The University of Oregon area has been a hot bed for new student housing development in the last 24-36 months. Most of the big five national student housing builders have flocked to the area in the last couple of years to build luxury living apartment complexes for students.
Many of the newer developments feature granite counter tops, stainless steel appliances, IPod docking stations in every room, high-vaulted ceilings as well as an amenities package that would rival even the Four Seasons Resort types. There were approximately 1,200 new beds built in the U of O area in 2014-15 with these types of high-end living accommodations.
Meanwhile, according to recent statistics, enrollment at the U of O has declined by approximately 300 students. While that may not sound like a lot, there has been a continued decrease in the enrollment numbers over the last three years. And beginning in the Fall of 2017, the university will require all freshman to live on campus. So where does that leave the smaller “Mom and Pop” investors who own 8-20 units in the campus area?
Raising the Rent on Student Housing
Lea Polito, Property Manager with AG Campus Housing, is telling her student housing rental property clients to keep their rents stable and to plan on not raising them. Polito says that the larger four and five bedroom houses near the U of O are always snapped up first and in high demand, compared to three bedroom units that are tougher to rent.
When asked why, she answered that it is typically difficult for students to find three roommates who all know each other, are willing to co-habitate together, and can all afford the same rent. Costs are also cheaper for a student when things like utilities are split five ways. That increases demand for the larger properties with more bedrooms.
She also indicated that the two bedroom units are usually absorbed last and it is typically the students who started out with the hopes of renting a house with multiple friends only to find that someone is not going to make the move, or dropping out of school and now they are down to two.
The best advice she has for small apartment complex owners is to keep your rents steady and not try to raise them substantially. The days of raising your rents by $50 to $100 are probably over for right now until the U of O starts to raise enrollment.
Takeaway: A good property management company like AG Campus Housing can be invaluable to an investor. AG Campus Housing tries to send at least quarterly updates to their student housing rental property investors to let them know what is happening regarding rent trends, lease renewals, and overall vacancy factors.
To Sell or Not to Sell Your Student Housing Rental Property
In my opinion there will be times in the next year or so when some investors will be forced to sell their student housing rental properties. Some investors leveraged heavily when their bank would loan them high loan-to-value options, assuming that rents were going to continue to climb as we had seen in the last number of years. Now the demand is weakening, vacancy is starting to increase, and rents are softening.
If you own rental property in the campus area, now may be the pinnacle time to sell. Today we are seeing vacancy around 9%. That is a pretty drastic shift compared to just 2% two to three years ago. Waiting another year or two while the market “stabilizes,” or if you take the “let’s wait and see what happens approach,” it could cost you hundreds of thousands of dollars.
Buyers look at not only a property’s past performance but also at the future rent growth opportunity (upside potential to ownership). Now may be the ideal time to sell and 1031 exchange into a property where the future rent growth will grow larger. If you would like to get an idea of what your student housing rental property is worth and the overall marketability, don’t hesitate to give me a call.