find more underclassmen that are sophomores or maybe at most juniors. This way, if they like the housing accommodation, they have the potential to be with us for a longer amount of time.

And there are things that we do throughout the year in terms of sending out letters about re-leasing. We hit them a few times a year with the marketing pieces, just to keep that front of mind for them, so that when the time comes for them to decide whether or not they want to re-lease, it's already been on their mind.

visaWe also offer them some incentives. Depending on how many kids are in the unit, we'll give them anywhere from a Visa giftcard of $50 to at most up to $100, if they renew by a certain date. So we do invest some time, and we do invest some dollars to try to decrease the amount of turnover that there is – because, obviously, every bit that we can decrease is more money in our pockets.

And then the last thing you asked about is what happens during the summer months?

That's another thing that I love about student housing – because these are 12-month leases that they sign. So, oftentimes, tenants aren't even there in the summer months and you're still getting paid rent.

Now some of them would say, “Why are they going to pay rent when they're not even there?”  Earlier I said how expensive it was at the college dorms. When you compare it, they're still paying less money on an annual basis to live in one of our rentals than they are if they live in the dorms.

And when they're living in the dorms, they can only live there for typically eight to nine months a year. Here, whether or not they choose to, they have 12 months where they can utilize the space because they are paying for the 12 months on a monthly basis.

JP: One thing you mentioned was screening students to lean towards favoring freshman and sophomores, so that you'll increase the likelihood of them being with you longer. So from a tenant-screening standpoint, what is your ideal criteria? What else do you screen for?

Doug: The biggest thing is screening the cosigners. We've housed student athletes, we've housed non-student athletes, so we haven't had a bad experience with one particular group where we've said, “Hey you know what, we are not renting to either this type of person or this type of group anymore.”

I mentioned the magic lease, and it really is a magic lease. That thing is about as tight as you are going to get, and I would argue that that is one of the best leases you will ever see. I spent a lot of time and a heck load money with different attorneys drafting that up, and I'd put that up against any other lease.

bankThe main thing is just making sure that the income's there, and often times with student housing that's not that big of an issue because you have mom and dad cosign.  And on top of that, in the example of a four bedroom house, you have four cosigners, that's four breadwinners. That's four different forms of income. So it's very, very rare from an income standpoint that they are not going to qualify.


Do It To It! Immediate Action Steps

Advertise – Use free and paid advertising tools such as craigslist, Facebook, housing fairs, etc. Keep doing the methods that are producing profitable results and reduce or drop the others.

Screen in Favor of Underclassman – Finding a sophomore tenant can help ensure the same tenant stays in your investment property longer, with less turnover.

Screen The Cosigners – In addition to screening the tenant, do your due diligence regarding the cosigners (likely mom and dad) to make sure the income will in fact keep coming in.

Have Eyes on the Inside – Ask your cleaning and maintenance workers to report back on they’ve seen while working in the property. It’s a simple way to potentially offset the cost of any damage.

Hold Quarterly Inspections – Add this to your lease, pronto! These inspections may turn up issues well before you would have discovered them had you not held an inspection, which could possibly save you tons of money.

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