Tight housing supplies force University of California students -- who are largely unemployed or on low incomes -- to come up with $1,000 a month rent for a one-bedroom apartment near the Davis campus; more than $1,100 near Berkeley; $1,175 in Santa Barbara; and from $812 to $1,374 near the San Diego campus.
The University of Pennsylvania recently called in a student housing development specialist to raise 150 apartments for up to 400 students above 40,000 square feet of retail space in a $50 million development on the edge of Penn's Philadelphia campus. The university cited a growing student population as the reason for the unique project.
The growing student population at Troy University prompted Troy, AL, city officials to approve a $23 million Troy University plan to build four, four-story dorms, adding 500 beds to campus housing, along with an off campus 27-unit condo complex.
The flurry of approvals came on the heels of a growing number of college students moving into single-family homes near campus in violation of single-family zoning laws. The city says the college homes were the results of parents looking for investment properties.
"I think it appealed to people to be able to buy something a couple of college students could live in and have an investment and not pay rent into a bottomless pit," Troy city council member Jason Reeves told the Messenger, the town's local newspaper.
"Echo boomers" are off to college and the pressure they are putting on the on- and off-campus housing stock gives new meaning to cramming: Investment opportunity.
Born between 1982 and 1995, baby boomers' offspring, kids and young adults known as "echo boomers" (also "Generation Y", "Millennials" and "Bridgers") comprise a population bulge 80-million strong and a large segment of them are at or near college age.
Turned on by what they can plug in, they are also Madison Avenue's latest darlings.
Echo boomers comprise nearly a third of the nation's population and spend $170 billion a year. They are the first generation raised with computers in the home, 500-channel satellite TV, the Internet, cell phones, iPods, and Blackberrys stuffed into their gear wear.
Likely to be the most highly-educated demographic in America, echo boomers have to live somewhere, but higher education is hard fought to come up with sufficient student housing.
"Universities are under severe budget crisis. They simply don't have the money. They are always going to the state legislature for more allocations for academic needs. This is while they are under pressure to keep tuition costs to a minimum. Housing and dorm rooms are on the bottom of the priority list," says Michael H. Zaransky, author of the new "Profit by Investing in Student Housing: Cash in on the Campus Housing Shortage" ($18.95, Kaplan Publishing).
Zaransky says those demographic, sociological, and economic factors are converging to create a "perfect storm" for real estate investors who can put roofs over students' heads.
"Someone is clearly going to make money from this convergence of trends -- so why shouldn't it be you?" he asks.
With 25 years of realty investing experience, including student housing, Zaransky is Co-CEO of Prime Property Investors, Chicago, IL, and offers student housing investment tips that make the grade.
He says:
- The primary consideration for investors considering student housing should be a low, university-owned, bed-to-student ratio. Nationwide, on the average, almost 70 percent of college students rely on non-campus housing, so locations won't be hard to find.
"Thirty percent is the national average, but there are many schools where ratios are even more acute, 15 or 20 percent. Colleges and universities are clearly relying upon the private sector to house (80 to 85 percent of some colleges') students," Zaransky said during an interview.
The top states with the most favorable ratios, except for Florida, which also has a high demand for student housing, are all located west of the Mississippi River and include Arizona, California and Texas.
"That is not to say there aren't opportunities on every campus, it's just a good starting point to stack the deck in your favor with high-growth states where the ratio is low," Zaransky said.
- Avoid investments in housing near private universities (as opposed to public schools), which are heavier on restrictions about where students can live.
- Avoid investing in housing for students attending schools in large cities where commuting is the norm and the need for off-campus housing less intense.
- High levels of construction or growing listings of properties for sale in a college town could be a red flag signaling the best investments in those locations are limited to well-located, close-to-campus, new student housing.
- When figuring your net operating income (NOI) -- projected income minus projected operating expense -- include rent, income from late charges, laundry, parking, vending machines, utility reimbursement, and damage deposit forfeiture revenue all on the plus side. On the minus side, subtract real estate taxes, insurance, utilities (including cable and Internet connection charges), repairs and maintenance (including turnover costs, outside contracted services for lawn care, snow removal, cleaning, etc.); supplies, advertising, administrative expenses; legal, accounting, and management fees; and capital reserves and related expenditures.
- The best student housing is loaded with modern amenities and is within walking distance of the campus where existing housing is old, outdated dorm rooms.
- Where ideal property attributes are missing, a location near the center of campus can trump the drawbacks.
Zaransky says because of converging conditions, the student housing market is relatively new and not pockmarked like the national housing market where the boom is shifting to more affordable markets.
"It's probably in the middle of its biggest boom," he said.
He recommends starting with a modest investment, say a condo or townhome, before trying to move up a class to small apartment buildings and larger apartment buildings.
The niche market also requires expert guidance from a professional who knows not only the general market, but the specific student housing conditions and can supply first-hand evidence of rental income, occupancy rates, off season conditions and property management services.
"Most college campuses are very local markets and there are typically two or three local property management firms that specialize in renting to students. I also recommend using property managers rather than trying to manage from out of town. Its much more difficult to manage than non-student housing," Zaransky said.
He also said it's an opportunity for real estate agents to generate transactions in the greater changing real estate market.
"Local Realtors who hang their hat in the area, for them, it would behoove them to learn the market in the local campus community as an opportunity to do transactions for investors," Zaransky said.
