Take a Crash Course in Philadelphia Student Housing Investments

Grow Property Management is a Philadelphia student housing manager service

Understanding Philadelphia Student Housing Investments

Student housing is probably the best-kept secret in Philadelphia real estate investment.

What differentiates student housing from other Philadelphia real estate transactions is the fact that it offers more stability than the others.

As students being to make their way back to school, you might want to start shopping around for brand new properties to boost your portfolio. Philadelphia property offers a lot of diversification and student housing is one lucrative sector that has been under the radar for a while now.

“The Philadelphia student housing real estate investment market is virtually untapped,” says Joe White, owner of Grow Property Management. Student housing as an investment is quite exclusive, though there’s still a lot to explore in that sector, “which means there’s plenty of room for opportunity for new rental investors in this market.”

Because of the small size of this niche in the Philadelphia real estate commercial market, a lot of people with high net worth and institutional investors have always been interested in it. Also Read Optimizing Multifamily Student Housing Assets for Maximum ROI

Joe White further says “On the private side, we’re seeing a tremendous amount of rental property investment in that asset class,” although real estate investors have always found it difficult to get access through the public markets.

However, they’re gradually getting rid of the entry barriers for regular investors. So if you’re ready to branch into student housing, here are a few things you need to know.

It can give you some consistency. With student housing, you can enjoy some level of stability which is lacking in other real estate departments, especially when the market is very volatile.

According to White, “One of the main advantages is consistency. Demand for student housing is always going to be there, which means year after year, there will always be viable tenants for your investment.”

There’s some truth to this even in a bad economy.

According to White, “Student housing tends to be less economically sensitive, relative to other sectors, due to the nature of the industry. During economic downturns, enrollment tends to remain steady or may even rise due to fewer employment opportunities, which typically leads to growth in college and university enrollment.”

If you’ve been worried about the possibility of recession or instability in the market, this ought to reassure you. Philadelphia student housing offers the kind of predictability that may be lacking in other sectors.

 

“One of the advantages is that students sign one-year leases,” states White. “Think of it as analogous to buying a one-year CD; those rates will reset annually, which can work to your advantage in a rising-rate environment, or in this case, a rising rental market environment.”

Lease renewals are usually easier to obtain with student housing since students are usually aware of their resumption date in advance. However, it is not without its own risks.

According to  White, “The sector is exposed to more seasonal volatility given the need to fully leased facilities every year for the school year over a relatively shorter window. This degree of seasonality is more unique to student housing versus other sectors.”

White is also of the opinion that exposure to different new developments can be a threat to student housing. “This can provide investors with a growth engine however, it also brings with it the potential for periods of oversupply at specific universities, which can put stress on leasing progress as new supply is digested.”

High profit potential. If the demand for student housing is consistent enough, it could pave way for strong rental investment returns.

“As a Philadelphia student housing management company, we see that generally, a landlord can charge more money per square foot in a student rental, than say a single-family home in a higher priced neighborhood because there are roommates involved.”  

White is also of the opinion that student housing offers investors more security when it comes to rent collection as most students receive help from their parents. “Whether they’re paying for the rent or co-signing the lease, the parents’ involvement generally means rent is paid and paid on time.”

Location also has a lot of influence on student housing profitability. The rates for student housing are sometimes higher than the rates for regular residential areas depending on the location of the property.

“Neighborhoods near college campuses tend to be more expensive than surrounding areas because of their proximity to campus,” says White.

You might need to factor in the cost of management and maintenance if you’re not the one overseeing the rental property. You must also prepare yourself for the stress that comes with renting to younger people.

According to White who is responsible for several student housing units within Philadelphia, their maturity and volatility is the biggest issue with having young adults and teenagers as tenants. He also feels patience is key to surviving the experience.

In his words “You’re dealing with the personalities and quirks of dozens of maturing adults who are very different to most other tenants,” and if you have tenants that depend on financial aid for income, “you may have to get used to quarterly or semesterly payments instead of your usual monthly rental cash flow.”

 

Avoid the student housing hassle through indirect investments. If you cannot handle the stress of renting out your property to students; real estate investment trusts, real estate crowdfunding or exchange-traded funds, are great investment alternatives.

According to White, public student housing REITS is a great way to gain some exposure in that sector considering the fact that their portfolios are large and diversified and solely focused on campus, with great ties to the university. Liquidity happens to be an added bonus.

He stated that “Public student housing REITs also reduce economic sensitivity by partnering with some of the highest quality universities that see less fluctuation in enrollment.” Student housing REITs for June had an average return of about 14.34% to date.

REITs will offer you the same benefits as direct ownership. Inflationary hedge, dividend-based income, favorable tax treatment, appreciation and diversification are examples of such benefits.

You can get similar benefits from real estate crowdfunding, which also offers increased accessibility. You can also invest with something as little as $500 to $1,000 on some real estate crowdfunding platforms. This is actually a great discount compared to the regular five to six figure minimums associated with most private student housing investments.

White is of the opinion that your choice of student housing is largely dependent on the type of investment you’re interested in.

“If you want to be very involved and a hands-on landlord, it’s best to purchase real property. If you want to be more of a passive investor, someone who simply wants a return, then a REIT or an ETF can be good,” and all you have to do is take a look at the “cash flow, appreciation benefits and tax benefits of a real property when trying to make this decision.”

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