Real Estate

Student housing is very lucrative—and in dire shortage.

Depending on the college, students across the country looking to stay in school have recently found themselves zooming in on classes from luxury hotels, trailers, friends’ couches, or their parents’ homes. That’s because available student housing is becoming as rare as a full-ride acceptance letter to an Ivy League university.

Massive investment opportunity

The shortage has created a huge opportunity for private developers and landlords, who know that housing doesn’t have to be paid for out of pocket but can also be taken out with student loans that cover tuition and food. do

gave The Wall Street Journal reported that in expensive cities like Austin, Texas, a simple off-campus room with no natural light in a four-bedroom house fetches as much as $1,300 a month. Taking this The median list sale price in Austin in February 2024 was $499,000.Even with high interest rates, Student accommodation It is one of the most profitable sectors for landlords.

Away from high-cost private universities, student housing is still at a premium, with the median rent at the 70 largest public universities at $801 per month, according to Moody’s Analytics. The Wall Street Journall To put things in perspective, large public universities had fewer than 613,000 beds in 2023 with an undergraduate population of 1.8 million.

Off-campus rents are on the rise.

Data from Zillow So dangerous. It shows that off-campus rent averaged $2,062 a month in 2023, up 28 percent from $1,614 at the start of 2021. While the numbers are average for apartments and single-family homes, upward rent momentum and a shortage of student housing have made up for it. It is impossible for some students to attend. Complicating matters are the rising cost of construction materials, slowing the construction process as universities begin to accommodate students.

“If you look across the country, many schools are dealing with this challenge of building fast enough, building adequately,” said Bill Matera, Texas State’s director of housing and residential life. NPR.

Colleges are getting frustrated.

The situation has become so dire that some universities have actually paid students to take a semester off. On Middlebury CollegeAdministrators at an elite liberal arts school in Vermont took an unprecedented step $10,000 offered to upper level students To take a voluntary leave of absence for the fall and winter terms of 2023-24 due to post-campus housing squeeze, where all students are expected to live.

Students from the University of Tennessee at Knoxville were housed at a nearby Holiday Inn, while 23 students from the College of the Redwoods, a public community college in Humboldt County in northern California, were 6.5 miles away. Stayed at Bear River Casino & Resort in the south. College

A viable alternative to short-term rentals

In the current environment of high interest rates, student housing can be a viable alternative for investors who are concerned about the long-term viability of short-term rentals. Stricter rules for guests staying in cities for less than 30 days. For parents, this can be a win-win: they can secure housing for their children while charging other students in rent for the property. In the process, they are imparting an invaluable lesson to their child. land lord And potentially whet their appetite for their own investment journey while underwriting.

Student housing also attracts deep-pocketed investors, making it affordable. Syndicators Looking for ways to maximize ROIs and future proof their investments.

Where is the capital going? Commercial real estate place?” said CoStar analyst Chad Littell The Wall Street Journal. “This is followed by rent increases, and student housing is showing some of the strongest rent increases.”

Things to consider when investing in student housing

You’re not alone if you’re excited about high cap rates but dread the college parties and trashy apartments in your student housing. However, landlords have some built-in safeguards in the current college housing crisis.

Benefits of owning student accommodation

Here are five reasons why investing in student housing can be a positive.

1. Guaranteed Tenant: The lack of student housing means that most landlords have a built-in pool of tenants, which guarantees rent for the academic year — and possibly for the entire year when students move in for the following year. Want to protect the home, even if they are not physically there. Summer Furthermore, a student’s eviction carries much more weight than it does for a regular tenant. Students don’t want to jeopardize their education by not paying rent or throwing wild parties. Moreover, if they are studying full-time, finding somewhere else mid-term, even with financial support from their parents, will be difficult.

2. Fares are higher than normal fares: Students often rent by the room, which means the rent is inflated compared to normal rental prices.

3. Parental Guarantees: Adding a parental guarantee to the lease not only secures your rental, but also covers the cost of damages if a college party gets out of hand.

4. Solid Long Term Investments: Investing in a college town That means hitching your wagon to the continued success of the city’s university. Choose well with an established, prestigious university, and you could be baking. Racial wealth For your investment.

5. Ability to charge for extras: Student rent allows landlords to charge for extras like parking, high-speed Internet, in-unit laundry, parking, and storage.

Disadvantages of student accommodation

At the same time, student housing investors should be aware of these four potential pitfalls.

1. More business: Just as with short- and medium-term rentals, student housing needs to have a systematic approach to tenant screening, lease renewals, repairs and cleaning to minimize vacancies or complaints.

2. Immaturity can lead to bad decisions: Renting to 18- to 22-year-olds, many of whom have never lived away from home before, can lead to unruly behavior, damage to your property or result in missed rent. Is. Thus, careful screening, communication with parents, and parental guarantees on lease are essential. It’s important to have a professional exterminate party animals to ensure your home is in good hands. This may include checking social media accounts and having individual leases for each student, so if someone fails to pay, responsible students can be placed without risking their status and losing their entire rent. Evicting is easy.

3. Maintenance: Workforce housing or mid-term rentals often have staff coming in weekly or monthly to make repairs inside the residence and clean public areas. This is an additional expense for the homeowner, but it is a good way to monitor the property while ensuring that trash does not accumulate.

4. Misuse of house and equipment: As a landlord, you want to make it as difficult to damage your rental as possible. This means using vinyl flooring instead of carpet, installing refrigerators without external ice dispensers (which prevents ice from accumulating on the floor), using only induction cooktops (to avoid fires) and less Using maintenance hardscape and artificial turf to minimize voids.

Final thoughts

Real estate investing is all about maximizing cash flow while minimizing risk. In this regard, student accommodation is hard to beat.

The built-in market does not depend on the economy of the city. In this the parent guarantees the rent and has the ability to borrow to cover the cost if the parent cannot. In addition, the lack of student housing has served as additional insulation against bad behavior, low rent, and damaged property.

However, with low inventory, finding student housing is difficult and expensive. This is not a get-rich-quick scheme but a long-term hold that will pay off for decades to come.

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Note via BiggerPockets: These are the opinions expressed by the author and do not necessarily represent the opinions of BiggerPockets.

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