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Should Investors Be Scared of Student Housing?

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A little hesitation is natural when making any investment in real estate. The substantial sum of money involved in the purchasing process demands prudence, and all investors are wary of choosing a property that doesn't pay off. It’s the nature of the industry, after all.

Alot of hesitation is natural when investing in student housing. It's a sector many real estate investors avoid despite its profitability, and their caution is rational. Younger tenants aren't always responsible, and it reflects in higher maintenance costs and regular repair work that doesn’t interest passive investors.

But are these issues enough to compromise a property's potential? Should investors be scared of student housing? The sector has its challenges, and it's essential to acknowledge them, but the benefits of student housing are impossible to deny.

Benefits of Student Housing

One of the primary advantages of an investment in student housing is consistency. Year after year, you'll enjoy steady demand as freshmen move to the area to begin their college career, or as older students seek out new places to live. You won't have to worry over vacancy rates as long as enrollment remains high.

On the subject of enrollment, it doesn't usually dip during periods of economic downturn. With fewer employment opportunities, it’s unlikely young people will stop seeking college educations any time soon. This consistent need for housing can sustain interest in your property over time. Student housing is virtually recession-proof, farless economically sensitive than other sectors.

But what about profit? Naturally, you'd care about the earning potential of your investment. In a college town, students usually divide the monthly rent with roommates, allowing you to charge more money per square foot to get the most from your available units — and the benefits don't end there.

You can also depend on parents to provide financial assistance when students can't afford their rent payments. Many younger tenants receive help from a relative, and this extra security will reduce the likelihood of tenancy terminations. These advantages aside, what about the future of student housing?

There's a growing need for new and updated accommodations. The number of international students enrolled in American universities doubled between 2010 and 2016, and as more young people travel to the U.S. to pursue their education, they'll require housing. You can offer it to them, capitalizing on the sector's expansion.

Challenges of Student Housing

While it's clear the student housing sector is profitable, what's the actual cost of investment?

The primary concern is maintenance. If you're not overseeing a property yourself, the maintenance and management costs can offset your profits. You'll have to prepare to deal with the inconveniences of renting to a younger crowd and all the risk that entails.

College students like to party, even on weeknights. Property damage expenses can add up rapidly over time if the unit is strained by constant houseguests and unruly behavior. For many investors, this stressor alone can lead them to seek more stable tenants in quieter sectors.

There are additional complications you'll have to consider, like the proximity of new projects built near your asset, upgrading your property with modern amenities and other potential issues, but maintenance remains a pressing concern. 

If you’re considering investing near a university, however, don't let these challenges discourage you. Most experts agree student housing is worth the investment, and despite the difficulties involved in the sector, it promises to mature and develop in the coming years.

Hesitation Is Natural in Real Estate 

You'll never have full transparency when investing in real estate. That said, the student housing sector isn't as daunting as investors might think, and you should do a little more research into the sector if you're looking to purchase a new property.

Student housing might not be for the weak of heart, but it’s a consistent and promising way to build up an investment portfolio, particularly if you live nearby a college or university. As with any investment opportunity, doing your research and prioritizing your goals can help you decide whether the sector’s for you.

 

Holly Welles is the editor behind The Estate Update, where she shares real estate tips and ideas for home fixes.