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Investing in Student Housing: What You Should Know

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University and college enrollments in the U.S. increased by 17 percent from 2003 to 2017 (16.9 million versus 19.8 million). But there’s a big problem: there just isn’t enough affordable housing for students out there, with some 20% of students struggling to find stable housing.

Many real estate experts will tell you that student housing is a recession-proof investment. And with the severe lack of supply, it’s clear that there’s a lot of untapped potential for landlords. One study shows that the student housing market is projected to grow from 8.5 million beds in 2020, to 9.2 million by 2031.

Could student rentals be a hidden opportunity for your investment portfolio? Read about student housing, its advantages and challenges, and some tips on getting started to help you determine if this is a good investment for you.

What Is Student Housing?

Student housing is a type of rental accommodation that caters to the needs and lifestyles of students in colleges or universities. Unlike on-campus housing, off-campus rentals give student tenants benefits such as more space and independence, usually at a more affordable cost.

Investing in student housing rentals can be a strategic move for a landlord. As each academic year begins, a fresh wave of students are always looking for housing, and you’ll have plenty of prospective tenants. Vacancy rates can be lower, and depending on the type of rental that you’re offering, may even be able to maximize rental income by charging per room.

Concerned that students will party non-stop or trash your rental? Investor Ryan Chaw writes in Bigger Pockets that this may not be as common as you might think. “Over the last five years of investing in this market, I haven’t had to keep anybody’s security deposit due to home damage from a wild party or any other event. And I have 17 to 18 tenants per year.” Chaw says.

However, some aspects set student housing apart from other types of rental investments. Like any other market, students have unique characteristics and requirements. Leases typically last a year, aligning with the academic calendar, leaving a few potentially empty months for your unit.

Successful investment in this niche also involves building a rapport with nearby educational institutions and monitoring the specific needs and preferences of the local student population. If you want to thrive in this market, you need to understand its nuances.

Benefits of Investing in Student Housing Rental

Now, let’s see how student housing rentals can benefit rental investors. Here’s a rundown of its advantages:

  • Steady Demand Each Year: The continuous enrollment of students at universities and colleges ensures a consistent pool of potential tenants. Unlike other rental markets, student housing demand is less influenced by the broader housing market trends, as the need for student accommodation remains relatively constant every year. 

  • Potentially Higher Rental Yields: Renting out individual rooms can significantly increase your rental income. For example, a four-bedroom house rented to individual students might generate more total rent than if it were rented to a single family. This room-by-room strategy maximizes the revenue potential of the property.

  • Recession Resilience: Education sectors typically remain stable or grow during economic downturns, as people often seek to improve their qualifications in challenging job markets. This trend could make student housing, in some cases, a safer bet then other real estate investments during economic slumps.

  • Portfolio Diversification: Including student housing in your portfolio can help to reduce risk. The student rental market behaves differently than traditional residential markets, providing a hedge against market fluctuations in other real estate sectors.

  • Opportunity for Extra Income: Student housing has unique opportunities for adding value. Simple improvements like high-speed internet, modern furniture, or communal study areas can significantly increase a property’s appeal to students, allowing you to justify higher rents.

Looking for ways to grow your rental income? Check out How to Maximize Your Rental’s Profit Potential.

  • Long-Term Growth Prospects: Universities and colleges are generally long-standing institutions. The surrounding area can offer long-term growth potential in terms of property value appreciation.

  • Built-In Resale Market: When it’s time to sell, properties near educational institutions already have a built-in market. There is usually a consistent interest in such locations, making these properties potentially easier to sell.

Challenges of Owning Student Housing Property

There are several challenges investors need to watch out for when investing in the student housing rental market. Being aware of these potential pitfalls and preparing for them allows you to make an informed decision and increase the likelihood of your investment’s success.

Investors should consider challenges like:

  • High Tenant Turnover: Student housing typically experiences a higher turnover rate than traditional rentals. With most leases aligning with the academic calendar, you’ll face annual, if not semester-wise, tenant turnover. You’ll need a system for marketing, tenant screening, and property preparation, which can be time-consuming and costly if not managed efficiently.

Related reading: Handling Tenant Turnover Efficiently.

  • Increased Wear and Tear: Students may not always be the most careful tenants. Properties might experience more wear and tear due to the younger, less experienced tenant base. You might find more frequent maintenance and repair issues with student housing than with other rental properties.

  • Seasonal Vacancies: Many student rentals face a unique challenge with summer vacancies. To mitigate this, some landlords offer short-term summer leases or adjust their rental model to accommodate young professionals or interns during the summer months.

  • Management Intensity: Student rentals require more active management. Issues range from handling late-night noise complaints to mediating roommate disputes and ensuring timely rent collection. Hiring a skilled property manager familiar with the student market can alleviate much of this burden, but it does add to the operating costs.

  • Sensitivity to University Enrollment Trends: The success of student housing investments is closely tied to the enrollment rates of nearby institutions. A drop in enrollment can lead to decreased demand for housing, affecting your rental income. You should stay informed about the university’s growth plans, admission trends, and popularity of courses, as these factors can influence student numbers.

  • Market Saturation and Competition: In popular university towns, the market can become saturated with student housing options, leading to fierce competition. This situation requires you to differentiate your property through better amenities, competitive pricing, or superior management. Keeping an eye on market trends and understanding what students value in their housing can help you stay competitive.

  • Location Dependency: The success of a student housing investment heavily depends on its location. Properties must be conveniently located near campuses or well-connected by public transport. However, prime location often comes at a higher cost.

We’ve got tips on How to Invest If You’re in an Expensive Market

  • Economic and Policy Changes: Changes in economic conditions or educational policies can impact student housing markets. For example, increases in tuition fees might lead to decreased enrollment, or a shift towards online learning could reduce the need for on-campus accommodations. Policy changes related to student visas can also affect international student numbers, affecting demand for housing in areas with many international students.

  • Diverse Tenant Expectations: Modern students often have high expectations for their living conditions, including fast internet, modern amenities, and environmentally friendly spaces. Meeting these expectations means you might overstretch your investment budget.

Start Investing in Student Rentals: 9 Tips for Success

If you’re considering turning your single-family rental into a student rental, here are some things to get you started on the right foot.

1. Do Your Homework: Like any good student, start with research. Understand the dynamics of the local student market. What are the enrollment trends at nearby universities or colleges? What kind of housing do students prefer? This kind of information is gold in shaping your investment strategy.

2. Location, Location, Location: Properties near the campus, preferably within walking or biking distance, are prime. But don’t stop at proximity to schools. Consider safety, access to public transport, and nearby amenities like cafes, libraries, and grocery stores.

3. Budget Wisely: Be clear about your budget, including the purchase price, potential renovation costs, and ongoing maintenance. Remember, students aren’t always the gentlest tenants, so add a little extra for wear and tear.

4. Understand the Legal Landscape: Understand local zoning laws, rental regulations, and licensing requirements. Each city or town can have its own set of rules, especially regarding rental properties. And don’t forget about tenant-landlord laws. Staying on the right side of legalities is essential.

5. Think About Management: Will you manage the property yourself or hire a property manager? If you’re new to this or if you’re planning to invest in multiple properties, a property manager experienced in student rentals can be a lifesaver. They’ll handle the day-to-day issues and keep things running smoothly.

6. Marketing Matters: Effective marketing is vital when it’s time to find tenants. Utilize online platforms popular among students and consider advertising directly with the university or college. Word-of-mouth can also be powerful, so keeping your current tenants happy can lead to referrals.

7. Prepare for Turnover: Student housing typically has higher turnover rates. Be ready for this with a system for efficiently preparing the property for new tenants. This might mean scheduling maintenance and cleaning promptly at the end of each lease term.

8. Screen Wisely: Meticulous tenant screening is one foundation for a smooth student rental journey. Unlike traditional rentals, your target demographic might not have a long credit history or rental experience. However, this doesn’t mean you should skip this step. Instead, adapt your screening process. 

Ask for a co-signer, typically a parent or guardian, to back the lease. This adds an extra layer of security and ensures that rent will be paid on time. If they have experience as a tenant, consider requiring references from previous landlords or dormitory supervisors to gauge the potential tenant’s reliability. By running your applicants through a thorough tenant screening process, you’ll likely reduce issues related to property damage and late payments.

9. Understand the Needs and Preferences of Student Tenants

And last but not least, landlords should understand and cater to the unique needs of students. These include:

  • Affordable Rent: Students typically have limited budgets, so affordable housing options are crucial. Pricing your rentals competitively while maintaining profitability is critical.

  • Suitable Living Conditions: Students often look for housing that caters to their specific lifestyle. This includes reliable Wi-Fi, study areas, low-maintenance living, and possibly furnished units. Understanding these needs can help make your property more attractive to this demographic.

  • Flexible Lease Terms: Many students prefer leasing terms that align with the academic calendar. Offering 9 or 10-month leases, as opposed to the standard 12-month lease, can make your property more appealing to student tenants.

The words “recession-proof investment” may be music to an investor’s ears, but remember that success in this market requires understanding the unique challenges and opportunities it presents. Of course, aside from your potential to earn a stable rental income each year, there’s another benefit to student rentals: you’ll get to play a pivotal role in supporting the next generation on their academic journeys.

Renters Warehouse is America’s full-service property management and investment services company for single-family rentals (SFR). Check out our Investor Marketplace for available homes in your area and start your rental investment journey today.

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