University Multifamily Too Risky With COVID???

Question

My seller clients just closed on their side-by-side duplex here in Whitewater, WI. In my area, I've noticed A LOT of investors (including potential buyers on this transaction) that won't even consider university/student housing due to how volatile everything is with COVID.

What used to be one of the highest margin strategies just became one of the most risky - lower enrollment, more virtual learning, less renting demand.

-----

Is this the same where you are at, and if it is, how long do you think it will last?

Will Gaston · Answer

@Jacob Sheets I've got ~150 students that rent from me and had 100% rent payment this year. Also 89% leased for the 2021-2022 school year, which is the best I've ever been since I started doing this.

College kids desperately want to be at school with their friends. They are social creatures. This doesn't mean you can't buy a bad deal in a college town. But the predicted student housing apocalypse has not aligned with my experience.

Joe Splitrock · Answer

Half the cost of college is housing and food. With mounting student debt and escalating tuition costs, I only see more students looking at online options to save money. The pandemic has proven that online education works. Ignoring the impact of COVID on how we work or educate is a mistake. We are not seeing the long term affects yet. You have a whole generation of children that are adapting to online learning. Kids in college today grew up in the classroom, but that is not the case for kids in college in the years to come.

I am not saying the on-campus experience will disappear, but change is happening. It will have an effect on future demand.

Jason High · Answer

This is a topic I am interested in as my two older ones will soon be transitioning into college.  I was thinking of buying a multi near their future college or a large house and rent by the room.  That way their own housing would be subsidized through rent from other students.

Dave Poeppelmeier · Answer

@Will Gaston here is my take on the whole University/Student Loan debacle. The government has buttressed the Universities to the point that I don't see how they can ever change the current situation. The local economy would be severely harmed if you took away all of the jobs/spending/and money students bring to any area by knocking those buttresses out by not guaranteeing Student Loans. I agree, Higher Ed will be changing, and I would definitely be very cautious investing next to small colleges that might not make it through this change. But, with my investments around the University of Toledo, it's big enough that it's not going anywhere and I feel pretty good about it's future.

Mike Dymski · Answer

In the South, people went back to college in the Fall, COVID spiked in a big way on campuses, and classes went on as usual.  Signing leases over the next few months for the Fall 2021 semester should not be problematic in these areas.

Dave Poeppelmeier · Answer

I would say as long as your around a big University/College that are in no way at risk of folding, things are great. I agree with @Taylor L., the biggest thing I have heard from students is they don't want to be in apartments/dorms with Covid. We had our strongest demand last Spring during the height of Covid, and I've already rented our one vacancy for next year and our Rental Season doesn't really start until February. I really like my position right now.

Taylor L. · Answer

Folks in the know here who I've talked with have actually seen a rental demand increase, as parents want their kids out of the dorms and into 1 brs. Post-covid I'm sure things will be somewhat different for everyone, but "the college experience" is still an institution. Once Covid passes, high schoolers will still be just as eager to move away from their parents out to the wide world beyond, and colleges will still be there to fill that role for many of them.

That said, I'm not buying student rentals.

Will Gaston · Answer

@Joe Splitrock makes some great points, as usual. I agree that things will change and, in the long term, demand will ebb. College is simply not the correct financial decision for more and more people based on the cost.

I think focusing on larger colleges and A+ locations close to "fun" (i.e. bars and football stadiums) will mitigate a lot of that vacancy risk. Large universities could slowly disappear but it won't happen overnight unless the government decides to stop guaranteeing student loans. That is why my strategy has shifted towards evergreen properties and/locations. In my experience there will always be a market for the "best."

Conn G. · Answer

University housing is very insulated against any type of market scenario. Just make sure all risks are evaluated based on tenant selection, location, affordability, and securing a great deal.

Mike Cosmah · Answer

It sounds like everyone here is pretty optimistic regarding student housing. I have noticed investors in the south convert some units to conventional style apartments or leasing to non-students "as is".

University Multifamily Too Risky With COVID???

Most Popular Reply