In this video, we delve into the captivating realm of real estate investing with a focus on student housing.
Discover the unique advantages and challenges that come with investing in properties tailored for the student demographic.
Whether you’re a seasoned real estate investor or just starting out on your investment journey, this video is packed with valuable information and perspectives that can help you make informed decisions.
If you’re intrigued by the idea of combining real estate investing with catering to the needs of students, hit that play button and let’s explore the world of student housing together.
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Transcript:
Chris Bounds 00:00
Student Housing what’s what brought you into student housing? Because anyone, what my initial reaction and it’s by full admission, lack of education because I’m not that educated in student housing. But I’m, I’m always a little apprehensive when I hear it. But I do see a lot of opportunities with student housing. And you you’ve mentioned some what that what brought you into that. And then we’ll follow up with another question on the student housing market.
Alix Kogan 00:28
Sure. I guess what started was my experience as a college student renting from one of the most horrible slum lords in town, man, you know, I just, I just remember that dynamic being so painful, because he had a captive audience, when when you there’s only a certain number of houses, where today we call it beds, bedrooms, in a market, and there’s certain number of students, it’s an efficient market, meaning everybody’s going to have to find one and sort of equalize itself. Yeah. Which is different, you know, in multifamily, you know, you can decide to go to another neighborhood or this and that it’s not, it’s not as efficient.
So I think it’s like a fishbowl, right, and you’ve got a certain amount of fish in that bubble, and they’re all going to find find their path. So it was frustrating that the slumlord just knew that he could basically do it, everyone, because we just didn’t have a lot of options. And he had 10 More students that wanted to rent from him if we did it. And so fast forward to a year or two, after I started my company in Colorado, I started buying college rentals, because I said, look, it’s not that complicated. They’re actually a good renter, if you know how to deal with them.
And if you can plan around all the issues that that you have with college students. So I still, you know, it was it’s not easy work, but I enjoyed it. We were able to grow our scattered site, student or college rental as what we call it back then. portfolio and it did great. Fast forward to around 2017 18, when I was started selling everything. And I realized that there’s this whole institutional class of student housing that’s actually rented by the bed, I was still renting by the house, to college students. It wasn’t furnished it didn’t, it didn’t create a lifestyle. So that just has evolved over the last 10 years, it’s really become, you know, something that you would probably equate more to, like running a senior housing or assisted living asset, it’s you’re creating a, it’s a service, it’s not just a home, you know, so you have to create a lifestyle events, you know, all kinds of things to do it successfully.
So I love it as an asset class, I would say that I’m lucky because I partner with a guy whose has 25 years experience in the business. And then ultimately, his number two guy ended up leaving property management because he wanted to be on the ownership side came to work for us. So we’re still using my friend who was a was an expert, but we also have expertise in house is where I’m leading with all this, if you have that kind of expertise, it’s a fabulous asset class, if you don’t, and you just sort of blindly buy assets and then hire a third party, it could be a nightmare.
And we’ve actually have bought a couple of opportunities where it’s conventional guys, making that student housing is no different than conventional, they fail miserably. We buy their asset, and turn it around. And it’s been great for us. So you have to go into it. Why is eyes wide open? It’s very dynamic markets change, schools change. So you have to be on top of it. It’s all driven by enrollment, that enrollment is driven by the academics, it’s driven by the school’s you know, 10 year plan, it’s driven by sports programs, you know, you could have a bad you know, something come up in the news that some football coach did that was, you know, that was horrible. And all of a sudden, you’ve got enrollment decline. So the reputation management. My point is, it’s a very dynamic asset class that you just have to be in real time measuring constantly. Yeah.
Chris Bounds 04:32
Now, when you’re talking about renting by the bed, is that like, you have a three or four bedroom property and you’re renting individual rooms or is this more dormitory style where the room will accommodate one or two students and you have like community? Bath Shower toiletries?
Alix Kogan 04:51
Yeah, good question. So, when we say renting by the bed, it refers to by the bedroom so what all we do is I have it off campus housing, which really, and they’re single family or like, smaller. They’re all I shouldn’t say they’re all there. We have both in our portfolio, we have the equivalent of a Class A apartment building, and you’ve got, you know, anywhere from a one to a five bedroom apartment. But the leases are signed per student per bedroom.
Chris Bounds 05:25
And do you? Do you segregate that by by gender, where it’s like all males and Milan and
Alix Kogan 05:32
whatnot, it’s, it’s a mix, because there’s, there’s basically a property management software that pairs people up. So if they have a gender preference, they’ll state that and we’ll have to pair them up. So there is a matching and pairing process. And then of course, once they move in, there’s also some, some occasional mediation efforts. So you know,
Chris Bounds 05:55
then that is my immediate fear jumped up in a coed situation, which there are coed dorm. So it’s not like, it’s not like this is a unique situation. But my immediate fear is toilet situation, I get a call. There’s police and there’s like a rape investigation. Like, that’s I don’t know. And hopefully you’ve never had to deal with that. But that type of risk, like, how do you have that discussion with your insurance in your in your legal team?
Alix Kogan 06:24
Well, you have to know your legal rights, obviously. So we’ve got you know, we’ve got counsel, that our disposal constantly if something does come up, fortunately, you know, those kinds of crazy incidents rarely happen. But you know, you have something that comes up, it’s typically two roommates that don’t get along, you know, one’s eating the other’s food, one of them smoking. Yeah, you know, it’s typical college stuff. So so we rent by the bedroom, and there’s, there’s a matching process, that doesn’t always happen that way. And oftentimes, you get two roommates that want a two bedroom, they come in together, or you have a group of five, you’ve got, you know, five sorority girls, I want to rent an apartment together. So there is a lot of that that happens. So that’s the one sort of typical type of asset it looks and feels just like a highly amenitized apart a class apartment building, there’s gyms, there’s pools, there study rooms, I mean, you name it, our assets have it. It’s it’s crazy what what college students are living in today, by far, much nicer than anything I’ve ever lived in, in college or after college actually. So and then, we also have a product that’s a cottage style, which is really equivalent to like a Bter built for rent single family home community, but it is designed and built for college students exclusively. And that’s been a really popular product. Same reason, you know, that we’re a family made prefer a single family home. A group of college students prefer to have a single family home, they might have a dog in one little yard, etc. Yeah.
Chris Bounds 08:07
Um, so what what unique things do you look at and looking at, say, a large student housing community versus a multifamily? I
Alix Kogan 08:17
mean, how, what’s the different evaluation? I mean, from an underwriting standpoint? Sure. So it’s a whole completely different set of underwriting metrics. I mean, we’re, we’re looking at the obvious you’ve got a lot more turnover. So you have term costs. It’s, it’s, you know, the, I think the obvious one that people are fearful of is you have a limited window to lease up to get all your all your residents in for the fall. And then you’re done. There’s not a lot of backfilling that happens. There’s some but but not a lot, you have second semester students come in or are late, late enrollment, something like that, but you got to really buy, you know, by July, you know, mid July, you better be fully leased up, or else you’ve kind of missed the boat. So there’s, that’s a whole nother.
So when you’re underwriting when you’re buying that asset, where are you in that process? What’s the pre lease like? So as we’re reading the underwriting deals today, you know, if we’re looking at a deal, and they’re 30%, pre leased, and we’re going to buy it today, and we’re in April, that’s a bad sign, we’ll probably not get to 95 96% occupancy by the fall. That’s a that’s a problem. So if I’m gonna buy that asset, I’m gonna buy at a severe discount.
So those are some of the metrics that we look at. I mean, probably the biggest things in terms of underwriting and evaluating opportunity is you start with the school, which is no different than multifamily. You’re starting with the market. How much do we like the market? Is the school growing? You know, What what in? How is the asset positioned? Within the market? Are you pedestrian the campus? Are you within a mile of campus? Are you a class? Are you beat class? So some of the kind of higher level analysis is the same, but the details are different, if that makes sense.
Chris Bounds 10:18
Yeah, 100% I was talking with I went to Texas a&m, and I was talking with some other grads that are, you know, our kids football practice, and we’re just talking about the attendance numbers. And I did invest it while I was at a&m, but I never bought a property in Bryan College Station, it was always San Antonio, because they were online for so for my dorm room, I could find them and I just couldn’t find anything in conversation.
But man always said, given the given the attendance, and also just the development they’ve done over the years, but um, if I want to flip over into maybe just the market for student housing. So I mentioned my first apprehension is, besides just lack of education, you may have been more of a risk mitigation from a tenant standpoint or management, but also on the market. Because there’s been a lot of talk a lot of government, a lot of government talk about student loans, the student loan bubble, and really what’s driven these college campuses, to the ginormous sizes that they are now is a lot of loose money with with student loans.
And when or if that bubble ever burst, how does that impact these mega universities or even smaller universities? How it has an impact them? So what’s your take on that? And how that relates to the housing market? Or the student housing market? Or how that would affect it? If? Yeah, I’ll let you run with it.
Alix Kogan 11:49
Sure. I mean, there’s there’s been a lot of talk, unfortunately, I just got back from the National Student Housing Conference in Austin. Last week. The sentiment in general, and I’ll get into details, why is is very strong for student housing, the rent growth has been tremendous. All the student housing owners operators are very bullish, however, there is a consolidation going into the smaller schools are struggling. And I even use that loosely because you can be a small school, a private school with a fluid students and be doing very well like, take like Wake Forest, for example, small school, but attracts a lot of wealthy students.
When you have that kind of dynamic, you know, student loans are less of a concern, because, you know, their parents have put money away from them and their, whatever this 401501 college fund that I have, for my kid, I can’t remember the name of it, but you know, the money is set aside, they have the affluence. It’s a it’s a, it’s a rite of passage, they’re gonna go to college, it’s part of the family, it’s, it’s, it’s part of, you know, just the culture. So there’s, you know, those schools are going to do fine, the smaller schools that have less focus on academics, less focus on sports, they’re suffering, and people are not seeing the value and going to those schools.
But what’s happening is, if they were going to go to school, you know, see, that’s mediocre, and they’ve decided not to go to that school, they’re going to shift over to school, a, that is a larger state school has a great education program, great sports program. And those are thriving. So the the deck is kind of getting shifted, if you will, in terms of where the where the students are going. You know, it’s schools are. I like a business, you know, if they need to grow their enrollment, they have levers that they can pull, it’s increasing the, the enrollment requirements are lowering the requirements, so they they can throttle that stuff up and down.
And, you know, they they’ll find a certain amount of student loans and aid within their their system if they need to. So we’re less concerned that, you know, the student loan dynamic is going to affect the good schools. It certainly can affect some, but it’s not something that that the industry right now is terribly concerned with.
Chris Bounds 14:24
Yeah, so really just similar to multifamily or any other real estate it just goes down to knowing your market and your market is heavily like knowing your market but also knowing the the like the the jobs, like you’re looking for jobs. Now in your case, you’re looking for schools. So it’s knowing that very well and understanding the macro micro trends that they’re going forward for you invest so I definitely agree. And the government’s definitely very, very vested in continuing it gravy train for bores student loans how this shakes out? I don’t know, before, before we got on this I looked up is like $1.8 trillion. Yeah, 1.8 trillion. Like,
15:14
I, this is
Chris Bounds 15:16
my belief, like it’s changing, like, old old school, the way of learning and which means universities had to adapt to. It’s not like a university podcast, but things are changing. And the schools that don’t don’t adapt quick enough, they may find themselves more relevant, which is going to hurt their enrollment. So, but the larger university should be more equipped, or better equipped to do that.
Alix Kogan 15:41
Yeah, absolutely. I mean, during COVID, the big conversation was, are people just going to go to school online, and not, you know, go to school visit in person. And that proved to be not the case. It works as a hybrid and works if you have a pandemic. But, you know, the polls of students after the pandemic, would you go to school online? If you had the choice is no, because you go for the social aspect that’s quite interesting, educational, and I don’t care what anybody says, educationally even, you do not get as much out of it. Doing this versus in person with other students with, you know, dynamic professors. It’s just a different experience.
Chris Bounds 16:23
So depending on your major too, it’s like, you typically don’t get the street education for your, whatever your vocation is. No, I did other than learning how to use Excel for statistics, and how to make a PowerPoint presentation. Like those are the two educational things I learned everything else was social like and that is invaluable. Right? But of course, if you want to get into STEM,
Alix Kogan 16:49
you’re probably gonna learn a few things you might need in the street. Yeah, I was gonna say stem, there’s a big focus on STEM, and you can’t replace being in person with that. And I think our our country is realizing that there’s other countries that have left us in the dust in terms of math and science. And so we need to shore up our education system that we can compete and, you know, the only way you can do that really is in person.