❓ Cashflowing on Student Housing MiniPlaybook

Welcome to the real estate asset class that even the great Sam Zell got started in... student housing.

Welcome to another edition of a Cashflow asset class playbook.

This time we're discussing a subcategory of real estate whose demand will (almost) always be there. We're talking student living. Not National Lampoon frat style... but the style that provides ways for you to make money on housing near college campuses. Earn while they learn.

Summary

Intro: Never Graduate; Always Cashflow

Many individuals consider college to be the golden age of their lives. Young with newfound freedom and independence to learn, explore, experiment, and engage.

Over the past two decades, college enrollment for 18-to-24-year-olds has increased by six percent and about two-thirds of high school graduates enroll. As of 2019, there are an estimated 20 million undergrad students enrolled in colleges across the United States.

And they all need housing.

To be exact, 55 percent of students use some other form of rental housing.

About 60 percent of students live in off-campus housing. From apartments to houses and everything in between, students need a home to sleep, study, and yes, party.

As an investor, real estate in college towns presents an interestingly unique four-pronged real estate thesis.

Recession Proof

The perfect case study to prove if college rental housing was still viable took place from 2020-21. Covid-19 forced universities to go online only for months and were forced to compete against a new pack of online educational competitors.

Free ‘MBA’ Twitter threads and other cohort-based learning classes took off like a rocket. Many questioned if it would replace the traditional high school and university learning infrastructure altogether.

However, students are back in the classroom and there is a demand to continue to get a traditional four-year degree.

Isolated Valuations

The college town often forms an isolated bubble within the city they are located in. A new sub-culture is formed with separate demographics, businesses, and daily operations.

This is beneficial for a real estate investment because your properties will be desirable and in demand even if the surrounding areas of the city are not.

Consistent Demand

Universities have navigated the choppy waters of online learning and have seemed to sharpen their value proposition of why students should pay for their service.

Two pieces of that are due to factors outside of the classroom. First, there is a social element of learning and interacting with others as the next stage of growth in a young person’s life. Second, is that universities have big athletic programs, which is an enticing feature.

As long as major universities continue to offer unmatched social events and field competitive athletic teams, students will continue to enroll and create a robust economic climate. You could even pivot to an AirBNB business plan for fans that will always want to attend.

Built-in Security

Universities are densely populated areas and as a result, there will always be people around to keep an eye on your properties. This means there should be plenty of operator candidates to work with to provide property management services and ensure that the house does not fall apart.

Many universities also have campus police who work closely with local police to keep the campus and surrounding areas as safe as possible. Most schools have text messaging alert groups that you can sign up for as well.

Real estate within a university’s footprint has value uncorrelated to the city; is isolated from depressed economic conditions; is more secure due to increased traffic and has consistent demand from new tenants.

Cashflow Conversation: Mike Muniz

Mike Muniz built up a 17-property real estate empire over the past five decades in San Antonio all while working a full-time job! Though not exclusively, he has rented to students from four different universities and colleges in the Alamo city.

We spoke with Mike to get his advice on how to best work with students and what did and didn’t work. Check out the full report of the conversation here.

Key takeaways:

• Having a property in a terrific location is key and Mike made sure to look for properties that were in good neighborhoods and a short driving distance away from popular attractions.
• Mike recommends multifamily units for maximum cashflow. The money flow is better with multifamily. Duplex, triplex, four-plex, etc.
• Red flags to look out for are: if the student or family complains about the rental application; makes mistakes or leaves an application incomplete; does not have a valid ID; raises concerns that make it seem like they will be a needy tenant; do not dress professionally; arrive late or state that they are looking to party.
• The key is to set very clear expectations on the front end with both the students and the parents regarding what’s allowed and what’s not, and whose responsibility it is for utilities, cleaning, etc.
• If it’s a new RE venture for you, take small steps first until you’re more familiar with the type of work that will be required to maintain it.

Playbook

Here is the step-by-step guide on how to find, vet and execute on adding a student housing rental to your portfolio.

Step 1: The Location; where to find it

There are lists of the top college towns, but where is the best college town to invest in? And there are some iconic ones:

• Waco, TX
• Madison, WI
• Austin, TX
• Tuscaloosa, AL
• State College, PA

At the end of the day, this is a real estate transaction. Search for listings on the following methods:

• Zillow.com
• Realtor.com
• AirBNB
• Contact off-market property owners via cold calls.

Step 2: Understand the pros and cons

The waters may look smooth to buy a rental property and lease out to students, however, it is vital to be aware of all the pros and cons before diving in.

There are many pros for making this type of investment:

• Semi-absentee investment
• Plenty of student demand to max out occupancy rates
• Opportunity to hire a nearby property management company or other operators
• Can charge higher rents as multiple students live together and split rent
• Relatively safe areas
• Flexible to praise or downplay the surrounding city
• Opportunity to give back to the new generation (if they want it)

There are many negatives to be braced for:

• Unable to find renters in time
• Being in price wars with other housing options
• The trouble with getting the lease signed
• Challenges collecting payment
• Too many people living in the house (i.e. not on the lease)
• Communicating with helicopter parents
• Tenants throwing parties that trash the house

We spoke with our pal Eric who lives in Dallas and has had experience with renting out small one-unit apartments to college students. He likes to keep his operation small and manageable by renting out to a maximum number of two students.

In that regard, he told us that the issues were never with his tenants—two undergrads from Baylor and then an SMU law student. Any core problems came from the property, which included short-term rental (STR) limits, a sewage backup, and an HOA special appraisal for a structural breakdown on the second floor that affected the ground units.

But what about someone with a larger sample size?

An anonymous Twitter account that has carved out his expertise in the student rental niche is @StudentRentalPro. He has managed over 2,000 students who have rented his properties. He is interviewed by Chris Powers of Fort Capital and offers a revealing thread on 25 key lessons learned.​

**To view the rest of the mini playbook and access your resources, visit the vault!**

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