When seeking an investment that offers the potential for an income stream, real estate may be a wise option. A 2018 study found that private market commercial real estate returned an average of 9.85 percent. Not bad! Real estate investments historically have provided a reliable passive income and can help you build wealth. The question is, among all the available options to invest in real estate, what do you believe has the best potential? Answer: student housing.
When compared with other real estate investments, student housing is remarkable for its potential cash flow, stability, and diversified revenue sources. These potential benefits are just a few reasons student housing has picked up and is one of the hottest commodities in the real estate business.
Cash Flow: Commercial vs. Non-Commercial Real Estate
Unfortunately, most financial advisers automatically downplay real estate. That’s because they associate real estate with traditional residential purchases, in which properties are leveraged around 70 or 80 percent and there is no cash flow revenue to support the mortgage payment. Financial advisers also caution that if your property is used as a rental, it may be extremely labor-intensive for you and may not be worth the return.
Student housing investments, however, don’t have these same problems. Commercial real estate, which includes student housing, is valued highly because of its potential for cash flow or net operating income.
Stability: Student Housing vs. Other Commercial Real Estate
Typical commercial real estate presents a problem—properties such as retail offices are closely tied to real estate cycles or business cycles. Cash flow may not be as possible when it’s not sale season, for example.
You may be thinking, “Doesn’t student housing also have a season? Wouldn’t revenue decrease when students return home for the summer?” But that’s not quite the case. Demand for student housing is tied to the university, and these institutions are historically among the most stable. Most universities survive economic depressions, wars, and shifts in cultural priorities.
The new model for student housing, which involves 12-month leases, is currently very investment friendly. Even if the student goes home for the summer, rent is still paid. The most important part? Parents are cosigning and guaranteeing the rent.
Diversified Revenue Source: Affluent Properties
If you invest in an affluent property, you have a potential advantage: more often than not, Mom and Dad are paying the rent, not the 20-year-old student. Most of these parents are homeowners with steady incomes, so your net operating income has the potential to be more consistent—you may not have to worry as much about turnover costs and evictions. When you’ve invested in an apartment complex with hundreds and hundreds of students, the income from all those cosigned parents makes for the potential for a well-diversified revenue source.
If you’re going to invest, consider investing in real estate. If you’re going to invest in real estate, consider investing in student housing. We believe, that of all the real estate investment options out there, student housing has the best potential to provide cash flow, stability, and diversified revenue sources than other real estate investments. Read about our strategy to learn how you can start investing in student housing in the best way possible.