[REN #130] Off-Campus Student Housing Demand is Up

It’s a strong niche market for real estate investors and this market is expected to grow in the next five years. But as U.S. News and World Reports points out, you need to be able to handle “the broken door knobs and the smell of stale beer”.

If you are looking to buy property you can rent out, you might want to consider property near a college or university. You would have a higher turnover rate but tenants would be rushing back on a regular basis to find and secure limited student housing.

Many investors are already capitalizing on the opportunity. The National Real Estate Investor said in a report a few weeks ago, that investors have already acquired a huge volume of off-campus housing this year. And it says: “The busy buying season for student housing is just getting started.”

The blog says that investors usually update their off-campus student housing portfolios in the fall. That’s when many student leases expire. And this year, NREI says it appears that the there will be no shortage of students to fill all the new off-campus properties. The blog says early results for the fall season show that occupancy rates are expected to meet or exceed already high levels from last year.

NREI cites data from research firm Real Capital Analytics that shows investors have been busy buying up student housing during the first half of the year. During the 12 months ending in the second quarter of this year, the industry total for student housing was $8.4 “billion” dollars. And $5.7 billion dollars worth of those purchases occurred after January 1st. Total sales volume for the previous year was $5.4 “million” dollars.

Dorothy Jackman of real estate service firm “Colliers International” says of the market quote: “It’s frothy and it’s active.” She says the buying activity picks up in the fall because investors know more about next year’s operating income. And she says if the past is any indication, that: “the volume of transactions will rise even higher this fall.”

Jackman says that pre-leasing was strong. As of June, an average 83.4% of the properties were pre-leased. And the effective rent rate grew 2.3% through June. That’s higher than the 2% increase last year.

School enrollment is driving demand. The National Center for Education Statistics predicts that U.S. enrollment will hit 19.8 million by 2025. That’s a 14% increase from 2014.

To help meet the demand, Axiometrics reports that over the last four years, investors have provided 40,000 new students housing beds a year. And they expect to make another 47,000 available this fall. That’s less than the 60,000 beds that were added to the market three years ago but industry experts say the demand for student housing continues to grow.

Jackson says quote: “Everyone is reporting rent growth.” She says: “The picture is very bright.” She also says that low interest rates help keep this trend moving.

Of course, renting to students may be more labor intensive than other kinds of rental situations. As U.S. News and World Reports points out, it take a certain level of “tolerance and persistence” to succeed in this kind of rental market.

The turnover is much higher because students are graduating or deciding to live with different roommates. And there are plenty of stories about wild parties and students trashing homes as they rage on through the night.

U.S. News and World Reports outlines a few things that landlords need to take into consideration when renting to students.

  1. First and foremost, know that you are dealing with students — and that many students will be renting for the very first time. They won’t have any credit history or proof that they are reliable and responsible. That means landlords may need to ask parents to cosign a lease.
  2. And then there are the parents. They will probably want to be more involved, and that may require more work on the part of the landlord. It could mean phone calls, for example, from worried parents who want landlords to go check on their children.
  3. Landlords who provide student housing will also want to make sure they meet any university requirements for quality housing and safety. Universities will often promote off-campus housing through their student housing services but only if rentals meet their standards.
  4. You should also know who you are competing with before you start buying property. And remember that you are not just competing with other off-campus rentals but on-campus housing, as well.

Axiometrics provides some details on average rents and location of properties in relation to the universities they serve.

It says that nationally, the average rent per bed is $618 a month. That’s for this fall’s leasing season.

The effective rent growth rate, as I mentioned, is currently 2.3%. That rate is for properties located less than one-half a mile from campus.

For properties that are between one-half mile and one mile from campus, the average monthly rent per bed is $553. The rent growth rate was higher however, at 2.7%. That suggests higher demand for less expensive rentals that are still close to campus.

Properties that are more than a mile from campus are getting an average of $537 a month per bed, with a rent growth rate of 1.7%.

Axiometrics also has details on almost 200 universities. Here’s a link if you want to check on a particular school: http://www.axiometrics.com/july-2016-student-housing?

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