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2021-2022 School Year: Time To Invest in College Housing?

Apr 04, 2021 by Laura Agadoni
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If the coronavirus taught us anything (and it taught us a lot of things), it's that there are no sure things in life, as the saying goes, except death and taxes.

Case in point: You might once have thought attending college classes in person was a sure thing, but we've seen what can happen -- about a year of at-home learning. Some colleges and universities are anticipating a return to in-person classes in the fall. Moving forward, will college housing still be the good bet it's traditionally been?

Colleges and universities gauging what might happen

Many colleges and universities plan to return to in-person learning for the 2021-2022 school year. Colleges are apt to open; if they don't, they're going to lose a lot of students.

But many colleges include a disclaimer that allows them to revert to online learning if COVID-19 starts to spread again. The fear from students and parents is that something similar to what happened last time could happen again: Tuition is paid, a place is rented, and the student is told to go back home. This uncertainty is making college and student housing riskier investments.

Will student housing be necessary?

When colleges and universities told students to stay home during the 2020-2021 school year, they lost money, and real estate investors who invest in student housing were hurt. If you invest in college housing, you need reassurance that students will return.

A new viewpoint

Since colleges were almost exclusively online during the pandemic, it opened people's eyes. Are expensive colleges worth the money? Should people continue to learn online? We do have a huge student debt problem in America, so those are huge questions for which we don't yet have the answer.

How investors can make a decision

Providing student housing has always been a fairly low-risk proposition. There's traditionally been a strong market for rental housing in college towns. Plus, off-campus housing is looking especially attractive when compared to dorm living during a pandemic. But if no one is attending the college, particularly to the point of the college going out of business, your rental business will probably fall by the wayside as well.

The caveat is if there's more going on in that town besides just the college. For example, if a college in a rural area looks as if it might not make it after the pandemic, you might not want to invest there anymore. But if the college is in an urban or suburban area with other businesses and industries, you might be OK, even if the college doesn't make it.

If your property is near a major university, you probably don't need to worry too much about the school going out of business; most of those types of institutions should maintain a healthy enrollment.

Student housing REITs

Another option when investing in college housing is to invest in a student housing real estate investment trust (REIT). According to student-housing management company Campus Advantage, student housing REITs fared well during the 2008 to 2010 recession, increasing net operating (NOI) income by 8.7% compared with conventional apartment REITs, which decreased NOI income by 6.3%.

Is that past example a good sign for today?

Maybe, but probably not. Student housing faring well during the recession might have been because people who lost jobs decided to enroll in college. What happened then isn’t necessarily what’s happening now. Landlords are likely facing greater risk with student housing with the pandemic than they did during the recession.

Different possibilities

It's still too early to tell whether COVID-19 will have caused a major shift in higher learning. Will COVID-19 end by this fall, allowing students to return to the classroom? Will it come back, making online learning necessary again? Will there possibly be waves of COVID-19, making a hybrid system a good option, such as in-person learning during low COVID-19 cases and online learning during an outbreak?

The Millionacres bottom line

If you're heavily invested in college housing, you might need to be ready to pivot to another type of investment if you're having vacancies that are becoming unacceptable. Or if a hybrid model happens, you might consider renting your units on a short-term basis, charging more for the busy season when school's in session. Investing in college towns, as of today, is still a bit of a mystery.

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