Student Housing . . . what a goldmind!!!

Aug 09

Student Housing . . . what a goldmind!!!

If you are an investor focused on student housing . . . . FIND YOURSELF A COLLEGE TOWN!  As a seasoned investor, I have found that renting to college students is a pleasurable and very lucrative investment.  I started out renting to low – middle income families.  However theses properties, mainly located in urban areas, can be a challenge.

Challenges:

  • The rent rate is low
  • The taxes are high
  • Extremely high turn over rate
  • The property does not appreciate
  • The tenants cause lots of damages
  • The property requires  a great deal of renovation and rehab
Upside:
  • Very low vacancies because people are always looking for affordable  housing.  Also with the foreclosure rate as high as it is, many people are returning to renting.
  • Purchasing property in these neighborhoods are relatively cheap ($30-100k)
  • Government assistance is in abundance
  • A quick way to build your portfolio
  • Allows for great cash flow
I’m not knocking it because this path allowed me to build a business, increase my portfolio and expand to various avenues within real estate.  It is grueling, time consuming and the cause of many migraines, but it served it’s purpose.  I stuck it out, made patience a virtue and reaped the fruits of my labor.  Most importantly it lead me to the gold mind of STUDENT HOUSING!
Universities and colleges, like property, have been around for centuries and will continue to exist centuries after I’m gone.
 The best investment is one that exist before, during and after your lifetime.  One that produces income for all generations of your family. (biggasista)
Real estate is that investment, and the student housing market is the core.  Don’t get me wrong, hotels, retail, apartment bulidings and commercial properties are all great investments within real estate.  However, the tenant base is what makes the difference.  Schools will always have students and these students will always need a place to live.  Colleges that offer housing are overwhelmed because the amount of students entering far surpass the number of units available.  It’s the simple theory of Supply and Demand that allows private investors entry into the world of student housing.
I went to school in a college town.  Everything was about the university.  The mood, environment, entertainment and lifestyle were all based on that big school on the hill.  There is nothing wrong with that – it’s how a town flourishes, it’s how money is kept within the community, it’s what that town becomes known for, and it’s what can make a real estate investor wealthy!  The student housing market is not necessarily the best first investment.  You should have some experience with investing, knowledge of the market and a strong financial support system.  But, once you are in the potential becomes very apparent.
The student housing challenges are:
  • Properties are expensive to purchase – you will spend more on student housing then on a low income property
  • Properties are difficult to find – student housing is not a secret.  Everyone wants in.  The inventory is low because you are left with whatever the university didn’t buy, wht large investors overlooked, or properties considered to be “not so prime.”
  • Properties are located to far away from main campus
  • Guaranteed annual turnover
  • Property taxes are high
  • Tenant headaches – you are still renting and people will be people, so you can always expect some type of migraine.
The rewards can be:
  • The property continually appreciates in value
  • A never ending stream of tenants
  • Excellent cash flow
  • Double the rental income
  • Advance rental payments
  • Little to no repairs which has a great affect on overhead expenses
  • Potential for great auxiallary income
Let’s talk numbers: Property A  and Property B
Property A is a two unit building with three bedrooms in each apartment:
  1. cost $30k
  2. rehab $10k
  3. monthly rental income $1300.00
  4. monthly expenses (taxes, water, maintenance, mortgage) $725
  5. tenant headaches and incidents $$$priceless
  6. monthly net $575.00
  7. annual net $6900.00
Now the above numbers are a rough estimate of low income housing in a small college town.  If you are luck you see about $500.00 a month if no major repairs are needed, if you are actually able to collect the rent, and if a tenant does abandon the unit leaving you with a rehab repair bill far past their security deposit.
  Property B is a two unit town house with three bedrooms in each apartment that comes fully furnished:
  1. cost $175k
  2. rehab $30k (rehab to update the units, purchase furniture, appliances)
  3. monthly rental income $3900.00
  4. monthly expenses (tax, water, maintenance, mortgage) $1475
  5. tenant headaches and incidents $priceless
  6. monthly net $2425.00
  7. annual net $29100.00
Now the above numbers are a rough estimate of a 2 unit student housing in a small college town.  You would see about $2400 a month, knowing that there are no repairs because everything is new.  You are able to collect the rent because students pay for the year in advance or pay by the semester in full.  And if they do abandon, well you have your rent money so fix up the apartment and rent it out for the following semester or do a sublet.  Either way you are still in a great position.
This scenario is a portrayal of how things work  based on my experience as an investor in both markets. They are realistic and if I can have less headaches, a great ROI and increased value I will continue to praise the student housing goldmine!
Rest in Wealth  . . . . .

If you enjoyed this post, please consider leaving a comment or subscribing to the RSS feed to have future articles delivered to your feed reader.

893 comments

  1. Great post. Without a doubt a more lucrative investment.

    Thanks

Leave a Reply

*