In a world of volatility, real estate seems like the perfect investment. Not only is it real — no pun intended — but it’s also a fundamental human need. Regardless of economic turbulence, people always need places to live.
Hone in on student housing and the investment seems even better because students pay more rent per square foot, on average, than other tenants. Then comes another trend: Luxury student housing. Far from the horror stories of student housing, luxury student rentals resemble the Ritz more than the Cockroach Inn. And they’re a boon for investors, offering even higher rents, additional income opportunities, and steady demand from domestic and international students.
But should investors flock to luxury student rentals? For every upside, there’s a pitfall or trap to avoid. Here’s what real estate investors need to consider before buying into luxury student housing.
Photo: James Bombales
Buy in or buy yourself?
The first question in the luxury real estate game is if you want to be an active landlord or passive investor. Being a landlord has the benefit of higher returns, when done well. On the other hand, investing with an experienced condo developer could be a great way to benefit financially with none of the day-to-day hassle.
Both strategies have upsides and downsides; do your research and pick the strategy that works for your portfolio. Regardless of which strategy you choose, though, pay attention to the following items that every investor should consider.
Building location and size
When it comes to luxury student housing, you’ll need to think about:
Proximity to campus: Obviously, students want to be close to campus. But not too close. A luxury building should provide the convenience of campus without the nuisance of actually being in the middle of it.
Location desirability outside campus: The luxury renter is looking for more than just a bed close to campus. They want to be connected to the lifestyle of the town. This means things like cafes, restaurants, shopping, walkability, transit access and more.
Building size: A mega-tower might be daunting, but a duplex or triplex may not produce the returns you’re looking for. Keep in mind luxury buildings will typically require larger units and more space for amenities, so you don’t want to go too small.
Student/family demographics and school living expectations
As you contemplate your investment, do research into the student body and their families. In the case of luxury student rentals, you’re often renting to the parents, not the students.
Further, check on the school’s housing culture. Some schools, such as the University of Toronto, pride themselves on having a residential college system and a culture of housing many of their undergraduate students on campus. That’s not to say there isn’t opportunity, but you have to know if you’re battling against cultural expectations and large-scale development plans for well-endowed institutions.
You’ll also want to make sure you have a plan for the summers, although most student rentals are still done on a yearly basis, not a school-year basis.
Luxury renters have high expectations. Make sure you’ve thought out:
In-unit finishes: Granite countertops, the newest appliances and hardwood floors are all considered standard in a luxury building.
In-building amenities: Laundry services, gyms, coworking spaces, libraries and rentable party rooms or conference rooms are fairly common in luxury student housing.
Special considerations: You may find yourself having to deal with private security teams, requests for private entrances/exits, or other issues when you have luxury clientele that could include the children of politicians, wealthy business people or other powerful individuals.
Other revenue opportunities
Having higher rents is great, but it may not necessarily be enough to pay for all the extra amenities expected by tenants. In that case, make sure the building has additional business opportunities that you could either cultivate yourself or lease out to others.
Food and drink: Is there room for you to open your own restaurant or lease the space to a chain?
Concierge style services: Can you bake into higher rents the opportunity to have a concierge for booking travel, accommodations or making reservations?
Domestic services: Do you have the opportunity to have pay-per-use (or subscription) services for laundry, cleaning, groceries, storage or other domestic services?
Partnership opportunities: Certain businesses may want to advertise, open activations, or leverage affiliate-style marketing in your community — how can you take advantage of that without cheapening your tenant experience?
Be prepared for backlash
Student housing is in a crunch right now, with many universities unable to house all of their students and rents soaring in standard student rentals. If you come in with a luxury offering, you could become a target of student or community protests.
While this may not necessarily hurt your occupancy — especially since vacancies are incredibly low for student housing — it could hurt your public image and other businesses.
Photo: James Bombales
Hospitality over housing
The name may say “student housing,” but the true game is hospitality. Increased rents from the moniker of luxury may not be enough to cover the additional demands and expectations your tenants are bound to have. However, if you take a hotel-style approach to offering multiple services and focusing on the lifestyle elements of your property, it can be a high-quality flagship investment.
As you work through potential investment opportunities, just remember you’re in the game of providing an unparalleled living experience. The fittings, fixtures and amenities are just tools you use for the mission.
Stefan Palios is an entrepreneur, writer and speaker who writes for CourseCompare, Canada’s marketplace for education. Students living on-campus and off can visit CourseCompare to explore top-rated project management courses, data science bootcamps, data science courses, social media marketing courses, coding courses, management courses and more.