Far beyond the stereotypical “college” images that may come to mind, off-campus student housing is a good investment. Off-campus student properties are providing good returns around southeastern and southwestern campuses, especially at public universities.
Northeastern schools tend to establish caps on enrollment that make these investments less attractive, according to MSNBC. Schools in large cities also tend to have a larger number of commuters than other campuses, reducing demand for student housing.
Michael Zaransky, author of Profit by Investing in Student Housing: Cash in on the Campus Housing Shortage, told MSNBC, “About 80 million ‘echo boomers’ will turn eighteen over the next ten years.” They are expected to attend college in record numbers. Zaransky is also co-CEO of Prime Property Investors, located in Northbrook, Ill.
Zaransky continues in the CourierPostOnline, “For at least 20 years there will be a boom in the population turning 18 and a large percentage of them are choosing to go to college.”
“After funding enrollment, research, and hiring more professors, there is not enough money left for building dorms,” Donna Priess told MSNBC. She continued, saying that many universities depend on the private market to supply off-campus housing. Her self-named Priess Company rents, manages and develops investor-funded student housing.
Investors are attracted by the supply and demand element of this investment, as well as the fact that it generates positive cash flows, according to MSNBC. It generates these cash flows despite expenses such as management service fees, utilities, repairs, maintenance and high insurance premiums that mirror the worst possible reputations of the worst student renters.
Zaransky states that off-campus housing has seven items that differentiate one good property from others, according to the bricksandsticks.com. They are:
- Newer construction
- Located within two blocks of a campus
- Amenities such as parking and central air conditioning
- High speed Internet access
- In-unit washers and dryers
- Full-time university students should exceed 10,000
- University enrollment should not be capped
The Daily Collegian adds kitchenettes and cable television, making this a more complete list.
Zaransky goes on to suggest that individual investment decisions should be made first on the ratio of university-owned beds to total enrolled students. The lower the ratio for the campus, the greater need for privately constructed student housing. Bricksandsticks.com also reports that above what housing a university might offer, about 70 percent of students need to find their own housing.
The purchase of student housing can be easier by accessing a Federal Housing Administration ‘kiddie condo loan’. This loan program is designed to allow both students and non-students to purchase a home with a blood-relative’s good credit standing and cash, according to MSNBC. These homes qualify for all tax advantages of a primary residence and require only 3 percent down. The owner-child can build a positive credit history as they escape from university dorm life.
Investment in student housing is also available without the burden of ownership of these properties. MSNBC reports there are three publicly traded Real Estate Investment Trusts (REITs) that have generous dividend yields. Click the names or symbols below to review financial information on these REITs using Yahoo! Finance.
- American Campus Communities Inc. (ACC)
- Education Realty Trust Inc. (EDR)
- GMH Communities Trust (GCT)
Zaransky provides important advice for those investing in student housing and thinking of renting to their own children. He advises that you should not rent to your own child, according to housingbricksandsticks.com. “You have to invest in a building because it is a good investment, not because it is a good place for your kid. And if your kid’s friends are roommates, and the rent is late, you have an uncomfortable situation.”
Zaransky finished, “It just needs to be a good investment – rents need to be rising in the area you choose, and there should be an opportunity for appreciation over time. If those factors are not present at a child’s university, then parents should invest in another town and pay rent for their child’s housing instead,” according to MSNBC.