As enrollment numbers for colleges and universities across North America continue to rise, so does the interest to invest in the niche student housing market. As Axiometrics stated, student housing is in and investors are flocking to the sector.
While many investors and independent landlords are eager to enter this niche rental market, it’s important for them to do some market research first, as well as analyze their local universities and colleges.
Here are some key considerations to think of when determining if your city is a good place to invest in student housing:
1. Student Enrollment & Growth:
The first consideration to analyze should be the potential size of a tenant pool. Just because there is a college or university in a city, doesn’t necessarily mean it will be a good place to invest in student housing. Cities that boast a student population exceeding 10,000+ are ideal, as this makes the student housing sector a larger and more appealing niche.
Another factor to consider is whether or not the schools within that city are steadily growing or if their student population is remaining stagnant. Growth is particularly important when planning for the future.
2. Residential vs. Commuter School:
The second consideration is to determine if the schools within that city are residential or commuter schools.
Residential schools are ones characterized by a very strong sense of community, typically fostered by having the vast majority of students living on-campus. Residential schools usually have a very low percentage of students who live off-campus, making them unattractive to student housing investors and operators. An example of a residential school would be Harvard University, in which 99% of students live either on-campus or in college-owned housing.
On the contrary, commuter schools are institutions in which the vast majority of students live off-campus. Some schools are strictly commuter schools, meaning that no on-campus housing is available at all. An example of a commuter school would be Northeastern Illinois University where 100% of students live off-campus.
It’s quite obvious that commuter schools are preferred when it comes to investing in student housing, as there is a much larger pool of prospective student tenants.
3. Availability of On-Campus Housing:
After determining whether the schools in a given area are residential or commuter, the next thing to look at is the availability of on-campus housing. Many academic institutions simply cannot accommodate the bulk of their students on-campus and can only house a fraction of them. This is fairly common for academic institutions that have a relatively large student enrollment, but only have a handful of residence halls or school-owned housing.
For example, Humber College in Ontario, Canada has over 27,000 full-time students but only has approximately 1,400 on-campus beds available. Humber College is a prime example of a school that has limited on-campus housing and a large pool of potential student tenants.
4. On-Campus Housing Requirements/Restrictions:
It’s fairly common in the United States (somewhat less in Canada) where schools require students to live on-campus for a certain number of years. Academic institutions that have these requirements almost always have rules stipulating first-year students must live on-campus. This rule may extend into second and even third year as well. It is critical to find out this information, as these restrictions can dramatically shrink the potential pool of student tenants. If a school stipulates that only upper-years can live off-campus (3rd year students and above), this can potentially reduce the student tenant pool by more than 50%.
For example, Texas Lutheran University stipulates that ALL full-time students must live in TLU housing unless they; are 21 years of age or older at the beginning of the fall semester, married, have lived on a college or university campus for a minimum of four semesters, or are commuting from the student’s permanent residence (parent or guardian) that is within a 30-mile radius of the campus.
5. City Implemented Student Housing Rental Regulations"
Certain cities across North America have implemented laws and regulations specifically targeted at student housing. It’s important to do some research to determine if your city has such laws and if so, what the regulations entail. Often they come with a variety of financial requirements for the property owner. For example, the city may require a special student housing permit that must be renewed each year, which may cost hundreds of dollars. There may be limitations to the number of unrelated individuals that can live in a dwelling togethe
For example, the city of Greensburg, PA has a student housing ordinance which has been in place for over a decade and lays out very specific requirements for student housing owners and operators. The requirements are as follows, according to the Greensburg website:
Registration by landlords with the Planning Department before August 1st each year for issuance of a one-year student home permit, based upon an approved code compliance inspection of the premises.
- Student homes cannot be located within 500 feet of another student home, with the exception of student homes located in the Downtown District.
- No more than five (5) students may occupy a student home.
- A dwelling occupied by two (2) or less graduate students does not constitute as a student home.
- Adequate off-street parking approval(s) from the Planning Department.
- While virtually every city has some type of law and regulation for rental units, cities which have ordinances specifically for student housing can make them somewhat less attractive to investors.
6. Availability of Prime Real Estate:
‘Prime real estate’ relates to location. Without question, location is the most important aspect when it comes to student housing. The vast majority of students want to live in close proximity to their school, ideally within walking distance. A student housing report from J Turner Research indicated that only 22% of students were willing to live more than five (5) miles from campus, and 15% of students stated the furthest they were willing to live away from campus was a few blocks.
If there isn’t much real estate on the market that is surrounding the school and ideal for student housing, it may potentially rule out that city as a prime location to invest in.
7. Market Competition:
All markets will have a certain degree of competition, but it’s best to avoid markets that are oversaturated with student housing. Increased competition is a good thing for students, as it presents them with more options for accommodations. For investors though, it can be problematic. There will be a limited pool of potential student tenants, making the market less attractive to investors.
For example, Tuscaloosa, Alabama has been trying to combat the overbuilding of student housing within their city. A student housing task force was created in Tuscaloosa, specifically to try to regulate and slow down the growth of student housing in their market. In 2014 alone, over 1,534 student housing bedrooms were opened, with an additional 1,575 planned for 2015.
While these seven topics aren’t the only aspects which investors should consider, they are certainly key indicators as to whether an investment in student housing for a specific market is a viable and profitable venture or not.