Student Housing Assets in Commercial Real Estate
Terrydale Capital
Sep 6, 2024 7 Min read
As commercial real estate continues to evolve, niche sectors like student housing are becoming increasingly attractive to investors. Whether you're an experienced investor or exploring real estate for the first time, student housing offers a compelling blend of stability, demand, and growth potential. In this blog, we’ll dive into what student housing is, what qualifies as student housing, and why it can be a smart investment.
What is Student Housing?
Student housing refers to residential properties specifically designed or adapted to accommodate college and university students. These properties are typically located near higher education institutions and offer living spaces with communal amenities, study areas, and easy access to campus facilities.
While many universities provide on-campus dormitories, they often cannot meet the full demand for student accommodations. As a result, private student housing has emerged as a crucial solution, providing off-campus living arrangements to students looking for more independence, privacy, or enhanced amenities.
What Qualifies as Student Housing?
To qualify as student housing, a property must cater primarily to college or university students. These properties are distinct from conventional multifamily residential buildings in several ways:
- Proximity to Educational Institutions: The closer a property is to a campus, the higher its demand among students. Walkability or easy access to public transportation is often a key feature of successful student housing.
- Amenities for Students: Student housing properties often include features tailored to student lifestyles, such as furnished rooms, high-speed internet, study lounges, communal kitchens, recreational spaces, and even shuttle services to and from campus.
- Leasing Structure: Unlike traditional apartment buildings, student housing properties typically operate on a per-bed leasing model. This means that each bedroom within a unit is rented separately, reducing the financial risk for landlords if one tenant vacates.
- Academic Calendar: Student housing properties align their leasing cycles with the academic calendar, often signing 9- or 12-month leases that cater to the school year.
Why is Student Housing a Good Investment?
1. High Demand
Student populations are relatively stable and often grow alongside universities’ enrollment numbers. With a consistent influx of students each year, demand for housing remains strong. This creates a reliable pool of tenants who need accommodations during their studies.
2. Resiliency in Economic Downturns
While traditional rental markets may fluctuate during economic downturns, student housing tends to be more resilient. Even in challenging economic times, students continue to pursue higher education, keeping demand for housing steady. This makes student housing a reliable asset class, especially during recessions when enrollment numbers may actually increase as individuals seek to improve their qualifications.
3. Higher Yields
Due to the per-bed leasing model, investors can often achieve higher rental income from student housing compared to traditional multifamily properties. The ability to lease each bedroom individually maximizes rental revenue while mitigating vacancy risks.
4. Predictable Turnover and Renewals
While tenant turnover in student housing is high, it is predictable, with leasing cycles tied to the academic year. Investors can plan renovations, marketing campaigns, and leasing renewals well in advance, which can streamline operations and improve cash flow stability.
5. Opportunity for Growth
The growing number of students, coupled with limited on-campus housing options, presents ample opportunity for private student housing investments. Investors can also capitalize on the growing trend of purpose-built student accommodations (PBSA), which offer modern amenities and cater to students’ unique needs.
Considerations for Investors
While student housing offers numerous advantages, there are also specific challenges to be aware of:
- Management Intensive: Student housing requires active management due to the frequent turnover and maintenance demands. Hiring a property management company experienced in student housing can help streamline operations.
- Seasonal Vacancies: Unlike traditional rentals, student housing properties may experience vacancies during the summer months. However, investors can mitigate this by offering short-term leases or focusing on universities with summer programs.
- Market Saturation: In some areas, the student housing market can become oversaturated, leading to increased competition. Conducting thorough market research and identifying undersupplied areas is essential for long-term success.
Conclusion
Investing in student housing can be a smart way to diversify your real estate portfolio, offering high demand, resilient income streams, and potentially higher returns compared to traditional multifamily properties. As long as investors are prepared for the management challenges and seasonal cycles, student housing can be a lucrative and stable asset in commercial real estate. When you need the right team behind your investment, contact us at Terrydale Capital today!
Partner With Terrydale Capital for Your Debt Financing Needs
When it comes to debt financing, understanding the right timing, process, and options is crucial. At Terrydale Capital, we provide a comprehensive range of commercial loan solutions tailored to meet your business's unique needs.
Success!
Product has been created successfully!
Headquartered in Dallas, Texas, Terrydale Capital is a leader in commercial real estate financing. We have close relationships with the nation’s top banks, lenders & family offices allowing us to provide the most competitive financing solutions in the market.
