Pros
Recession-proof Tenant Population
An economic downturn typically catalyzes the decision to enroll in graduate school, strengthening tenancy trends. The largest uptick in enrollment growth took place from 2007-2009, when the US was in the middle of the worst recession in modern history. Young people who were unable to find jobs in the market moved back home and returned to school.
Lower Risk of Default
Many student housing properties require a co-signer for each student, ensuring the reliability of timely payments. This provides an extra level of protection for investors from rent delinquency. Additionally, for students that lack this luxury, there are many forms of financial aid that cover the costs of living. These factors make the default rate very low.
Lower Expectations
Student rentals need not be luxurious, basic housing will often do. Most college students don’t expect to live in high-end rentals and are just looking for a space that can accommodate their basic needs. Landlords typically enjoy the lowest level of required maintenance, cleaning and repainting. This is in contrast to the traditional rental market, in which replacing big-ticket items every few years is an industry standard.
Cons
Tenant Turnover
Students are not going to stay for the long term. The academic year governs leases, and in the best-case scenario, students will stay in the same residence for 2-4 years. Such high turnover requires investors and landlords to actively seek out new tenants on a yearly basis.
Active Management
Management of student housing is anything but passive. Noise complaints, roommate conflicts and damages are just the beginning of the issues that face this rental sub-industry. Accordingly, this type of management is only feasible with a property manager on standby, or in close proximity and a crystal clear delineation of the rental terms upon signing the rental agreement.
Students Being Students
Property damage is very common in college housing, as students can be careless and do not always consider the consequences. Damages are often more than the security collected, and damaged floors, holes in walls, and broken cabinets and windows are not unusual for college tenants.
Ultimately, investors must weigh the costs and benefits of engaging in student housing projects. The fleeting nature of clientele coupled with the low level of required investment and upkeep render this type of investment a double-edged sword. Landlords can get away with putting less effort and investment up front, but the difficulties facing investors in the long term if they are not cautious and meticulous can be detrimental to their return on investment.
Investors must take care to ensure that they have proper support on the ground to succeed in this market. Doing so often requires close relationships with property managers and brokers. This can help guarantee that properties are inhabited by students who respect the property, pay their rent on time and renew their leases at the end of the year.