Student housing rentals can be one of the most profitable niches of buy and hold real estate around. Now, what I mean by student housing is houses and apartments nearby a university that are rented primarily to its students. They come with a few major advantages and, of course, a few disadvantages as well.
Advantages of Student Housing Rentals
You can get higher rents
The same home can rent for substantially more to college students than it can to a family or other individuals, because 1) college students place a high premium on being near their university, whereas families are generally less specific about location, and 2) student housing is usually based off rent/bedroom and it’s often not that hard to add bedrooms.
Almost Guaranteed Rents
You will find economic occupancy extremely high on student rentals, about 99 percent. First, you have a built-in tenant base, which makes marketing easier. Then to help these students pay their rent, there are student loans. The main reason economic occupancy is so high is that you can require a co-signer for each student, and so we have their parents to back the lease.
Disadvantages of Student Housing Rentals
Sometimes you can get two or maybe even three years out of a tenant. But usually, you will need to turn over the property each year.
College Students Are College Students
You won’t believe this, but college students can actually be pretty destructive to a house or apartment.
Things you should know before you consider investing in student housing rentals.
- Understand the university
You want to make sure your economic anchor is stable, and that enrollment is consistent year after year, decade after decade. You also want to look at how economic cycles have affected enrollment historically.
- Understand the property
How did the property perform during the Great Recession? Were they able to raise the rent? Were they able to keep the building full? Basically, were they able to remain stable in tough times?
- Understand the competition
Evaluate the competition. You need to make sure that the other properties that you are competing with are doing well, too. You don’t want to be in a market where your competitors are making concessions or giving discounts.
- Understand the area
There’s typically not a whole lot of land within walking distance of campus. So, if you’re able to find a property that is well-located and well-positioned within a couple of blocks of campus, that’s a gold mine.
- Understand your target market
Your target market will help you determine what kinds of amenities and activities you should include in the property and which kind of students are going to pay the highest premium to live there.
- Understand the cap rate
What a lot of people don’t know about commercial real estate is the primary tool used to evaluate a certain piece of property. The cap rate is determined by dividing the net operating income (NOI) by the property sales price. This will help you evaluate the potential for growth of the property.
- Understand expenses
If you have a property right next to a major university, in many cases the university offers great amenities. Things such as a union center, pools, and exercise facilities are on most major campuses today, and that means you don’t have to spend the money on them. That means your square footage is nearly 100 percent revenue-producing.
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