Student housing as a real estate investment has always been an attractive opportunity, and despite the setbacks caused by the coronavirus pandemic, it will continue to be popular in the future. As schools reopen and the world adjusts to a post-pandemic reality, the demand for student housing will soar once again.
A Growing Market
In the past, college students would either live on campus or commute from home. However, with the average dorm complex reaching an aging average of 52 years, developers have recognized the need for new and improved student housing units. This realization has sparked a growing interest among real estate investors, who see the potential in catering to the ever-increasing demand for college education.
According to CBRE, the average rental rate per bedroom increased by 3.6% in 2018, and occupancy rose by 0.5%. These numbers are impressive, with close to 99% of off-campus housing being occupied during the school year due to a shortage of supply. Transaction volume has also seen a significant increase, reaching $9.8 billion in 2016, a $4.2 billion increase over 2015, and more than three times higher than in 2014. The average price per bed has also reached a record high in 2018, standing at $70,000, up over 50% since 2014 and continuing to rise.
The Upsides of Investing in Student Housing
Investing in student housing offers several advantages that make it an appealing option for investors:
1) Relatively recession-proof
When the economy takes a downturn, more people opt to return to school. This trend was evident during the 2008-2010 financial crisis when MBA applications surged by 50%. Investing in student housing provides stability and a reliable cash flow stream, regardless of market conditions, as long as the university remains in good standing.
2) Stability of cash flow
Student housing offers a stable source of cash flow, making it a secure investment. Whether it's a bull market or a bear market, as long as the university maintains its reputation, the demand for student housing will remain constant.
3) Enrollment continues to increase
From 2000 to 2015, enrollment in U.S. undergraduate degree programs increased by 30%, and this number is expected to reach 19.3 million by 2026. The desire for a college education remains insatiable, providing a steady stream of potential tenants for student housing properties.
The Downside of Student Housing
While there are many advantages to investing in student housing, it's essential to consider potential drawbacks:
1) First-time renters with unestablished credit
Student renters often have no prior renting experience and have yet to establish credit. This lack of experience raises concerns about their ability to take care of the property and pay rent on time. It's crucial for parents to co-sign the lease since students typically have limited financial resources.
2) Potentially higher property damage
Students are known to engage in social activities and parties, which can result in excessive wear and tear on units. Property maintenance may require more time and effort due to increased partying and its consequences.
3) Potentially increased liability
Students are generally considered higher-risk tenants, leading to higher rental insurance costs due to the increased potential for property damage.
How to Invest in Student Housing
When considering investing in student housing, it's important to choose a reliable platform that offers strong investor benefits and simplifies the investment process. One such platform is CrowdStreet.
CrowdStreet: A Reliable Investment Platform
Founded in 2014, CrowdStreet has emerged as one of the best real estate crowdfunding platforms due to its focus on steady and stable growth. The platform provides essential benefits and offers access to a range of investment opportunities.
1) CrowdStreet Does Good Due Diligence
CrowdStreet conducts thorough due diligence on behalf of its investors. They review critical information and consider five core criteria during the due diligence process:
A) The Real Estate Company - Assesses the real estate company's track record and their ability to execute a business plan.
B) The Market - Evaluates the market and its potential for success.
C) The Asset - Reviews the property itself to ensure it aligns with investment goals.
D) Capital Structure - Examines the capital structure's impact on returns.
E) Risk and Return - Analyzes the risk/reward ratio of the investment opportunity.
2) CrowdStreet Provides Strong Investor Benefits
CrowdStreet offers numerous benefits to its investors, making it an attractive platform for investing in real estate:
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Pre-Vetted Investments: Only a small percentage of deals make it through CrowdStreet's rigorous vetting process, ensuring high-quality investment opportunities.
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Easy Investment Process: CrowdStreet's platform allows investors to thoroughly analyze deals before making an investment. They can view pictures, videos, and even ask questions directly to the sponsors.
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Focused Opportunities: Unlike REITs that have diverse portfolios, CrowdStreet allows investors to focus on specific areas of interest, offering more control and flexibility.
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Low Investment Minimum: With CrowdStreet, investors can invest with as little as $10,000, making real estate investment accessible to a broader audience.
3) CrowdStreet Provides More Access
CrowdStreet enables investors to diversify their real estate investments through a wide range of opportunities available across the country. These opportunities include various commercial real estate projects that would typically require significant investments.
4) CrowdStreet Simplifies the Investment Process
Investors in CrowdStreet bypass the platform and invest directly with the sponsor, streamlining the investment process and reducing overhead costs for sponsors. This approach also eliminates platform risks and provides access to a more extensive range of investment opportunities.
5) CrowdStreet Has a Long Track Record
With over $100 million distributed, 200,000 members, and more than $3 billion funded in property deals, CrowdStreet boasts a strong track record. Trusting one's investments to a platform with a solid reputation is crucial when exploring real estate crowdfunding options.
Student Housing: A Path to Steady Income
Student housing continues to be an attractive investment option, offering steady income and long-term wealth-building potential. The real estate market provides utility, a reliable cash flow stream, and the ability to ride the inflation wave. By signing up for CrowdStreet, investors can explore a range of investment opportunities, including student housing, as well as other innovative offerings, such as REITs. CrowdStreet's comprehensive platform and strong investor benefits make it an excellent choice for those interested in real estate crowdfunding.
About the Author: Sam, the author of this article, started Financial Samurai in 2009 as a way to navigate the financial crisis. With experience working at Goldman Sachs and Credit Suisse, Sam owns properties in San Francisco, Lake Tahoe, and Honolulu. He has also invested $810,000 in real estate crowdfunding. For a detailed review of CrowdStreet, refer to his comprehensive analysis on the platform.