Short-Term Rentals in Multifamily Student Housing: Mickey Kropf

US: In this latest guest feature, Vector Travel’s Mickey Kropf details how multifamily student housing is leading the way in multifamily design innovation in the short-term rental industry.

For context:

• Student Housing: Conventional multifamily properties in which at least 20 per cent of units are leased to undergraduate or graduate students

• Short-Term Rentals: The rental of a residential unit to guests for 29 nights or fewer

Multifamily student housing has been leading multifamily design innovation for years, and that is primarily because the typical student consumer is different than the typical traditional multifamily consumer.

Student housing design innovations have included robust amenity and common area spaces outside of units, larger units to accommodate more occupants, smaller kitchens, parity amongst bedrooms and floorplans, and varying exterior styles that often look just like traditional multifamily at first glance. So how does student housing play in the short-term rental industry?

As you can guess, student housing does not fare the same as a class A traditional property in the short-term rental space, but short-term rentals can solve for perennial vacancy issues and meet the needs of many consumers while co-existing well with student occupants.

Lease-Up Every Year

Plato said: “The true creator is necessity, who is the mother of our invention.”

Student housing buildings face lease-up every year as students shuffle off school rosters and into other housing options, which creates a need to renew high percentages of leases and seek net new tenants annually. But what happens when lease-up targets are missed, and the school year has already begun?

Vacant units will most likely sit empty till the next semester if not the next school year. This can have profound negative effects on net operating income. Student housing companies can turn vacancy loss into ancillary income via short-term rentals. Units can be set aside in advance or after lease-up for one of two recommended models:

1. TurnKey short-term rental fee management such as the approach of my firm, Vector Travel, or

2. Corporate leases to a short-term rental company who will pay rent in exchange for all of the upside from short-term rental activity.

With TurnKey short-term rental fee management, the operator will set up the units for stays of one to 29 nights at a time and provide all hospitality, cleaning and accounting services while sharing the supermajority of revenues with the student housing company.

With the corporate lease approach, the operator would lease the available units for the available terms and perform all services for their guests while keeping all of the short-term rental income generated.

Either approach is viable in terms of its limited impacts on onsite staff and the revenue potential, though the corporate lease approach will not apply to many properties based on location or building grade due to most short-term rental corporate lessees opting for urban, class A, traditional multifamily products.

Traditional Lessees May Avoid Student Housing

Student housing rentals tend to house and generate rents from multiple tenants in a one bedroom, for example, and that can be difficult to replicate with a non-student long term tenant lease, particularly in a building primarily marketed to students.

Some market rate tenants may harbour a stigma against student housing multifamily buildings, recollecting dorms of their youths rather than the highly amenitised, modern structures of today. Student social activities and schedules can be at odds with the social activities and work schedules of working adults, so heavy discounts or rent concessions may be required to lure traditional lessees to student buildings. Short term rentals offer another avenue.

Residential Fit

Undergraduate and graduate students make fairly good neighbours to short-term rental guests and vice versa. While there are occasionally issues with residents in market rate buildings pushing back against transient use, student residents rarely do.

Most students are themselves consumers of short-term rental sites like Airbnb and are generally open to new experiences, including new people within their buildings.

Many students are likely too busy to notice their long-term hallway neighbours, much less nightly or weekly visitors. Student hours also vary widely within a building and are less likely to be disturbed by guests checking in late at night.

To minimise effects on neighbours in all multifamily buildings, Vector uses NoiseAware decibel monitoring devices to help ensure we are good neighbours to the students.

Trust & Safety

Transient guests can expect professionally furnished and operated lodging from professionally short-term rental units in student housing buildings. Residents will have had their backgrounds checked in some way prior to occupancy, and so can transient guests. Credit checks are generally immaterial in short-term rentals given that payment is made in advance of stays and is a shorter-term commitment than a long-term lease.

Contrary to popular belief, Airbnb performs background checks on users as they register for their platform, and hosts can require identification verification prior to stays. Furthermore, guests booking can have their backgrounds run by the short-term rental management company either pre-booking or post-booking but pre-stay, the latter of which is the generally accepted practice amongst most operators.

Success Stories

At Vector, we have numerous success stories of converting vacant student multifamily housing units into short-term rentals, but the most notable is that of a student housing building in Austin, Texas near the UT-Austin campus.

A potential client approached us about their building where 17 units remained vacant after lease-up in the Fall of 2018 with the likely outcome being that the units would remain vacant until the second semester or potentially the following school year. We built upon some of the existing furnishings and readied the units for short-term rental guests, photographed the units and distributed across platforms such as Airbnb, HomeAway, Expedia and Booking.com, and a site for residents to book units when family came to town.

Instead of $0 rental income, we were able to pay our client approximately $35,000 after fees and expenses in the first month of operation. Performance was strong enough the remainder of the school year that the client has decided to double the unit count for short-term rentals in 2019.

For more information, visit the Vector Travel website here.