Student Housing: A Thriving Investment Opportunity

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Student housing presents a compelling and unique investment opportunity within the multifamily housing sector. Our foray into this niche market was serendipitous, starting in the early 2000s when we stumbled upon a 70-unit property near the University of Illinois. This venture quickly expanded, making our firm the largest off-campus landlord at several universities across seven states.

The Upside of Student Housing

Investing in student housing can yield high returns with minimal risk, provided the strategy is executed thoughtfully. Properties in prime locations near major universities are highly likely to appreciate. According to Coldwell Banker Commercial, the student housing market is projected to reach $14 billion by 2027, indicating robust growth. RealPage reported that students at 175 universities had leased 84.5 percent of the available beds for the 2024 fall semester by June.

Operators benefit from pre-leasing properties before the academic year begins, ensuring a stable annual rent base. Despite a slight softening, rent growth continues at 4.4 percent, demonstrating the ongoing demand for student housing, especially at larger universities in less urban areas.

Off-campus properties tend to lease quickly and generate premium rental rates. The predictability of high occupancy rates, coupled with consistent rent growth, makes student housing a reliable investment.

The Challenges of Student Housing

Investing in student housing also comes with its share of challenges. Students, often first-time renters, require more guidance and attention. This begins with the hectic move-in period in August, where operators must prepare units for simultaneous arrivals, akin to a hotel hosting a large convention.

Additionally, student renters can be more demanding, necessitating higher security deposits and more frequent maintenance. The need to replace carpets and repaint units annually requires meticulous budgeting and upkeep.

Long-term considerations include monitoring population trends, rising tuition costs, and alternatives to traditional four-year degrees. Declining college enrollment, particularly among men, and the potential "enrollment cliff" as noted by the Chronicle of Higher Education, could significantly impact the future of student housing investments.

Getting Started in Student Housing

For those intrigued by the prospects of student housing investments, here are some steps to consider:

1. Choose the Right Location: Focus on larger universities in less urban areas with high application numbers and growing freshman classes. Properties within a mile of campus are typically more desirable, although out-of-town properties can attract graduate students.
2. Understand Your Renter Pool: Students require more assistance than traditional renters. Providing video tutorials about the move-in process, property features, and lease terms can help manage expectations. Communication with both students and their parents, who often guarantee the lease, is crucial.
3. Embrace Online Solutions: Many students, especially those from out-of-state or international locations, rely on virtual tours to choose apartments. A robust online portal and app for managing communications, reporting issues, and paying rent can streamline operations.

Despite the inherent challenges, the fundamentals of student housing remain strong. With thoughtful investment strategies and a focus on prime locations, student housing can be a resilient and lucrative addition to an investment portfolio.