It’s great to have high occupancy on your rental properties, but if your occupants are not stable credit-rated tenants and do not have means to pay rent, then high occupancy doesn’t equate to high investment value.
Many investors fear the student housing industry because when “student” is listed on the rental application as the occupation, landlords don’t typically feel a strong sense of confidence in that prospective tenant’s ability to stay current on rent payments.
Let’s face it, most students fall short of standard lease requirements. They most likely do not meet minimum income standards. If students are employed at all, they probably will have part-time jobs because class and study take up most their daytime hours. For the hours they do work, most students are paid minimally because they are still studying to qualify for jobs with higher paying salaries.
Most students are simply too young to have had the means to pad a savings account from which they could dip into for rent payments when the monthly earnings fall short of monthly expenses. Most students don’t have a solid credit rating because, again, they have not had the time or the need to establish a credit history. Plus, a majority of student tenants will be first-time tenants, so they can’t be expected to submit references.
So how can an investment in student housing have value?
A parental guarantee is a guarantee by the student’s parent(s) or guardian(s) that the student’s rent will be paid each month. In most cases, the parental guarantee will extend beyond rent and also ensure payment of damages to the rental unit.
To establish a parental guarantee, a Parental Guarantee Letter or Agreement is signed by the student’s parent, guaranteeing the specific rental amount for the particular property on behalf of the individual student. Such a letter or agreement often provides the parent guarantor’s personal information, including driver’s license number and possibly employment details, and authorizes the landlord to seek payment from the parent guarantor if rent and/or damages is not paid by the student in a timely manner.
When a parental guarantee is in place, the student tenant and the parent guarantor become liable for the lease. It is important for parent guarantors to understand the terms of the lease to which they are guaranteeing, particularly whether the lease agreement is specific to their student’s bed or the entire unit that may be shared with other students.
A parent guarantor is a co-signor specific to student housing situations. Requiring a co-signor on the lease is a form of insurance for the landlord. With such an insurance policy in place, landlords no longer need to look to the student to meet the minimum lease requirements. Therefore, because of parent guarantors with stable income and strong credit ratings, contrary to initial beliefs, student tenants offer a reliable, steady income for student housing investments.