Turning your investment property into student accommodation
It may seem counterintuitive to deal with numerous leases on the one property to generate passive income, but just like hosting on Airbnb and other short term rental spaces, the higher economic return for student accommodation often makes the extra work well worth it. If you’re looking to make a switch to short-term rentals, this may be the gateway strategy to ease yourself in before you make the full commitment. Either way, your returns will be greater than long-term leasing, and you’ll sleep in peace knowing that you’re doing everything to make the most of your investment.
So, what is student leasing?
You may be picturing a frat house with kids stacked on top of each other, but student housing just generally refers to a residential property that leases each room individually to different parties. Yes, that means that they may be students looking to find cheaper accommodation close to the CBD, but it may also be working professionals or singles looking to save that extra money.
Despite the perception of student leasing for renters as a cheaper alternative to renting out an entire home, the irony is that landlords can make money by doing so. For example, an investor may own a five-bedroom home that traditionally leases as $560 per week. By splitting those five rooms, the investor can collect $160 a week from each tenant, totalling a weekly return of $800 per week. By that theory, you are able an extra $15,000 grand from your tenants. How’s that?
Of course, your returns will be totally dependent on your investment property and the demand for a residential property like it. Before you decide if this strategy can generate a positive cashflow for you, we’ll need to explore what a student leasing property requires.
Making it work
To make a student leasing property work, you’re property needs to be suitable for, well, students. Despite the expectation that student leasing won’t be luxurious, having a property that comprises of the best facilities and amenities will allow you to attract more tenants and charge more for each room.
As with any investment property, location is the number one factor that will make it or break it for a tenant. Properties that are within walking distance of a university campus or major CBD centre are always easier to rent with this style of accommodation. For example, in Sydney, we see an abundance of student housing in Glebe and Ultimo, which is only a short stroll or bus trip to the centre of the CBD and several universities. Proximity to public transport is also important as it’s rare you’ll end up with enough car parking for all of the rooms in your property. If your property is on the outskirts of the CBD, highlighting express routes or public transport options is a huge selling factor for potential clients.
Since your property will be divided by each tenant, you’ll need to ensure that your property has enough separate living areas in proportion to bedrooms. For properties that have 2-3 bedrooms, one standard living room and maybe a combined living should suffice. However, if your property can accommodate more, you’ll need at least two living spaces (inclusive of dining) and preferably an outdoor entertainment area as well. The number of living spaces should also reflect the number of bathrooms. If you intend to house a group of students with just one bathroom, then chances are you won’t find any tenants.
In terms of kitchen spaces – the bigger, the better. You may be able to find tenants that are willing to compromise kitchen and fridge spaces, but with the rise of healthy eating and better living, a good sized kitchen with adequate kitchen amenities is highly recommended. Although it may not be the deciding factor for whether your property will suit student leasing, the shared spaces in your rental are crucial for appealing to prospective tenants.
Fixtures and fittings
One thing to keep in mind about student leasing is that most tenants will only be residing at your properties for short amounts of time. This means that whatever appliances or furniture that they bring will them will probably be gone when they are to. It also means that you’ll need to make sure that your property has hard-wearing fixtures and fittings to account for the wear and tear of multiple different tenants.
If you’re renovating before embarking on your student leasing journey, installing tiles instead of carpet or polished wooden floors will reduce maintenance costs. Opting for energy saving light fixtures will also save you money in the long run, as well as solar panels hooked up water tanks and generators.
Another thing to remember to install during the renovation process is new door knobs or handles with locks. Few tenants will rent a room with other strangers without added security in their personal room. Common doors like the front and back doors will also need to have extra keys created in order to allow access by all tenants.
In most cases, student leasing tenants will always expect a fully furnished home and room. This means you’ll need to provide all the necessary furniture, appliances, pots and pans and extra for the home. Each bedroom should have at least a bed, a table and a chair. Since students may be coming from remote areas or overseas, providing the bare essentials is a huge selling factor for these types of students.
However, there may be some students and tenants that prefer to bring their own furniture. Nevertheless, it wouldn’t hurt to still have these basic pieces on hand in the event that your next tenants will require them.
Providing furnishings in common areas is a must. This includes the lounge room, dining room, kitchen, bathrooms laundry and other general areas like entertaining areas and balconies. Make sure your appliances and furniture are suitable for the needs of large groups, which means you may want to consider buying a large family sized fridge or large capacity washing machines. Not only will this help remedy the pains of living in a house full of strangers, but will also save you, as a landlord, multiple angry calls and messages about broken appliances or inadequate living standards.
The number one amenity that tenants will look for in student leasing is a high-speed internet connection. Without this, your property is nothing to them, and they’ll find other options that keep with the 21st century. Like previously mentioned, large family fridges and laundry appliances are highly advised. You also wouldn’t want to skimp out on the kitchen essentials such as a toaster and a microwave as those are also expected of student accommodation.
Things to consider
Of course, nothing in this day of age comes without its terms and conditions. Student leasing may sound like the ideal type of property leasing for your investment to secure high returns. However, it does come with a few pain points that you need to be aware of before making the switch. When pricing your rooms, you’ll need to take into account all the expenses of running a student leased property. This may, in some circumstances, outweigh the benefits of leasing mid-term and render your efforts entirely obsolete. If that’s the case, you’re probably better off leasing long-term and saving this strategy for your next property investment.
Electricity and water
While the regulations will vary from state to state, in most cases you won’t be able to charge individually for water, gas and electricity unless it is individually metered – something nearly impossible to do in student accommodation. This means that water and electricity will come out of your gross rent, something you’ll need to factor in when pricing your rooms.
Cleaning and maintenance
If you’ve ever lived in a share house, you’ll know that an ongoing problem is working out who is responsible for cleaning. Of course, you can leave that up to the tenants, but this may essentially lead to an increase in tenant turnover, which may leave your rooms unoccupied for days or weeks before you find someone that will stay. Therefore, it may be a good idea to either have yourself or a property manager to visit the property often and ensure everything is kept in order while you are absent. Also, having a housekeeper that comes by every week or so will alleviate the need to do routine checks.
It’s a known fact that there will be periods of vacancy during the year when students move away. However, setting contracts and expectations in place may remedy the loss of returns during these holidays periods. Setting minimum lengths of stay and notices will allow you to preemptively prepare for the next guests. Additionally, appropriately pricing your property to account for some vacant weeks will help mitigate the losses.
The bottom line
If you’ve reached this far down the page, you would have obviously realised that turning your student accommodation doesn’t come without effort. Making sure you’ve appropriately prepared your home and set up your assurances, will help you account for any nasty surprises down the future all while making the most that you can from your investment. However, that doesn’t mean you’ll have to go down this path alone. There are a few niche property management services that will enable you to gain all the benefits of student leasing all without the hassle, including and chill.