Investing in student housing can be an excellent opportunity for commercial real estate investors. With the proper research, analysis, and due diligence, student housing properties can generate attractive returns and stable cash flow for the savvy investor.
This article will provide an overview of investing in student housing in 2023, discussing key market trends, the best college towns to invest in, and essential steps to successfully invest in student housing.
Why Invest in Student Housing?
Investing in student housing has several advantages, such as high demand, easier leasing, and price appreciation. Investing in neighborhoods closest to the college, downtown areas, and bustling nightlife hot spots will also help increase your odds of success.
Consistent Demand
Even though the COVID-19 pandemic saw a decline in transaction volumes, the student housing market bounced back, with volumes doubling in 2021. Although the market still has a bit further to go before returning to pre-pandemic levels, student housing is a resilient industry that can weather all obstacles.
Easy Leasing and Guaranteed Rent
Leasing is easier with student housing as tenants are consistent. Tenants often sign a lease before the school year begins, with most leases on a 12-month basis. Another plus is that students generally pay their rent on time or have a parental guarantor, making rent more guaranteed.
Price Appreciation
Student housing properties have a good chance for future price appreciation. You can profit by purchasing an affordable property, generating rental income, then selling when the timing aligns. Most student houses are in high-traffic areas, which also makes them more interesting to investors.
Challenges With Student Housing Investments
When renting out to college students, there are a few disadvantages to consider before investing in student housing. However, being aware of these disadvantages can work to your advantage and help you overcome them.
High Turnover
One downside to student housing is the students will not stay forever. Depending on their major, students may need a place to live for several years. However, they will graduate eventually or may need to terminate their lease early. This will mean you must advertise your rental property, line up new tenants, and screen applicants more than most properties.
Property Damage
About four out of ten students leave home and live independently for the first time when starting college. This new experience brings on responsibility. However, late-night parties and excessive drinking can cause issues with your tenants and the property. You may find yourself spending extra money to repair holes in walls, cabinets, and broken windows.
Hands-On Investment
While investing in student housing is a great way to generate income, it’s definitely not passive income. You will be responsible for regularly maintaining and monitoring unless you hire a property management company. These responsibilities include repairing broken appliances, handling noise complaints, and dealing with tenant conflicts.
Investing in Student Housing: Key Considerations
When evaluating the best college towns for investing in student housing, investors should focus on several key metrics:
- Consider the student population size; a larger student population often indicates a higher demand for rental housing near campus.
- Look into the availability of affordable rental units close to campusInvestigate any zoning regulations and restrictions that may affect the ability to rent out off-campus housing near the college or university.
- Consider town amenities such as restaurants, bars, entertainment venues, parks, and public transportation options; these can play an important role in helping attract tenants to their properties.
By taking the time to research and analyze all of these factors, investors can make sound decisions when selecting college towns to invest in student housing.
5 Top College Towns for Student Housing
Gainesville, FL
Gainesville is the largest city in North Central Florida and is the principal city of the metropolitan area. Investing in student housing near the fourth-largest university in the country is a great way to obtain tenants consistently. Purchasing student housing real estate in Gainesville can potentially deliver big on investments as the county seat is also home to two popular art festivals, museums, and theaters.
Ithaca, NY
Ithaca is a city in the Finger Lakes region of New York, located about two hours from Syracuse and Rochester. It is home to Cornell University and Ithaca College. Students are looking for housing earlier each year for the following year (as early as August). As demand for off-campus student housing increases, so do your chances of generating a substantial income from your investment.
Pittsburgh, PA
Pittsburgh is a bustling city that attracts students, tourists, and locals, with more than 29 colleges/universities from which to choose. Students arrive from all over the world to attend schools such as the University of Pittsburgh, Duquesne University, and Carnegie Mellon University. Most students look for the most affordable accommodations, so if you need help finding a student housing real estate investment in Pittsburgh, try looking to the outskirts of the city to broaden your reach.
Iowa City, IA
The University of Iowa and Kirkwood Community College contribute to Iowa City‘s reputation as a college town. The population increases when school is in session, making the city worth considering for investing in student housing. In 2020, 30,428 students were enrolled in college, contributing a decent portion of the overall population of 173,000 people.
Chapel Hill, NC
With approximately 62,000 residents, Chapel Hill is the 17th-largest municipality in North Carolina and makes up one-third of the Research Triangle. The University of North Carolina at Chapel Hill has a huge presence in the town and economy, and is one of the oldest public universities in the US. A thriving art scene draws in future students, and several districts and buildings are on the National Register of Historic Places.
The Bottom Line
Investing in student housing presents an opportunity for commercial real estate investors to build wealth. Considering the increasing number of students and the high demand for rental properties, it can be a savvy investment strategy. However, there are some risks to consider, including property management, potential damages from students, and fluctuation in occupancy due to seasonal changes.
When choosing which college towns to target, research popular universities and their neighborhoods closely to identify areas with maximum demand and attractive returns. Although it’s not suitable for everyone, investing in student housing could be highly rewarding. Careful planning and research are essential to ensure that the investment meets your goals, so take the time to understand the market dynamics before making any decisions.
Ready to invest? Find your next student housing property on Crexi.
