Which one would you invest in: Multi-family or student housing?

15 Replies

Hello!

I'm Carol, I'm researching the student housing market, who has experience in this niche? Why invest in student housing over traditional larger multi-family units ? Is student housing investing only for the institutional investor?   

Appreciate your insight.

Carol

The main reasons to invest in student housing is a steady base of tenants and you can make more per unit because you can rent by the room. As long as the university is doing okay, you'll have students coming in every year. As for income, instead of $800 per month for a 3 bedroom you can rent it out at $350 per bed.

The downside is you have more turnover, the students do more damage than normal, they have different expectations of amenities, and it's harder to get loans for large complexes.

Hi Michael,

Thank you for your reply. @Tom Keating told me about Small Balance Loans backed by Freddie Mac up to 50 units I think I can get funding to use for different types of multi-family investing.  I can appreciate the downside of what you are saying about the high turn-over rate. 

I buy apartments and I have looked at large ones near the universities. My lender was very specific that I should not have a tenant mix of more than 40% undergraduate students as that would be considered student housing. And with student housing then the loan requirements, in regards to experience, is different. So although I already have agency loan experience, it would not apply because my experience is with MFH and not student housing.

It sounds like to get a loan it would be different for student housing versus a traditional multi-family apartment building loan. 

@Carol Bloom

Approximately 50% of our properties cater to university and college students.   This portion of the portfolio comprises individual houses - some rented as an entire house (single lease), others by the room (multiple leases) - along with 2-4 unit properties and multi-unit buildings (we rent most of these by the unit).

For us it's not an either or decision, but one of location and target clientele.  Here those units within 5-10 minutes walking distance of campus are best purposed for student housing - both because they are most desirable to the students and less desirable to other populations.

Within this radius:

  • A multi-unit building comprised primarily of 2 bedroom units with a few 1-bedroom and/or 3-bedroom apartments works well;
  • A house with 4-5 rooms is appealing to groups of chums (mates) looking to live together, though social cohesion is more difficult to maintain and annual turnover is common;
  • A house with several furnished rooms (and a live-in Den Mother) is appealing to International Students.

We have been fortunate to experience very little in the way of "student damages" to properties, but we screen very thoroughly and almost always require a guarantor (typically parents or grandparents) to backstop any damage or fiscal failure of little Janey or Johnny.  We also inspect our properties at lease once per quarter, fix any damages and invoice the tenants if appropriate (we do not wait until the end of the tenancy).

    

The key is to know your student market and all the sub-markets therein.

@Roy N. you make some excellent points about a hybrid approach to student housing investments. Sounds like it comes down to location, location, location no matter what the investment is. 

Do you personally property manage it all or do have a property manager dealing with all these leases and moving pieces?

Originally posted by @Carol Bloom :

@Roy N. you make some excellent points about a hybrid approach to student housing investments. Sounds like it comes down to location, location, location no matter what the investment is. 

Do you personally property manage it all or do have a property manager dealing with all these leases and moving pieces?

 Carol:

We have yet to find a property manager who "checks all our boxes" so are going the path of developing our own in-house expertise.

@Roy N. have you had any challenges getting hazard insurance for the properties that you rent out to students? Not your multi units rather your SFD? I had a client that purchased a house for his daughter near a major University in MD, and I remember him having difficulty getting reasonable price on the hazard insurance.

@Carol Bloom student housing like military housing is a little more risk (but potential niches) than general mfh. I am a newer investor in MFh and I don’t feel I should skip over the more general education that normal class c or b mfh offers. Of course if you find a deal that’s one thing but I would consider starting with the bread and butter. Just like how a lot of us start with class b- sfh rentals.

Originally posted by @Paul Defngin :

Roy N. have you had any challenges getting hazard insurance for the properties that you rent out to students? Not your multi units rather your SFD? I had a client that purchased a house for his daughter near a major University in MD, and I remember him having difficulty getting reasonable price on the hazard insurance.

Paul:

We've never had any problems obtaining insurance coverage on any portion of our portfolio - save perhaps when we acquire a vacant building ;-)

@Lane Kawaoka I would be a new investor to multi-family, I have SFR. After talking with a few lenders one of them suggested to look at a minimum of 6 units+ it's actually easier to manage he believes than 2-four plexus. Freddie Mac has a program for multi-family investing. Student housing is a niche of it's own.

Are there any multi-family conferences you would recommend to attend?

Can anyone suggest tools they use to figure out if the property is a good deal or not? 

I am also looking at multiunit student housing in Tucson.  A good rule of thumb for me has been monthly rent/price ratio of at least 1.0.

@Colby Fryar thanks for your post. I'm reading the book by @Paul Moore The Perfect Investment Multiifamily it includes all types of multifamily niches.

Good luck to you in Tucson.

Thank you-  I will check that out.

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