Investing in student housing has always been desirable real estate investment due to its defensive nature, especially in a depressed economic environment. Once the economy opens up and schools are regularly back in session post the coronavirus pandemic, student housing will do well again.
The sector’s rent growth and occupancy figures outperformed traditional multi-family apartments during the 2008-2010 financial crisis, attracting more capital to the student housing space as a result.
Let's look at the positives and negatives of student housing and see how an everyday investor can best take advantage.
The Positives Of Student Housing
Currently more than 20 million students are enrolled in a college or university in the United States.
With Millennials having children and Gen Z entering college age, overall college enrollment growth in the United States is projected to grow to 25+ million by 2025.
Additionally, record numbers of international students are arriving in the U.S. to obtain bachelors’ and advanced degrees as U.S. colleges have opened up their admissions to emerging countries like China and India.
International students always pay the highest tuition and are therefore, the most lucrative students for universities. The second most lucrative students are out of state students, as some state schools face state funding cuts.
During the 2008-2009 financial crisis, there was a 50% surge in applications to business schools because people lost their jobs and/or needed to bolster their skills and knowledge.
The growing enrollment supports a relatively stable supply of potential occupants for student housing landlords.
The Risks Of Student Housing Investing
The main risk or negative of student housing investing is higher turnover and wear and tear. Think about all the moving in and out after the end or beginning of the school year. Think about all the parties that are thrown throughout the year.
Higher turnover and wear and tear leads to higher maintenance and renovation costs compared to standard multi-family buildings. As a landlord myself, I’ve got a love-hate relationship with owning rental properties. As a result, I am a big fan of investing in private real estate going forward.
There is also increased liability risk given college students tend to act more widely than mature adults. To address higher liability risk, a landlord simply needs to get the appropriate amount of renters insurance.
If college gets too expensive, then another risk of student housing investment is a decline in college enrollment. Families have different ways to pay for college and can even game the financial aid system. However, college tuition for four years is now incredibly high.
How To Invest In Student Housing
Given the pros and cons, the best way to invest in student housing is by NOT being an active investor in student housing.
Instead, invest in student housing through a REIT or a real estate crowdfunding platform where you can buy a piece of the student housing project.
RealtyMogul is a real estate crowdfunding platform that often has student housing investment opportunities on their platform. RealtyMogul was founded in 2012 after the JOBS Act, and is one of the leading real estate crowdfunding platforms today.
Here are the key benefits of RealtyMogul:
Low Minimum: You can make your first investment with as little as $1,000.
No REIT Expenses: Public-traded REITs pay subordinated performance fees equal to 15% of the amounts by which asset sale proceeds exceed the amounts paid to purchase shares, and a return of their invested capital plus a 6% cumulative, non-compounded annual return on invested capital. RealtyMogul charges none of these customary fees.
Monthly Dividends: Like a dividend-paying stock, RealtyMogul REITs provides steady monthly dividend income (under normal circumstances). You can choose to receive your dividends in cash or reinvest them.
Passive Income: Instead of having to manage tenants and deal with maintenance issues, you earn money completely passively with RealtyMogul.
Higher vetting standards: RealtyMogul has traditionally focused on accredited investors. As a result, they have a more stringent vetting process for all their individual commercial real estate deals on their platform. But they also have two REITs, Mogul REIT I and Mogul REIT II, for non-accredited investors. I've had lunch w/ their CEO, Jiliene Helman before and I'm impressed with her focus on building a long-term, sustainable business.
Geographical Diversification: RealtyMogul's REIT strategy is to acquire properties across the country, thereby reducing the risks of any one market by diversifying their holdings geographically. The coastal city real estate market is super expensive now and slowing.
More Ways To Invest In Student Housing
In addition to RealtyMogul, there are two other platforms that provide student housing investment opportunities.
Fundrise – offers mostly diversified funds in the heartland, but is very opportunistic when opportunities arise
CrowdStreet – offers mostly individual private real estate deals in 18-hour cities
Student Housing Can Be A Great Investment
From a top down perspective, investing in student housing makes sense if you don't have to do all the work. Real estate is one of the best ways to diversify and build your wealth over time.
It's worth signing up for RealtyMogul for free and exploring their individual deals and two REITs.
If you would like to know more about RealtyMogul, here is a more comprehensive RealtyMogul overview.
I've personally invested $810,000 in real estate crowdfunding in student housing, multifamily housing, and office buildings across the country after selling my SF rental for 30X annual gross rent.
It feels good to diversify and earn income 100% passively now that I'm a father.
About the Author: Sam worked in investing banking for 13 years at GS and CS. He received his undergraduate degree in Economics from The College of William & Mary and got his MBA from UC Berkeley. In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $250,000 a year in passive income, most recently helped by real estate crowdfunding. He spends most of his time playing tennis and taking care of his family. Financial Samurai was started in 2009 and is one of the most trusted personal finance sites on the web with over 1.5 million pageviews a month.