I occasionally share that my real estate experience started in college while working as a leasing agent at one of the top student housing apartment complexes at the second highest populated college in America, the University of Central Florida. During those three years, I learned a lot about the apartment business and particular student housing. While working as a leasing agent, I believed that student housing was the business to get into, and below are three key lessons I learned that should be of important note to any sponsor or passive investor that may consider investing in student housing.
1. You deal with lots of parents
Many people are attracted to the idea of acquiring rental properties in college towns. They take note that there is high demand for housing and as long as the College or University is there, there will be tenants and occupied units. Please recall that not all tenants are created equal. The student housing niche presents challenges in that while it is students that sign the lease, there are often guarantors, an adult who meets the qualified standard of someone who can back that student to ensure payments are made in the event the student cannot do so. Therefore, in properties where the majority is occupied by students, while it is students that live in the apartments, it is often the parents that you deal with.If the the move-in was not as expected, the roomates are messy or there is a weird stain on the carpet, your property management team is more likely to hear from the parents than the tenants themselves. And when they do hear from parents, that is usually not to notify them that things are going great. In other words, your property managers play a very active role in resolution and customer service for parents of the student residents.Therefore, it is very important that your property management team have specialized skills in working with students and parents within the student housing niche.
2. There is a lot of turnover
Unlike the typical apartment tenant base, student housing is unique in that students do not stay in the units for a relatively long period of time. It is not uncommon for students to leave every year, going to different apartments or units within the same complex. There are various reasons for this.Given the competitive nature of the student housing in major college areas, students may leave to go to another apartment that offers a better price. Or they may want to relocate to another unit so that they can be paired or sign a lease with their friends. Finally, students graduate, move back home, or for any other reason, move on.Why is this so important? Turnover. Students move out constantly, and each time there is a move-out, there is the need to turn a unit. Each time a unit is turned, it is an expense (turnover is one of the largest expenses in managing rental properties). As a result, student housing properties deal with high levels of turnover and added costs.In a similar vein, this final note about student housing is so important and you do not want to miss it.
3. Summer time is leasing season
Whether you are a syndicator or a passive investor in a student housing project, please ensure to align your business plan to the seasonal nature of student housing. Given that the demand for housing is based on the school year, the majority of new leases will be signed in the summer time. If your project misses the summer leasing period for whatever reason, your projected financials and operating plan can implode! You would miss out on many signed leases and will not be able to recoup that loss in fall, winter and spring, when students are not as likely sign new leases.
In this Post-COVID environment, many students and schools are adopting online programs. However, I believe that the traditional University concept (graduating high school and “going off” to college) will be restored and there will continue to be be plenty of demand for student housing. Even so, it is critical that syndicators and passive investors have experienced student housing resources on your team to successfully manage the nuances of this special niche. Ensure that the property management team has student housing experience, strong customer service skills and solid systems for managing turnover. Finally, be certain to execute a plan that ensures units are available for rent by summer time, the high-time for leasing. If executed properly, student housing could be a rewarding area of focus for multifamily apartment investors.
