Seven Tips for Entering the Student Housing Market

Seven Tips for Entering the Student Housing Market
During the next decade, 80 million Echo Boomers will reach their 18th birthdays, and many will head off to college. Three demographic, sociological, and economic factors are coming together to create a “perfect storm” for investors who direct their dollars toward putting roofs over the heads of America’s college students. More young people are pursuing college educations than ever before. State budget deficits are causing a serious shortfall in university-owned housing. Someone is clearly going to make money from this convergence of trends—so why shouldn’t it be you? Before entering into the student housing arena, consider the following tips: 1. Make sure the property is located at a school that has a favorable low bed to student ratio. School-owned housing capacity is, on average nationwide, only 30.12 percent of the total enrolled student population. This means that almost 70 percent of college students must rely on housing alternatives, such as living with their parents, purchasing condos/ townhouses, or renting apartments or houses for a place to live while away at school. 2. Think public, not private. Here’s why: private universities tend to apply restrictive requirements on housing and, with a number of exceptions, sometimes even require students to live in the dorms for all four (or increasingly five) years of their higher education. 3. It is usually best to avoid schools in large cities. They probably have lots of part-time students and commuters who don’t need housing. The statistics for commuter school enrollment numbers can be large and misleading, while the number of university-owned dorm rooms is usually low. Experience shows that commuter schools make for poor private student housing investments. 4. The more new construction going on in a particular college town, the more cautious you should be in acquiring only well-located, close-to-campus, new stud-ent housing properties. Always be on the lookout for too much investment real estate in the student housing market. If there is too many student housing property opportunities in a particular college market—especially for an extended length of time—trouble is brewing. 5. Be sure your net operating income (NOI) projections make sense. 6. When a property is too “perfect,” it tends to attract multiple offers and a lot of overzealous, optimistic buyers who are willing to overpay. Don’t get so swept up in this buyer’s hysteria that you make an emotional, rather than rational, decision. 7. Never forget the discipline required to walk away from a deal that’s overpriced and doesn’t provide enough cash flow to cover expenses, contingency reserves, mortgage payments, and a reasonable return on the equity investment. —Michael H. Zaransky, Prime Property Investors