Investors Eyeing Student Housing in 2019
The key stories of 2017 and 2018 had to be rising interest rates and housing prices. And when rates rose quickly, real estate investors backed out of the housing markets.
One of those housing markets vacated temporarily was student housing. This is a multi-billion dollar rental income market and in fact, investors poured $10 Billion into student housing ventures in 2018 alone. Yet, investment slowed quickly as interest rates climbed late in 2018.
Global investment in student housing hit $16 globally according to one report. Clearly student housing is a thing for property managers.
Student Housing Cap Rates Compressing
Today, student housing properties have become so popular that prices are climbing near that of regular apartments. And there’s a luxury sector that few know about. And one interesting thing that makes students housing so unique is that often, you count beds not doors.
A good case inpoint is Capstone Cottages, a 969 bed community in Lubbock Texas which only has 216 units. These new resorts for students are rising in number across the US.
“Student housing yields are still very attractive,” says Baird. “Cap rates are very close to multifamily, but the strength of the asset class going into and during a downturn gives it a leg up on multifamily for long term investors.” from a report in the National Real Estate Investor.
However, student housing continues to attract new investors. “We expect the number of investors targeting student housing as an asset class to further grow in 2019,” says Fred Pierce, president and CEO of Pierce Education Properties – Nreionline
This is an interesting sector where developers have big imaginations as you saw in the video. However, it’s reported that cap rates are compressing and moving closer to those of regular apartments. Higher maintenance and vacancy costs can make profit margins even tighter. That makes a higher cap rate necessary.
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Who is Looking at Student Housing Assets?
Often big investors want diversity in their holdings, so they add some student properties. It’s suggested that there are potentially billions more in funds sitting on the sidelines ready to be brought in when conditions get just right.
As a hedge against recession, student housing offers consistent rental income. A recession often increases the numbers of people attending post-secondary schools.
They’re actually not a bad choice for small investors looking to rent out a less elegant property. When 4 to 5 students occupy a house, the total rent payable is noteworthy. With wealthy foreign student influx and the general growth in US students, in the midst of a housing shortage, student housing units can be lucrative. The same is happening in Vancouver and Toronto, Canada.
Has All the Opportunity Already Disappeared?
Adding to demand is the fact that many universities are dropping their dormatories. This has contributed to more demand for off campus housing. One more factor is aging student housing stock. Much of it was built ten to twenty five years ago.
The key to buying student housing is location. Properties in proximity to several colleges and universities will see much more demand and lower vacancy. Getting properties right next to a major university is a guarantee of best performance.
To optimize your financial performance, you’lll certainly want to be using property management software that enables online payment. You’ll have enough on your hands managing studetns without chasing rent.
One thing to remember however, is that you’re most often renting to the parents, not the students, so your rent is pretty assured.
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