Want to Invest in Real Estate? Consider Off-Campus Student Housing

Student housing is a growing market, but can you handle the broken doors and smell of stale beer?

U.S. News & World Report

Want to Invest in Real Estate? Consider Off-Campus Student Housing

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If you’ve been considering delving into the world of real estate investment for a while, you know there are a dozen different ways to get involved. You could flip homes, be a silent partner in a rental property, own and manage an apartment building or even list a spare room on Airbnb.

But there’s another niche market you may not have considered. If you’re located close to a college, tapping into the off-campus student housing market could prove extremely fruitful. In December, commercial real estate services company CBRE reported investors were on course to purchase a total of $4.5 billion in student housing in 2015, according to National Real Estate Investor.

The ever-replenishing tenant base of students surrounding college campuses is alluring to many landlords, who can enjoy the benefits of students rushing to secure limited housing options.

While year-to-year numbers may vary, the number of people enrolling in higher education continues to rise, driving up demand for housing options and ensuring landlords will have a stable base of renters far into the future. The National Center for Education Statistics predicts college enrollment in the U.S. will reach 19.8 million students by 2025, an increase of 14 percent from its 2014 enrollment of 17.3 million.

While the expectations for increased student housing demand are promising for a fruitful career as a landlord to college kids, you'll still have to work hard and may be burned by factors out of your control. Neil Rubler, president and CEO of Candlebrook Properties and Letter9, a management company for student housing across the U.S., says the assumption many people have that student housing is immune to economic slumps is dangerous.

“I shudder a little bit when people use phrases like ‘recession-proof’ because that’s not true [about student housing]. Certainly, when there are recessions, it puts strains on kids’ or their families’ ability to pay for college or pay for housing, private housing at college or pay for luxury private housing at college,” Rubler says.

Outside of the economic factors you must consider, there is a whole new set of obstacles unique to off-campus student housing. Renter turnover year after year is far more common as students graduate or choose to live with different roommates. And we’ve all heard about, witnessed or been the college kid that didn’t mind trashing an apartment or house during a rager.

It takes a certain level of tolerance and persistence to succeed as a landlord for off-campus student housing, and Rubler notes it's no part-time job. But those who are able to perfect the art see low vacancy rates, increasing rents and high returns.

To make a successful career as a student housing landlord, consider the following relationships, plus take into account the rental industry acumen you’ll need as a landlord.

The student. Unlike with conventional housing, your tenants in student housing will more often than not be renting for the first time, and often won’t be able to provide credit reports or other proof of reliability that you would otherwise be able to use when renting to professionals and families.

“Students often don’t have those kinds of background checks to provide because they’ve probably never been a tenant before,” says Laurie Snure, general manager at Places4Students.com, an off-campus student housing partner website.

To ensure payment of rent, Snure says you’ll often need to look to a parent or guardian to co-sign the lease, which helps to guarantee accountability for any potential property damage in addition to monthly rent.

Once those students become your tenants, Rubler says they’ll also likely need your guidance and patience as they figure out simple processes like handling utility bills, making minor repairs and understanding stipulations in the lease.

The parents. Because they frequently serve as the guarantor on a lease, you’ll often find yourself dealing with your student tenants' parents as well. And while their accountability makes for a more secure rental transaction, they can often create additional work for you.

“In a way, parents of kids in our properties view us as stewards of their kids’ safety and well-being when they’re away from home,” Rubler says. “I can’t tell you how many phone calls we get from parents saying, ‘Sally’s come down with a cold, can someone go up and check on her?’”

The college. As enrollment grows and demand for housing outnumbers what’s available on campus, many college administrations have begun providing resources for students to find off-campus housing.

As a nearby landlord, you’ll want to be sure you meet the school’s expectations, which may include pledging to provide safe, quality housing or registering through their housing office as a landlord to students to take advantage of the referral options they provide. Many universities partner with sites and services that list off-campus housing availability, like Places4Students.com, to give students a go-to source for reliable rental listings.

“We’re linked through the school’s website so that the student feels safe in knowing that these landlords that are listing with the service are definitely looking to rent to students,” Snure explains. If you’re able to verify your rental through the local college’s off-campus resources, you’re more likely to connect with a larger group of interested students.

The competition. Before you start buying up houses near campus, you should be well-versed in the local real estate market, the student housing market and what other landlords are offering. You’re not just competing with other landlords but on-campus housing, too.

Multifamily real estate information company Axiometrics expects more than 47,000 new beds (the measurement for student housing) to be added to the student housing market this year throughout the country.

Axiometrics analysts note universities themselves are acknowledging the competition with luxury off-campus apartments for students, leading schools to increase the quality of on-campus housing by adding amenities like fitness centers and special tenant events and creating more of an apartment atmosphere than the shared-bathroom, dorm-style classic to college life.

Your apartments or houses will have to remain competitive with what comes on the market, and in a shorter period of time, too. “The cycle of lease-up starts sometime usually around when they come back from Christmas vacation and does have a definitive end date in the fall when kids start classes,” Rubler says. If you’ve got vacancies by that time, chances are you’ll be incurring those costs yourself until the next school year.

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