Hesitance is typical, even healthy, when determining an investment. A degree of skepticism over “emerging market trends” and “foolproof money-making methods” is essential to maintaining a realistic perspective in any industry. Pragmatism is the prerequisite for successful real estate investments.
On the subject of student housing investments, that statement holds true. Real estate investors have to approach this mostly untapped sector with a sense of practicality and caution, taking all potential risks into account before they reach a decision. That said, there are considerable benefits.
In this article, we’ll detail both risks and rewards, offering an in-depth overview of student housing as an investment opportunity. In a thorough analysis of the advantages, disadvantages, and projected growth of the student housing investment sector, we’ll reach an informed conclusion on its value.
Advantages of Student Housing Investments
In an unpredictable market, student housing offers stability. Investors can always find tenants for their properties, with new students arriving on campus year after year. With a high demand for available rental units, vacancies are rarely a problem during the semester — even in periods of economic uncertainty.
For investors nervous over the possibility of another recession, the student housing sector offers solid ground in turbulent times. The status of the economy doesn’t necessarily hurt enrollment, and may even help, with fewer employment opportunities spurring students to pursue higher education.
In addition to stability, students are often more amenable to renewing their lease. They usually know if they’re going to attend college the following year, and this will significantly contribute to their final decision. A student housing investment is reliable in several ways, and the potential for profit is clear.
That is especially the case with rental rates. In a college town with a disproportionate population and inventory, there’s higher demand for housing. Investors can capitalize on this, charging more money per square foot with the expectation a tenant will have roommates, and they can share the cost.
Plus, off-campus rentals continue to be more attractive options than expensive on-campus residence halls. The average student graduates with about $30K in student loans, meaning debt-burdened students are keen to cut costs on room and board. This lack of competition with campus housing can be a motivator for real estate investors to research this promising sector and determine its viability for themselves.
Disadvantages of Student Housing Investments
College students don’t have a reputation for their respectful attitude toward property. In college towns with a large population of young people, vandalism is commonplace. On Friday, Saturday, Sunday and even Monday nights, it’s not rare to find a junior drunkenly wrenching a stop sign from the concrete.
This party lifestyle adversely affects the condition of student housing properties. In areas with a high density of fraternities and sororities, destruction comes with the territory. Investors should factor maintenance costs into their preliminary calculations before moving forward with their plans.
Student housing also encounters a problem with consistency. While those who invest can expect interested tenants to arrive at regular intervals, they can also expect less attention in the off-season. Fewer students are present during the summer, reducing the number of individuals searching for a unit.
And lastly, student housing isn’t a passive investment. With the loud and crowded nature of college towns, there are often disputes and arguments, resulting in a higher percentage of tenants breaking their lease. This increased volatility can lead to unpredictable vacancies and damage control.
In consideration of the benefits of an investment in student housing, however, these drawbacks aren’t nearly as significant. But a smart real estate investor should still consider every variable as they move through the process. While no sector is perfect, student housing is better than many.
Growth in the Student Housing Sector
Developers have completed many new projects in and around college towns, and they’ve planned for many more — building close to 50,000 new student housing beds every year since 2015. The sector’s growth is constant, with numbers regularly meeting and exceeding the expectations of investors.
And more than that, there’s still room to grow. Many college students occupy rental houses or dormitories near campus that weren’t designed for their demographic. Most would prefer housing that suits their specific needs, but purpose-built student housing is in short supply, and there isn’t enough.
All the while, predictions show a lift in enrollment at four-year public universities. Moving into 2019, analysts expect it to increase, to peak around 2020 and 2021. All indicators point toward the potential of the student housing sector for savvy real estate investors, both now and in the next few years.
The Takeaway for Investors
Real estate investment is not a simple science. Investors know to take great care with unfamiliar sectors, and their initial research is essential to decision-making. But time and time again, student housing investments have proven rewarding, with a high likelihood of profitability in the years to come.
With the available data, the student housing sector shows undeniable promise.
This article has been contributed by Holly Welles from The Estate Update.