2022 and beyond are proving to be game-changing years for the student housing industry. Developers like Nelson Partners and others who have been active in the student housing industry for years are just now seeing their ambitions come to fruition. But how can the average investor capitalize now on what so many call the greatest asset class of our lifetime?
The opportunities are endless. While student housing might not be the quick-and-easy decision that many other real estate investments have proven to be, it is a market that will only continue to grow as more and more millennials choose college over the workforce. And with supply already lagging behind demand, students and investors will likely enjoy a steady return on their money for the foreseeable future.
Here are some ways that any investor can get started today:
Off Campus / Traditional Student Housing
This is probably the most well-known form of student housing. While it might have been popularized by complexes like University Village back in the day, this form of student housing has evolved significantly over recent years to accommodate all types of students. From modern amenities to luxury finishes, it’s become clear that many investors are looking for more than just a place to live.
For most investors, this is also where they feel the safest. Similar to traditional multifamily offerings, these properties are often easier to finance and maintain due to their size and overall quality. That being said, there are still significant returns to be had even in this relatively low-risk industry sector.
For example, Milhaus recently announced plans to build a $30M apartment project in West Lafayette that will target the student housing market. With just over 200 units, investors could expect yields around 6% based on conservative cap rates.
Off Campus / Non-Traditional Student Housing
These properties are often smaller in size, student age, or both. While it might be harder to find financing for these deals given the lack of historical data on performance, the upside is that you can reap significantly larger returns.
For example, an off campus building near Arizona State’s Tempe Campus was recently purchased for $4.7M by an undisclosed buyer. The fully tenanted student housing complex is expected to return around 10%, which might put rent prices for new leases closer to the $700 range per month.
On Campus Student Housing
While on-campus properties are riskier due to their size, location within schools, and often lack of amenities, they can also be significantly higher yielding with better capital protection.
For example, a 3-story project on the University of Minnesota’s West Bank recently sold for $40M. The property is fully occupied and is believed to be returning around 8% under a triple net lease structure. In this case, investors could expect rents in the $600-650 per month range.
Properties near schools are also seeing price premiums, regardless of whether they are on campus or not. Within the past week, a developer bought an off-campus student property in Fayetteville for $8M that had previously sold for just under half that amount less than five years ago. This is just one example of how every investor can take advantage of the student housing market regardless of size or access to financing.
Making the right investment involves doing your homework and following the data. This report is meant to introduce what has come before it so that you can be better prepared for what comes next.