If we’ve got a tip for you this year, it’s this: Invest in student housing.
Currently, a student housing investment is one of the best types of investments you could make in the US real estate market. According to Forbes who cites a report by Axiometrics, “Student housing transaction volume totaled more than $9 billion in 2016, a 62% increase from 2015.” That’s a huge increase that is still reflected well into 2018. Sales are reaching all-time highs as investors jump into the student housing market – and all for good reason.
In this blog, we’ll be dissecting the reasons you should invest in student housing and the drawbacks of doing so.
Related: Best Places to Invest in Real Estate: College Towns
Why invest in student housing of all investments?
Why is investing in student housing in college towns a great investment? Generally speaking, college towns are among the best places to invest in real estate. There’s a high demand for rental property. Students always flock to college towns at the beginning of the school year, and they’re there looking for rental properties to stay in.
Another perk for choosing to invest in student housing is that you know you’re expecting steady demand. So there’s a sense of stability that you gain as an investor. Off-campus housing is as popular of an option for students as on-campus housing. Many students, in fact, prefer off-campus housing since it can be more affordable.
There’s notable growth in the student housing sector, and properties are selling for large sums of money. Most recently, an apartment complex in Tucson, Arizona was sold for $112 million. And while this is just one example of a hot market, it highlights the opportunity behind investing in student housing nationwide. It’s also important to note that in this blog, we focus on investment in single property housing.
Related: How Will New York’s Tuition-Free Education Policy Affect the Housing Market?
When you invest in student housing, you invest in a lot more…
Investing in student housing isn’t solely investing in student housing.
“Wait, what?”
What we mean is that you can also make use of your property for other investments, such as Airbnb. You can especially make use of summer months, when the property is usually vacant, to rent out your property on Airbnb. And what’s great about many of these college cities is that there’s usually more going on than just student life. So you should still be able to profit if you invest wisely!
Drawbacks of investing in student housing
Like any other investment, investing in student housing can have its cons or drawbacks. And while the cons are few, they’re definitely there.
#1 Occupancy
To begin with, the occupancy rate is an issue to consider when you invest in student housing. Students usually start their school year around the last week of August and will leave in mid to late May. This leaves you with three months tenant-free.
So what can you do to overcome this drawback? Well for one, you could use this time to do things you may not get to do while tenants are occupying the property. This could include paint jobs, refurnishing, maintenance, among other things. Make use of the summer months to get things done. Another thing you could do, as mentioned above, is rent your property out on Airbnb. Summer months usually see more visitors for many of these towns and cities, so make sure to take advantage of that when you invest in student housing.
#2 Turnover rate
Another drawback of renting out to students is the high turnover rate of tenants of student housing. Many students change their apartments every year, and sometimes even in between semesters. This could also mean that your student tenants may be less loyal and/or less consistent since they’re temporary. Not to mention the hassle that you have to face every time you’re screening and trying to pick a new tenant for your rental property.
#3 The student lifestyle (to say so nicely)
Finally, some landlords claim that investing in student housing requires more work due to the occurrence of more wear and tear. This is due to the fact that students can be less responsible than longer term tenants or family tenants. The result is that a landlord may need to run more maintenance and is likely to incur higher costs because of it.
Of course, the above is a generalization about students and is not necessarily true in all cases. But just to be on the safe side, when you invest in student housing, make sure you go through a thorough screening process for tenants. Moreover, it’s important to set your property policies/rules forward and communicate them to your tenant(s). You can also consider working with local colleges’ off-campus housing departments for easier planning for tenants. Colleges can get you on their lists and may even facilitate the lease between you and your tenant.
If you’re about to invest in student housing, consider the following college cities/towns
Because location always matters, take a look at five of the top college towns and/or cities according to Mashvisor’s data.
- Baltimore, Maryland
- Philadelphia, Pennsylvania
- Atlanta, Georgia
- Nashville, Tennessee
- St. Louis, Missouri
We’ve chosen the above cities based on multiple real estate indicators including cap rate, cash on cash return, average rental income, occupancy rate, among others. To see the full list of cities with detailed data and a breakdown of each city’s analysis, check out this blog.
To start looking for and analyzing the best investment properties for the top student housing investments in the city and neighborhood of your choice, click here.
So should you invest in student housing after all?
That’s a resounding yes! Investing in student housing is a great way to make money in real estate. With a steady and increasing demand for student housing nationwide, how is it not? However, you should plan around the summer months to make sure you’re making the most out of your investment. Finally, make sure to set the policies straight to avoid any possible problems with your student tenants.
Related: Student Housing May Be a Better Real Estate Investment Than Expected