Way OT - off campus student housing questions

Submitted by Blue in Paradise on
I have a way OT question that I figured I would ask in the calm before the BTT finals storm later today. I am part of a group investing in some off campus student housing, which may include Ann Arbor as a location. I graduated more than 20 years ago so my personal experience is outdated and I figure there must be a lot of current students / recent alums on the board that could help with some operational questions. Questions: 1. What is the standard security deposit arrangement currently? Still one month of rent or do some rentals command 1.5 or 2 months rent? 2. Does anybody still pay with checks? Or is everything online now? 3. Do most rental contracts cover 8 months or 12 months?
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Dylan

March 12th, 2017 at 12:41 PM ^

I'm not looking at anything right now, but I'm pretty sure 1.5 is the max allowable so I think everyone does that.

Joined: 01/22/2013

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Civil Blue

March 12th, 2017 at 12:44 PM ^

My youngest is an undergrad, so we've been cosigning (and funding) for the last ten years or so (yes, multiple kids).  1.5 months, online, and 12 month leases appear to be standard (only exception has been if the landlord planned to renovate over the summer).  Just today I cosigned my son's lease for next year.

Pretty much the same as when i was a UM undergraduate many, many years ago.  Except that none of my kids probably even know how to write a check.  They use Venmo or similar applications for splitting utility bills and make all their rental payments online.

Joined: 01/19/2017

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maizenbluenc

March 12th, 2017 at 1:14 PM ^

there it is one month deposit (at least on houses) 12 month leases with the place vacated for two weeks before move in payment electronically for each individual renter (this used to be only one could pay electronically) or by check the kids pay each other for utility shares via venmo

Joined: 07/21/2009

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speakeasy

March 12th, 2017 at 1:01 PM ^

I believe state law limits the amount of security deposit you can retain (I think it's 1.5 months) so that'll be your upper limit. (MCL: https://www.legislature.mi.gov/(S(n2autrba2atvkymt22hkmcse))/mileg.aspx?page=getObject&objectName=mcl-554-602)

Concur on the online payment sentiments being floated and the lease term. From a practical standpoint, everyone expects a 12 month lease and it's a lot more lucrative for the landlord than eight month leases unless you think you can get away charging 40-50% more a month on the shorter lease

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Monocle Smile

March 12th, 2017 at 12:57 PM ^

Do everyone a favor and don't be a cockhole to your tenants. After grad school, I had to ask a lawyer to threaten a landlord with a lawsuit because he wasn't returning the 2.5 month deposit despite the deadline passing and ignored all calls.

Joined: 09/17/2009

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UMroadwarrior

March 12th, 2017 at 1:05 PM ^

I own about 20 rentals in various college campuses. Since i am a UM grad, i thought it would be cool to own a rental in Ann Arbor. Of all the properties that i own, the returns on the Ann Arbor one are the worst. The main reason being that Ann Arbor property taxes are astronomical. They are almost double what i pay on other campuses. The second reason is that operating expenses tend to be higher in Ann Arbor than other places (snow removal, maintenace higher since houses typically older, higher mgmt fees). On the plus side, the appreciation in Ann Arbor has been strong, and trips to games are tax write-offs. My personal advice is, unless you have an amazing deal, you can get much better returns elsewhere. They are all 12 month leases, and transactions are almost all online.

Joined: 03/12/2017

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Blue in Paradise

March 12th, 2017 at 1:16 PM ^

We are still in the DD phase so AA may end up out of the equation for the reasons you state above. The attractiveness is that it is a premium location that is less exposed to macro factors. Enrollment at UM isn't taking a hit if the economy turns south and most UM student's parents will still pay a premium for nice housing. Of course, rents could dip a bit, but impact is muted vs. some other locations. Also, like you said, writing off football weekends is a nice perk

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Civil Blue

March 12th, 2017 at 2:22 PM ^

I think the market has long ago realized AA is an attractive location for the reasons you mention which is why so much new housing stock has been built recently (plus loosening of zoning restrictions, financing advantages of student rentals, etc).   There also appears to be a lot more institutional money in the AA student rental market over the last 15-20 years which will settle for lower (more stable) returns.

No experience with other markets, but the AA student rental housing market never ceases to amaze me.  Sounds like you're doing your due diligence, but I conitnue to wonder if this growth is sustainable and the returns (for this market) assume it is.

Joined: 01/19/2017

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Blue in Paradise

March 12th, 2017 at 2:43 PM ^

But they have very similar risk / return parameters in the exact sense that they are ok with lower returns on the basis that the vol is mitigated. We are also looking at Gainesville. - there is a multi-purpose residential/ commercial development going up there that I think will be a game changer for college towns. If it works in Gainesville- look for it in a town near you (http://www.celebrationpointe.com)

Joined: 08/14/2016

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UMroadwarrior

March 12th, 2017 at 1:54 PM ^

i am constantly looking for good investment properties all over, thus far, my personal preference has been in the Southeast US, namely large SEC and ACC schools. My mentor focuses mostly in the Southwest, U of Arizona, in particular. If you are not going to be managing the properties yourself, (and I don't since I have a day job), then it is absolutely critical to find a strong management company to partner with. They have a better feel for the rental market, what appropriate rents are, and hopefully provide a sound buffer between you and the tenant. They can also let you know about solid properties that are going to be sold,, so you can often purchase them before they are listed on the open market. They typically charge between 7-10%, but some also charge leasing fees, which is bullshit since you have a new group of tenants practically every year in student housing. I tend to focus in the few markets where my preferred management company is located out of. The other part of this is the financing and finding a solid lender who can finance multiple units for you,, but that is entirely another discussion.

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cseeman

March 12th, 2017 at 1:45 PM ^

Hi - I am the parent of a student who is graduating at the end of April.  This is my understanding of the off-campus market (he has been living off campus for his junior and senior years):

Security Deposit - 1 month.  I have not heard of anything pushing more than that.  Given the cost of rentals, especially for houses where there will be around 8 people living there - going with more than 1 month will likely be more than anyone can afford.

Payment: My son has had a landlord last year who charged extra for online payments.  This year he has a better landlord and each student pays their pre-established share to the rental office via online payments.  I am not sure what happens when a student does not pay - luckily, did not need to know that.  It would be good to have both online and check payments available.

Contracts: Students (and parents) would rather have an 8 month contract - but almost all of them are 12 month (starting in late August).  Finding a sub-letter can be a pain.  

 

 

 

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Civil Blue

March 12th, 2017 at 2:27 PM ^

My anecdotal experience is the opposite because my kids and their friends preferred to stay in AA for the summer anyway and landlords would price summer leasing risk into an 8-month lease anyway (resulting in a higher monthly rate).  When our kids had jobs outside commuting distance from AA, they usually found a sublet through their network to cover part of the cost.

Not sure what the consensus among students and renters would be, but the summers I spent in AA as a student were some of the best.

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