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Student housing represents one of the most unique investment opportunities in multifamily housing, and we landed there by happy accident.
In the early 2000s, we sold a property in Illinois and pursued a new purchase but couldn’t find the right fit. Then we discovered a 70-unit property near the University of Illinois. I spent my undergrad years as an Illini, knew the neighborhoods and felt comfortable entering the market.
Thus began our tour of the student housing niche. At one point, our firm operated properties in seven states and was the largest off-campus landlord at several universities. In 2006, I wrote the book Profit by Investing in Student Housing, a step-by-step guide to entering the market.
Student housing, like the students themselves, has changed significantly since then. Yet it remains a growth business for investors who understand its unique opportunities and challenges. Student housing isn’t for every investor. To approach the market properly, investors should carefully think through the possibilities and pitfalls. Here are a few things to consider.
The upside of student housing
As I wrote in my book, if done strategically, student housing provides high rates of return and low risk. Student housing properties — on properly selected campuses — are highly likely to appreciate. Even though colleges and marketplaces change, that still applies today.
According to Coldwell Banker Commercial, student housing will be a $14 billion market by 2027, and beds lease quickly. RealPage found that students at 175 tracked universities had leased 84.5 percent of the beds for the 2024 fall semester by June.
Although that lagged slightly behind pre-leasing rates of the past two years, it still represented both a healthy industry trend and student housing’s investor appeal.
Operators usually pre-lease properties full, or close to it, before the academic year begins, giving them a strong annual rent base.
Rent growth, though it “softened” to 4.4 percent in June, according to RealPage, continues to churn forward. Essentially, demand still exceeds bed supply, particularly at larger universities in less urban areas, and will for the foreseeable future.
That’s the oversimplified core of student housing. Properties achieve high occupancy when enrollment is high, and alternatives to on-campus housing are short.
Off-campus properties lease quickly, generate premium rental rates, and often are located in regions where labor and material costs are lower.
Some operators can fill 100 percent of student beds three months before the academic year starts, removing the pressure of running a property with staggered leases. Largely, you know exactly what you’re getting with student housing: consistent occupancy and rent growth.
The downside of student housing
In student housing, it’s not uncommon to receive a complaint from a new tenant that their power is off, only to learn that the tenant had not called their provider to begin service. Students are primarily first-time renters, don’t understand the details of renting, and need extra attention throughout the process.
That process begins with a stress-inducing August, when most students move into their apartments. These are hectic weeks for operators, who have to clean, paint, repair and prepare units for simultaneous arrival. Imagine a hotel bracing for a large convention.
Onboarding an entire building in a week is intense, often to the point of exhaustion. Operators must plan carefully, be ready for contingencies, and expect chaos.
The opposite of chaos, however, is an under-rented building. This is a pre-lease business, as students begin looking for August apartments in January. A building with unleased units in August is unlikely to find renters in October, leaving money on the table.
Further, students are, let’s say, particular renters. They can require higher security deposits and cause more damage. They also mean more annual upkeep. We replaced carpets and repainted every unit before every school year.
This requires careful budgeting and diligent maintenance.
These are just the short-term concerns. Long-term, investors must monitor population trends, ever-escalating tuition costs, and alternatives to four-year degrees. College enrollment is declining, particularly among men according to Pew Research. The Chronicle of Higher Education writes that universities are preparing for an “enrollment cliff” that could alter their futures significantly.
How to get started in student housing
Still interested in student housing as an investment? Here are some suggestions to get started:
Choose the right location
Student housing can follow an even more location-based approach than traditional multifamily housing. Investors should consider larger schools in less urban environments, where fewer multifamily properties are available.
Look for markets with universities of at least 15,000 on-campus students and those with high application numbers and consistently growing freshman classes.
Regionally, according to RealPage, the desert and mountain states of Arizona, Utah and Idaho have reported high occupancy (99 percent) and rent growth (13 percent).
Also, survey the quantity and quality of on-campus housing options when considering off-campus investments.
In-market factors matter as well. Traditionally, properties within a mile of campus are more popular than those farther away. Still, out-of-town properties can be appealing, especially to graduate students.
In fact, RealPage noted that properties more than a mile from campus reported stronger rent growth in June than those closer to campus.
Understand your renter pool
Again, students are not traditional renters. They need more assistance. Consider video tutorials about the move-in process, property features, and lease terms. Make expectations clear, and communicate not only with the students but also with the parents, who likely will guarantee the lease.
Be very online
Many students, especially out-of-state and international applicants, will choose an apartment solely through virtual tours. They also want to report issues and, most importantly, pay rent online. Operators should build a robust online portal and app to manage student communications.
Despite the challenges that all multifamily markets face, student housing remains a solid investment. The fundamentals and demographics are strong, and financing options can be favorable. Cautions always exist, particularly in individual markets, but student housing endures through most economic conditions and continues to be a resilient investment.
Michael H. Zaransky is the founder and managing principal of MZ Capital Partners in Northbrook, Illinois. Founded in 2005, the company deals in multifamily properties.
