Niche Investments: Student Housing
Lydia Taylor October 11th, 2007
I have the privilege of having a guest writer on the Augusta Real Estate Blog today. Aubrey Zaffke of Trimark Properties in Gainesville Florida sent in the following article about investing in the student housing market.
Aubrey and I have been corresponding about rental housing. Trimark has been a great success in Florida and I think their strategy could certainly work in Augusta as well. I hope you enjoy the article!
The recent downturn in national housing has negatively affected many investors and homeowners. The volatility of the markets has driven a lot of these anxious investors into less volatile investment opportunities, but one of the best investment opportunities still exists within the housing market itself.
While most housing markets in today’s economy are temporarily unstable, college housing markets are still one of the better investments. Large and small investors have found that in times when housing market prices are declining, they can purchase residential homes, duplexes and condos at below market-average prices, and then rent them out to students for significantly higher than the mortgage, taxes, and insurance. As opposed to other rental markets which are typically tight in a declining market, college housing maintains their rental and occupancy rates. After making a good return over several years through rental income, the investor can then sell the property when the market again stabilizes and housing prices rise.
Take note that while most housing is affected by the job market and interest rates, college housing is always in demand. That is because a college education tends to have an inelastic demand. That means that like oil, regardless of price, there is always a demand for a college education. And if you understand the current growth strategies of many major universities and college towns, investing in college housing can be a great way to get a return on your investment.
Many colleges facing budget constraints and limited space to build new classes, research buildings, and auditoriums, are placing less emphasis on building on-campus housing to accommodate students. Most allow students to live off campus and in some cases even recommend it to older students so there are enough beds available to incoming freshmen.
Consider for a moment, Gainesville Florida, home to the University of Florida (GO GATORS!). Students attending this major university are not required to live on campus. In fact, after their freshmen year, most students live off campus in rental apartments and houses. There is very high demand for rentals, due to the limited number of on-campus housing options. According a recent article on Smart Apartments, UF has nearly 50,000 total students, but only enough dorm rooms for 7,300 students, plus 980 on-campus apartments for graduate and family housing. All combined, there is only enough on campus housing capacity for 16% of the students. The remaining 83% of the student population turns rentals near the campus. In student housing, location is a major determinant of success. The student rental market near campus is thriving and continues to grow at a rate outpacing much of the normal rental market father away from campus.
Trimark Properties owns affordable and luxury Gainesville apartments within walking distance to the University of Florida and is able to charge a rental rate in upwards of 16-30% more than comparable property farther away from campus. They also have a 100% occupancy rate, while published occupancy rates for the same time period in other parts of the same city vary between 80% and 94%. They’ve recently expanded their holdings to include several UF Housing options, including two private luxury off-campus dorms and expect to build an additional six student housing developments in Gainesville within the next 24 months. Much of this success can be attributed to the high demand for luxury living near the college campus. One of the major problems at the University of Florida and other college campuses nationwide lies within the lack of parking for students and faculty. Though UF has over 40,000 students living off campus, there are only 3,393 on campus commuter parking spots for those students. Additional parking spots are located in a parking lot called “Park N Ride” which is located so far from the section of campus where classes are located that students need to take a bus from the parking lot to get to their classes. Both options sound practical are but are very time consuming and have draw backs. For one, the bus system is far from reliable; oftentimes buses will be full and leave students waiting for the next bus. This means students may have to start their commute in the morning an hour or more before their actual classes. Two hours per day commuting (back and forth) may not sound like an insurmountable amount of time, but consider that these students often only have 2-3 hours of classes during that day. That means that a student can spend as much time commuting as they actually spend in class!
Augusta does not have a college the size of the University of Florida, but don’t overlook the possibility of making a large profit by investing in college housing in the area. There are actually four colleges in the Augusta area: Medical College of Georgia, Augusta State University, Augusta Technical College, and Paine College. Combined, they have over 13,000 students and few on-campus housing options.
Companies like Trimark Properties and individual property owners can charge top dollar for apartments and condo rentals near the college campuses, because they can provide residents with housing and parking near the University and the convenience of being able to walk to class. Essentially, colleges are quickly becoming every city’s “beach front property”, and as you get closer to the beach (as many of you who live on the coast well know), rent gets more expensive. More over, properties near colleges across the country have among the highest value regardless of the overall housing climate. Even when the single-family housing market does not appreciate, the student rental market grows as the University expands its enrollment levels without expanding on campus parking or housing.
Given the right mortgage terms and timing, buying into the college housing market can be a great way for small investors to gain a return on an investment in a challenging housing market. For those of you who are looking to invest into the housing market in the near future, consider contacting Lydia Ann Taylor with Meybohm Realtors. She can assist you in finding the perfect investment opportunity and give you information on how to turn your student housing into a rental with great returns!
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Aubrey Zaffke is the Senior Marketing Director of Trimark Properties in Gainesville. She has over eight years of experience in marketing management and strategic planning.
- Guest Posts , Real Estate Investing
- Comments(15)
Wow, that is a horrible ratio of dorms to students (well, for the students at least). A great thing for investors though!
[...] Take, for instance the University of Florida. 80 percent of the student body lives off campus and nearby residential complexes can charge up to 30 percent higher rent than similar facilities farther away. In fact, some parents are plunking down anywhere from $125,000 [...]
Most of our investors all want to be near universities also. The only concern is when summer comes most of the students head home. However, you can pretty much stay at a high occupancy year round.
I think the best student housing markets are the ones in small towns that live and die with the university. Your demand and supply should be fairly constant. Barring mass student housing projects via dorms or townhomes. Also, any of the nice condo projects that pop-up will be catered to the professors or town professionals and not the students.
That is a good point that the size of student population is less affected by the ups and downs of the market. Do the student properties in Gainesville cashflow? I know the student properties in the Austin market have a difficult time cashflowing although they tend to see appreciation.
Being in the rental business, I’ve seen an increase in rentals - I suspect this is due to the recent slump in the housing market. I think that people are afraid to buy homes so they will be more apt to rent property instead. A couple years ago it seems like people were more willing and able to buy their home, but the market has shifted toward renting lately, especially in more populated areas like Los Angeles, Orange County, New york, etc.
When I was in college my family thought about purchasing a condo near the campus. I have had many clients do this for investment purposes. It is a great way to offset the costs of lodging for your kids and build equity at the same time. Many college kids seek off campus lodging after their first year in school.
When my husband was in college, he wanted to buy an apartment near his campus, rent it out to some housemates, and sell it when he graduated. Besides putting a roof over his head, he could build credit and equity at the same time.
He didn’t do it, but it certainly struck me as a good idea when he mentioned it the other day. Upon reflection, it’s strange more students don’t do that!
This reminds me of what Donald Trump said in one of his books. Location, location, location! It’s not only about what one sells and how one sells it but where one sells. Definitely, this is a great idea to consider considering how competitive the industry is today. Being near a university does provide a pretty stable and controlled base of consumer that will surely provide great profit potential. One has to be careful and wise on doing business in this set up, though. I think it will help a lot of investors who invest in this endeavor to familiarize themselves not only to the business but the academic set up as well. This way, one can provide service that will give it an edge over the competition.
I think this is one industry that has never died down, has never failed. As long as people go to school, they’re in business. Especially now that more and more students turn to the Internet to look for places to stay - and even for people to hopefully meet while they’re living in that area.
Good job on this article.
Austin
I’m just curious. I know it is dependent on location, but excluding land costs, how much does student housing cost to build? I’m looking at the numbers and trying to figure out whether it is profitable. Are we talking $200 a sf? 300 sf? Thanks.
Morgan, I’m not a builder, so I really can’t help you with that question. My gut feel is that for here, in Augusta, the number should be well under $200/sq ft. Most purely residential new builds in the area are under $100/sq ft. Of course wherever your location is, depending on the regulatory and labor environment, that footage price could vary wildly. Your best bet is to figure out the type of new construction you are considering and call a commercial builder.
The student housing in this area overwhelmingly consists of residential homes that are rented or leased for single occupancy, or larger homes that are split into multiple units. There is a surprising amount of this type of property for sale here, particularly around Summerville down to Heard Avenue. Many of them even have tenants, so you don’t even have to hunt for renters! It can be a profitable investment, particularly if you make some targeted buys.
Now that’s some good information. Real-estate is where it’s at.
@Morgan - Student housing is usually the very cheapest of all properties to build on a per square foot basis. Those that use this form of housing do not demand the level of ammenities that many other renters groups do. The actual price per square foot is going to depend on what the median income level is in a community and the size of the community. Believe it or not everything else held the same smaller communities are going to have higher costs of building because of the reduced amount of competition and the need for the constuction company to have a larger profit margin due to the reduced number of building opportunities.
It’s a good news that there is always opportunity in the property field. Now I realize why there are so many apartments developments surrounding campus area in my city, Surabaya. It’s the easy way to do business because the investors don’t have to utilize the building with various amenities. The property will be continuous income sources since the room demand is always constant and the amount of students never decrease.