A Guide to Investing in Student Housing

Student housing is an important part of student life for any university or college. Wherever there is an institution of higher learning, there will always be hundreds or even thousands of students that need a place to stay. A recent National Multifamily Housing Council (NMHC) report revealed that 8.9 million college students needed off-campus accommodation in 2018. This represented about 8.2% of the total U.S. renter population. With the enrolments rising every year, investing in property to rent out to college students can be a very profitable venture.

If you’re thinking about investing in student housing, we can help. Here is a complete guide, starting with some of the pros and cons of investing in student housing:

Advantages of Investing in Student Housing

Marketability – College towns are usually very vibrant communities. They are filled with restaurants, art galleries, malls, and nightlife. In addition, they tend to have high walkability scores. Therefore, you won’t have to spend much money or time on marketing your college town properties since the neighborhood should sell itself.
A large pool of renters – Every year, there is a new group of students that need to find accommodation. In addition, there are also new staff members who are moving into town. This means that there will always be a large pool of potential renters available for your student housing investment.
Cash flow – Since there is always a high demand for these rental properties, you can continually charge standard market rates, have a high occupancy rate, and enjoy the cash flow.
Low vacancy rates – Student rental housing tends to have very low vacancy rates. Even during summer, some students tend to stick around to have access to university resources, take summer classes, or continue working.

Related: 8 Reasons to Invest in College Town Properties

Disadvantages of Investing in Student Housing

Rental property damage – College students can be very irresponsible when it comes to managing their living spaces. During their wild parties and drinking sprees, your student housing property could suffer a lot of damage. You might have to spend lots of money repairing broken windows, holes in walls, and broken cabinets.
High turnover – Students will go on holiday or graduate at some point. Their stay could be a few months or several years, depending on their academic program. At times, they might even have to terminate their lease early. Having to continually advertise your rental property, screen applicants, and prepare for new tenants can consume a lot of time and money.
Not a passive investment – If you are looking for an investment that can earn you passive income, then student housing may not be for you. Student rentals need to be monitored and maintained on a regular basis. You will always be dealing with noise complaints from neighbors, conflicts between tenants, or broken appliances. (This is, of course, if you opt to manage it yourself.)

How to Invest in Student Housing

So, what are the steps for investing in college town real estate?

1. Choose the right location

Selecting the right location is crucial if you want to make a profit by investing in student housing. You’ll need to start by finding the best city. WalletHub recently conducted a survey of 415 American cities to rank the best college towns. The study considered factors such as food costs, economic opportunities, social environment, and housing costs.

Here are some of the best college towns that student housing investors should look out for according to that survey, accompanied by Mashvisor rental data. This data will help you understand how rental properties generally perform in these real estate markets:

Orlando, Florida

Median property price: $335,973
Price per square foot: $180
Traditional rental income: $1,705
Traditional cash on cash return: 1.8%

Scottsdale, Arizona

Median property price: $905,527
Price per square foot: $320
Traditional rental income: $3,361
Traditional cash on cash return: 2.3%

Seattle, Washington

Median property price: $736,391
Price per square foot: $502
Traditional rental income: $2,535
Traditional cash on cash return: 1.5%

Las Vegas, Nevada

Median property price: $419,643
Price per square foot: $216
Traditional rental income: $1,336
Traditional cash on cash return: 1.2%

Raleigh, North Carolina

Median property price: $437,905
Price per square foot: $183
Traditional rental income: $1,649
Traditional cash on cash return: 1.4%

Cincinnati, Ohio

Median property price: $289,306
Price per square foot: $162
Traditional rental income: $1,275
Traditional cash on cash return: 2.0%

Next, you need to choose the right neighborhood within the city. Students usually want to live in rental properties that are in close proximity to the campus or located near public transit centers. They will also want easy access to libraries, restaurants, convenience stores, and malls. You could consult an experienced local real estate agent to find out which locations would be ideal for investing in student housing. Besides convenience, you should also consider the potential profitability of the area. Mashvisor’s heatmap tool will help you analyze different neighborhoods using metrics such as listing price, rental income, and cash on cash return.

Mashvisor’s Real Estate Heatmap

2. Find an Investment Property

Types of rental properties for student housing include apartment buildings, single family homes, or small multifamily homes. You have plenty of choices that will attract students. So it’s best to analyze rental properties for sale based on their earning potential. Check for:

Potential rental income
Cash flow
Cash on cash return
Occupancy rate

You can get all this info and more using Mashvisor’s investment property calculator. Try it out now.

3. Select a financing method

When it comes to investing in student housing, your options for financing will depend on the kind of investment property you want to purchase, as well as your financial situation. Here are some of the student housing financing programs available:

Fannie Mae student housing loans
Bank student housing loans
Commercial Mortgage Backed Security (CMBS) student housing loans
Freddie Mac student housing loans

However, before applying for a mortgage, consider the closing costs and the cash required for immediate renovations.

4. Choose a rental property management option

You can either manage your student rental yourself or hire a professional property manager. Though having a property manager means incurring an extra expense, it will save you the hassle of handling small repairs, preparing lease agreements, screening tenants, and dealing with complaints. You will be free to continue working in your current job or manage other investments and you will be earning a passive income.

5. Market your rental property

After investing in student housing, you will need to market your property in order to attract tenants. You can advertise via nearby colleges by purchasing ad space on their sites or student publications. Alternatively, you could stand in a strategic location and distribute flyers to students as they go to class. Of course, if you opted to hire a manager, he/she will take care of this step for you.

Conclusion

Just like any other kind of investment, the student housing business comes with its own risks. Carefully weigh the pros and cons of investing in student housing before making a decision.

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