Can Student Housing Provide Stable Cash Flow for Investors?

By
Managing Real Estate Broker with HomeUnion CalBRE Lic# 01526904

The student housing real estate market can be a great way of reaping lucrative real estate investing rewards while providing stable cash flow. Here are 3 ways that investors of all kinds can ensure that student housing investments pay huge dividends – now and in the future.

Bulletproof Lease Provisions

While student housing has a few potential pitfalls – as all investments do – one of the biggest is ensuring that rents are paid in a timely fashion. A strong lease on the front end can help mitigate much of the risk inherent to student housing investing. The most commonly overlooked lease provisions that can keep your investments in the black include:

Jointly and Severally Liable Clause - Regardless of your management structure (fully managed or self-managed) you need a clause to make your tenants and their co-signing parents “jointly and severally liable”. Here’s how this clause works in the real world: If a rental payment doesn’t come in on time, remind all tenants and their parents (yourself, if self-managed; or through your management team, if fully managed) that a failure to pay can negatively impact all of their credit scores. In other words, if the tenants don’t pay their rent on time, each and every party to the lease – the student-tenants and their parents – are all equally responsible for paying rent/fees/damages.

Market Knowledge – When investing in student housing, the kind of market knowledge that really counts is college or university-specific. Students at different schools have very different expectations about the amenities they want. Some want more up-market amenities, while others have more modest desires. You need to make sure someone does their homework, to ensure that the student housing units are well-suited for your student demographic.

Intelligent Investing – Unless you have access to insider knowledge – student housing is a tough nut to crack for DIYers – you’re going to need the assistance of pros who do. Fully-managed investing is usually the way to go in student housing because of all of the moving parts that come with the territory. Market research, understanding the needs/wants of student groups that can vary wildly from one institution to the next, as well as accurately estimating cash flow, are just a few of the things that cause many investors to willingly choose the fully-managed approach to student housing investing.

Cashflow + Demand = Opportunity

There are three primary drivers of demand for student housing:

1.     Lack of Supply – Nationally, 70 % of all college students live off campus. Only 27% of America’s 1,177 community colleges offer student housing accommodations, which leaves students to scramble to find housing anywhere they can. The situation at 4-year undergraduate schools is direr: Just 38% live on campus, according to a U.S. News & World Report study.

2.     Budgetary Concerns – Colleges and universities face huge financial challenges. A new-found focus on reducing educational spending (or at least reducing the rate of growth) will incentivize colleges and universities to monetize the current housing assets they have. This will be the rough equivalent of a huge door opening for REITs to become housing partners for struggling colleges and universities. Additionally, colleges and universities will spend less on building out new student housing options on campus, which means even greater demand for off campus student housing alternatives.

3.     International Demand – Nationally, 23%-49% of all international college students live on campus, based on a survey of the largest colleges and universities in America, where the overwhelming majority of international students attend classes. The Institute of International Education says that nearly 820,000 international students attended classes at American colleges and universities during the 2012-13 school year, which continues to drive demand for additional housing units.

Fully Managed Investors: Take the Student Housing Real Estate Investing Challenge

 

Smart Student Housing Investing can make perfect sense both for fully managed investors, as well as the experienced, knowledgeable DIY self-managed investor. By following the 3 steps above, you can lay the groundwork for an island of cash flow stability, even in a sea of economic uncertainty.

If you’re looking for great fully managed student or single family housing opportunities, you can click here to learn more now.

 

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