Guide to Investing in Student Housing

Every summer, nearly 4 million students graduate high school and over half of them go to college. Many of those students attend colleges and universities far from their parents’ homes, meaning if they’re not living on campus, they need a place to stay. In fact, over 8% of the entire rental population is college students. College enrollments are projected to continue rising, making student property investment a lucrative proposition.

Have you ever considered investing in student housing? If so, read this guide to learn more about the pros and cons of student property investment and how to invest in student housing.

Why is student housing a good investment?

There aren’t too many “products” on the market with such a well-built, already-there target market as student housing. Some of the advantages of student property investment include:

  • Very little marketing. A college town is typically a vibrant community with chic galleries, dining establishments, shops, and eclectic nightlife. These towns tend to score high in walkability. Student housing in a college town practically sells itself, so you won’t need a huge marketing budget.
  • Always potential renters. New graduates head off to school each year and need a place to call home. In addition to students, new college faculty members also need housing. You’ll virtually never run out of applicants for your student housing properties.
  • High cash flow potential. Student housing is always in high demand, so you can charge the going rate for rent in the area. Plus, properties you own that aren’t occupied won’t stay that way for long—student housing enjoys high occupancy rates, especially if it’s within a mile or two of campus.
  • Low vacancies. Your student rental properties will get snapped up soon after you place them on the market and, once rented, tend to stay rented. Even over the summer, many students choose to stay, whether for summer sessions, work responsibilities, or other reasons.

Okay—so these are great reasons to invest in student housing. But there’s always a flip side. What are some of the drawbacks of student property investments?

  • Property damage. Students in college tend to be irresponsible at times. It’s their first time living on their own, so the responsibility of managing a home hasn’t been learned yet or given the priority it requires. College students like to party, and your rentals could suffer damage. You might end up spending a lot of money to repair windows, walls, and other items.
  • Tenant turnover. Best case scenario, you rent to a student for all four years of college. Worst case scenario, the student drops out after a semester—when all the other students who needed housing have already found a place to stay. Continuously advertising a student rental investment, screening potential tenants, and preparing the home for a new renter can take up a lot of your time and money.
  • Definitely not passive income. Some investors like to be hands-off and have their money work for them to generate passive income—student property investments are not this. Student housing requires constant monitoring and maintenance. You’ll probably have more than a few noise or disturbance complaints, tenant conflicts, or broken household appliances to deal with, assuming you decide to manage your own properties.

If these student property investment drawbacks aren’t deal-breakers for you, here’s everything you need to know about how to make the first step.

How to get started in student property investments

Here are the steps to take to start investing in student housing:

Location, location, location

Real estate is always about location, and it’s no different for student housing—especially if profits are what you’re after. First, find the best city for college students. Think about the average food prices, median housing costs, and job and social opportunities.

Once you’ve chosen a city, you need to find the perfect neighborhood. If you can’t find property near the college, look for student property investments located along public bus lines. Also, look for other typical student amenities, such as a library, restaurants, and shopping centers. Reach out to a local realtor if you don’t know the area well.

Find a property to invest in

The types of properties perfect for student housing include apartments, duplexes, and even single-family homes with multiple bedrooms. The most important aspect to consider is which properties stand to earn you the most return on your investment. When evaluating a property, consider:

  • Amount of rent you could charge in that neighborhood
  • Typical student occupancy rates in the area
  • Average cash flow you can generate

Choose how you’ll finance the purchase

For student property investments, you have several options for financing. What option you choose depends on the type of property you decide to buy and your current financial status. Some of the most popular financing programs for student property investments include:

  • Traditional bank loan
  • Freddie Mac
  • Fannie Mae
  • Commercial mortgage-backed security

Before you sign the dotted line on a mortgage application, though, be sure to consider the property’s closing costs and how much cash you might need for renovations.

Decide property management terms

Here, you basically have two options:

  • You can manage your student property investment yourself.
  • You can hire a property management company.

Managing a property yourself means you’ll be much more hands-on, but you’ll also know exactly what’s going on in your rentals. On the other hand, hiring a property management company is an option if you’re looking for a more passive income generation method—albeit an added expense. That way, you won’t have to perform any repairs, screen potential tenants, or handle any probable complaints. You can continue your current career without having to devote any spare time to your investment properties.

Whichever option you choose depends on how much time you plan to devote to your rentals and whether the extra expense of property managers is in your budget.

Market your student housing

Once you’ve invested in student housing, you need to market your rental attractively. You can put up flyers in shops around campus, hand out brochures to students, and even take out ads in the college newspaper or online publications. Your property management company covers this step if you choose to hire one. Once you establish a group of students in your rental, they will often start to market on your behalf once they move out if they enjoyed living there.

Student housing is a good investment

As with all investments, student property investments have both pros and cons. Carefully weigh your personal risks before you decide. Invest with Ark7 and we’ll take the guesswork and the hassle out of student rental properties.

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