Firms like Nelson Partners and others have carved out a niche investing in student housing throughout the country. But is it a good investment for the casual investor? We’ll examine some strategies for getting in on the action.
What is Student Housing?
Student housing also referred to as “college dormitories” or “student apartments,” houses students during the school year. These structures are usually more modern, offering amenities that appeal to college-aged tenants, such as onsite laundry facilities, tanning beds, and lounges with flat screen televisions.
What is the Investment Opportunity?
When it comes to profits, investing in student housing has some appeal compared to other investments such as stocks and bonds. The problem with those markets is that they move on a daily basis. If you buy or sell an investment today, chances are you’ll see a profit tomorrow — and vice versa. With student housing, the numbers are more predictable. At the end of a school year, you know how many students will be vacating their rooms and heading home for the summer. You also know that new students will need to move in around August or September. Depending on which state your student housing is located (i.e., universities in California operate differently than colleges in the north), you’ll also know how much your tenants will be paying for rent.
What’s the Downside?
The downside to student housing is that it is very similar to owning a Class C apartment building — with one major difference: you can’t raise rents as easily. If you own an apartment complex that houses low-income families, you can raise the rent as high as market conditions allow. Rising rents will only push tenants out the door and into other buildings with student housing.
What should you look for?
You’re looking at a solid investment if:
1. The location is great — think campus-centric
If students have to leave campus to get to class, they’re less likely to live at your building. If they’re right there on campus and it’s not too far from the cafeteria or the library, you’ve got a winner.
2. The school is large enough that you don’t have vacancy problems
If you invest in student housing for a small local college and every student moves out simultaneously, you could find yourself with an empty building. This is why it’s important to invest in student housing for big universities that have students spread out over several semesters.
3. You’ve got low-maintenance tenants
You’re not going to make any money if all your tenants are hardly ever home and you have to spend your weekends cleaning up from last night’s party. The ideal tenants are those who stay at school all year long. You can also consider investing in student housing for graduate students because they’re more likely to live on campus longer than freshmen who move out after their first semester (even though you’ll only get paid every six months, not four).
Investing in student housing is a good way to diversify your portfolio. You can’t go wrong with low-maintenance tenants who pay on time every month. When you compare that with the stock market, which is always moving up and down, it’s easy to see how student housing could be one of the best investments of our lifetime.