Is A Student Residence A Good Real Estate Investment?
Student accommodation is probably one of the best real estate investments you can make. However, there are a lot of variables that’ll determine whether or not a specific property is a good investment. Location is probably the most important factor because proximity to amenities and the student campus matters. Nevertheless, student accommodation generally leads to good returns.
Although you have to be prepared to invest in maintenance and advertising since there may be high turnover rates. Even so, due to the expanding potential and high returns of student housing, several investors are now constructing their business models around it, and perhaps you should too. That said, to help you make a more informed decision about whether you should invest, here are some pros and cons of investing in student residential property.
Pros
1. High Student Enrollment Rates
Despite the rising tuition costs, the demand for education remains relatively high. Parents continue to send their kids to colleges to get an education. But while some students may opt to stay on campus residences, the accommodation is frequently limited. That’s why there’s a high demand for alternative student accommodation units like The Arc Winnipeg. Due to this, it’s worth noting that as long as student's enrollment numbers increase, there will be a higher demand for student accommodation.
2. Guaranteed Rent
While some landlords understandably have negative opinions about students paying on time, students are often conscientious payers. The reality is most students don’t pay rent for themselves. They typically have a parent or guardian as a guarantor, which guarantees regular monthly payments.
3. Long Term Renters
Many students either pursue two-year associate degrees or four to five-year undergraduate degrees. Those who want to pursue further education, such as master's or doctoral degrees, may even have their housing agreements extended. This would imply that tenants can be long-term renters, given the time commitments associated with attending college. Since some landlords find it difficult to list their properties, this can be a significant advantage.
4. Management
Typically, student developers will hire a specialized student accommodation management company to handle the entire site efficiently. This involves marketing and leasing the premises, overseeing the full tenant lifecycle, and maintaining the building's rooms and common areas.
5. Marketability
If your student housing is located in a popular location in your town or city, you won't need to market it to increase occupancy aggressively. Near these locations are restaurants, art galleries, and stores. These businesses attract students to your rental property. You won’t need to post ads all over the place to find tenants. Allow the renters to contact you. Therefore, there’s generally minimal marketing required for these residences in college towns because they often sell themselves.
Cons
1. High Turnover Rates
Students frequently relocate to different accommodations at the end of each school year. Therefore, you can’t trust the current occupants to stay for long, and some students even leave during a semester. So, you'll need to welcome new students to stay on the property every year. However, that might take up a lot of your time and money.
2. Low Holiday Occupancy
Students commonly take three-month breaks once a year. This implies that your property will always be vacant for three consecutive months each year. So, you have to be prepared not to earn any rental income for that period. However, as an investor, you could use this opportunity to revamp your property by repainting the walls, decorating the rooms, and carrying out maintenance.
3. Property Damage
Many investors claim that student residences deteriorate rapidly because of irresponsible student behavior. Therefore, you might need routine maintenance, which might eventually become expensive. However, you can create regulations and policies and notify renters about them to prevent such situations.
4. Low Capital Growth
One of the most significant drawbacks of student housing is its low capital growth rate. Typically, real estate increases in value over time. However, you should be aware that the value of the property will not rise as steadily year after year as it would with a standard buy-to-let property. The capital growth of student housing may vary between markets. But as a general guideline, it is advised to stick to residential real estate investing if you are primarily concerned with high capital growth.
Conclusion
So, the question is: Is investing in student housing a wise idea? Given that it's one of the most lucrative investments you can make, the answer should be an emphatic yes. But you must conduct thorough research to ensure you purchase the right building in the proper location. Additionally, it would be helpful to set up regulations to assist you in managing that property and to hold students accountable if there is property damage. You will surely need the assistance of a property management business because managing such property on your own won't be easy.
