Alternative Investments
Investing in Student Housing
Posted on April 24, 2025
Investing in Student Housing:
A Resilient Private Equity Real Estate Opportunity
Student housing has emerged as a compelling private equity real estate investment niche within the realm of alternative investments. This sector combines consistent demand from college enrollment, recession-resistant income streams, and attractive per-bed rental yields.
Additionally, for accredited investors seeking real estate portfolio diversification, investing in student housing offers a balance of stable cash flows and growth potential. This can complement traditional multifamily or other commercial property investments. Explore why student housing investments are gaining momentum, examine its benefits and challenges, and compare it with other asset classes to see how this sector could be a fit within a well-diversified portfolio.
Why Student Housing is a Compelling Investment Class
Student housing is often considered a sub-sector of multifamily real estate, but it boasts unique advantages that set it apart. Below we highlight key reasons why investing in student housing through private equity can be so attractive:
- Consistent Demand Tied to Enrollment:
Colleges and universities admit new students each year, creating a reliable, built-in tenant pipeline. Enrollment cycles drive steady demand: if classes are in session, students need housing. Even during economic downturns, higher education enrollment often rises as people return to school (for instance, U.S. college enrollment grew over 6% during the 2008–2009 recession.[i] This counter-cyclical enrollment means occupancies in student housing generally remain high when other rentals may soften. Many universities also lack sufficient on-campus dormitory capacity. This pushes students to seek off-campus housing and ensures landlords near campus have a consistent pool of renters. - Recession Resilience:
Education is often deemed “recession-proof.” In tough job markets, people invest in degrees. As noted, enrollment can increase during recessions, which helps sustain rental demand. Historically, purpose-built student housing has delivered stable performance even in volatile times.[ii] Students (and their families) prioritize housing for the school year. Leases are frequently co-signed by parents or backed by financial aid, resulting in dependable rent collection. During the 2020 economic uncertainty, for example, national student housing rent collections stayed above 95%, outperforming conventional apartments. This resilience gives student housing a defensive quality relative to other real estate assets. - Per-Bed Leasing & Higher Yields:
Unlike traditional apartments that lease by the unit, student housing properties often lease “by the bed.” Each bedroom (or bed space) has its own rental agreement. This per-bed leasing model typically generates higher aggregate rental income from a single apartment. For example, a four-bedroom student apartment might produce four separate leases, often exceeding what a single-family rental of similar size would command. This boosts net operating income and can lead to above-average cap rates (i.e. higher yields) compared to standard multifamily.[iii] It also mitigates vacancy risk. If one roommate moves out, the other bedrooms remain occupied (partial vacancy is less damaging than an entire unit going empty). Additionally, rents can be increased annually as students vacate, providing an effective inflationary hedge. Overall, investors can achieve robust cash yields from well-leased student properties, which is why many are “rotating into student housing in pursuit of better yields.”[iv] - Portfolio Diversification Benefits:
As an asset class, student housing behaves differently than office, retail, or even conventional apartments. Its demand drivers (college enrollment and academic calendars) are distinct from the broader economy. This low correlation with other property types makes student housing an excellent component for real estate portfolio diversification. By adding student housing exposure, investors hedge against downturns that might hit office buildings or retail centers but leave college enrollment intact. In addition, college towns tend to have their own micro-economies, often anchored by the stability of the university. Properties in such markets can retain value and occupancy even when other real estate sectors face headwinds. In short, student housing can act as a stabilizing, income-generating element of a broader real estate portfolio. - Institutional Investor Confidence:
What was once a niche owned by local landlords is now a mainstream institutional asset class. In recent years, major private equity firms and institutional investors have poured capital into student housing. This could signal a strong vote of confidence in its prospects. Large transactions, including a nearly $900 million portfolio sale to an institutional investor in 2023, show that “smart money” is betting on student housing, citing its reliable performance and upside as enrollment grows.[v] This influx of institutional capital has improved liquidity and professionalized operations sector-wide, benefiting all investors involved.
Student housing offers a unique combination of steady demand and economic resilience. Additionally, the potential for high yields can enhance any real estate investment strategy. It caters to a fundamental human need (education) with durable demand drivers. This makes it an appealing avenue for private equity real estate investment in today’s market.
Key Challenges and Risks in Student Housing
While the benefits are compelling, student housing investments come with their own set of challenges. It’s important for investors to acknowledge and plan for these factors:
- High Tenant Turnover: By design, student housing has a revolving door of tenants. Lease terms typically run with the academic year (9 or 12 months), and many students move out once the term ends or upon graduation. This means turnover is annual, and therefore much higher than in standard rentals where tenants might stay multiple years. High turnover drives up leasing and administrative work: units must be advertised and re-leased each year. Move-out/move-in coordination becomes an intense seasonal project. The upside is that this turnover is predictable (following the school calendar), so experienced operators can plan leasing campaigns and unit refreshes in advance. Still, the cost of finding new tenants and preparing units annually is a core challenge that needs efficient management.
- Seasonal Vacancies: Related to turnover, student properties can face seasonal vacancy gaps. Many students leave for summer break, and if leases aren’t structured to cover summer months, occupancy (and income) can dip in those months. In markets without a robust summer school population, owners must budget for a couple of low- or no-income months each year. Additionally, there’s a tight window to “turn” units (perform maintenance and cleaning) between late summer and the new fall semester. Careful financial planning – or creative strategies like offering summer leases or shorter subleases – is required to mitigate the impact of these seasonal lulls. The good news is strong pre-leasing can ensure that as soon as one academic year ends, the next year’s tenants are already committed.
- Maintenance and Management Complexities: Renting to college students introduces unique property management challenges. First-time renters may not treat the property as carefully as long-term adult tenants, leading to heavier wear and tear. Everything from higher utility usage (think 24/7 use of appliances) to occasional neglect or damage can drive up maintenance costs. Common areas and amenities (gyms, study rooms, etc.) require regular upkeep due to high usage. Moreover, effective management of a student property often means providing furnished units, handling roommate matching or individual leases, and being attuned to student life issues. All of this makes student housing a management-intensive asset – often more so than conventional apartments. Owners frequently hire specialized student housing property managers or dedicate on-site staff to handle leasing, maintenance, and even resident programming (events, roommate conflict resolution, etc.). Strong operations are crucial to maintain high occupancies and control expenses in the face of these complexities.
- Regulatory and Community Considerations: Student housing developers and owners must navigate additional regulatory and local community factors. Zoning laws in college towns may limit where off-campus student housing can be built or impose design/safety requirements (such as parking minimums, security measures, or occupancy limits per unit). For existing properties, there can be regulatory risks like changing city ordinances about rental housing or stricter safety codes that require capital improvements (e.g., sprinkler systems, fire alarms) to protect student residents. Additionally, community relations play a role – in some markets, residents and municipalities push back on dense student housing projects (“not in my backyard” sentiment), or universities themselves compete by expanding on-campus housing. Investors need to be aware of these external risks and possibly evolving rules. On the flip side, working proactively with local stakeholders (and ensuring properties are good neighbors) can mitigate regulatory hurdles. Proper legal structuring and compliance (for example, adhering to tenant-landlord laws and university housing rules) is part of the responsibility that comes with this asset class.
Beyond these key challenges, investors should also watch for market saturation. If a smaller college town suddenly sees a glut of new private dorms, supply can overshoot demand. Likewise, longer-term shifts like demographic changes (a dip in college-age population) or growth of online education could affect demand in specific areas over time. However, these risks can be managed with careful market selection and active asset management. The bottom line is that student housing, while recession-resistant, is not effort-free. Its success requires addressing its operational nuances and planning for turnover and seasonal cycles.
Comparing Student Housing to Other Real Estate Asset Classes
When evaluating the role of student housing investment within a diversified portfolio, it’s essential to understand how it compares to other popular commercial real estate asset classes—particularly multifamily, office, and industrial. Each has its strengths and challenges. The right mix depends on your return expectations, management preferences, and tolerance for economic cycles.
Asset Class Comparison: Student Housing vs. Multifamily, Office, and Industrial
| Feature | Student Housing | Multifamily | Office | Industrial |
| Tenant Type | Students (often per-bed leases) | Individuals, families | Businesses, professional tenants | Businesses (logistics, manufacturing) |
| Lease Structure | Short-term, academic-year leases | 12-month+ leases, often annual | Long-term (3–10 years), complex | Medium to long-term (3–10 years) |
| Turnover Rate | High (annual turnover) | Moderate (lower than student housing) | Low (leases last several years) | Low (leases last several years) |
| Vacancy Risk | Seasonal (summer, academic breaks) | Steady (less seasonal) | High (market-sensitive, especially in downturns) | Low (high demand in e-commerce and logistics) |
| Rental Yield | High (per-bed pricing, premium rents) | Moderate to high (depends on market) | High (especially in prime markets) | Moderate to high |
| Recession Resilience | Strong (education is counter-cyclical) | Strong (housing is a necessity) | Weak (businesses reduce space in downturns or go remote) | Strong (e-commerce and logistics demand stay steady) |
| Management Complexity | High (frequent turnover, specialized needs) | Moderate (standard residential needs) | High (customized space, tenant-specific improvements) | Moderate (maintenance and logistics-focused operations) |
| Capital Expenditure | Moderate (unit refreshes, amenities upkeep) | Moderate | High (build-outs, tech, tenant improvements) | Moderate |
| Appreciation Potential | Moderate (tied to location and university health) | Moderate to high (urban/suburban growth markets) | High (prime markets but subject to volatility) | High (logistics and distribution hubs offer strong upside) |
| Barriers to Entry | Moderate (limited land near campus, zoning rules) | Low to moderate | High (capital intensive, complex leasing, market saturation) | Moderate to high (due to supply chain clustering) |
Table: Comparison of student housing vs. other asset classes in terms of returns, turnover, economic resilience, and management requirements.
As shown above, student housing stands out for its high-income potential and resilience in downturns. However, it also comes with higher turnover and operational intensity. Conventional multifamily is a well-understood staple with steady performance and easier management, though it may not yield as much per property in strong markets.
While student housing is a subset of multifamily, it has distinctive traits. While both serve residential needs and offer consistent demand, student housing can command higher yields thanks to its per-bed leasing model and proximity premiums near universities. However, it also comes with higher turnover, seasonal vacancies, and more operational intensity. Traditional multifamily, by contrast, appeals to a broader range of tenants, tends to have longer lease durations, and is less seasonal. This makes it slightly more predictable but with generally lower income per unit.
Office assets are traditionally attractive due to their long-term leases and stable income, when the economy is strong, that is. In times of economic stress or shifts like remote work, office demand can drop sharply, leading to prolonged vacancies and increased capital expenditure for tenant improvements. Student housing, on the other hand, is less vulnerable to economic downturns, since education often sees increased demand during recessions. While office may deliver strong returns in booming urban markets, student housing has proven more recession-resilient and benefits from a more consistent demand base tied to enrollment.
Industrial real estate (especially logistics hubs, last-mile delivery, and manufacturing) has outperformed in recent years due to e-commerce growth. These properties traditionally offer long leases, stable tenants, and low turnover, making them highly appealing for passive investors. Compared to student housing, industrial requires less hands-on management and avoids seasonal occupancy risk. However, student housing may present higher yield potential in key college markets and has the added benefit of demographic-driven demand. Both asset classes have shown resilience, but their operating models and risk profiles differ substantially.
For investors, the choice isn’t either/or: a balanced portfolio might include several property types. Notably, adding student housing can complement other holdings. It performs well when, say, retail is struggling, and its risks (like academic calendar vacancies) are unique and uncorrelated with the factors affecting offices, hotels, or standard apartments. Diversification across asset classes, including student housing, can thus lead to more stable overall portfolio performance.
Larson Capital Management’s Expertise in Student Housing Investments
Larson Capital Management (LCM) brings a robust strategy for identifying and managing high-performing student housing assets. As a private equity real estate firm, we leverage our experience and resources to turn the unique aspects of student housing into opportunities for our investors.
Key elements of our approach include:
- Selective Underwriting & Due Diligence: We are highly selective about the student housing projects we pursue, focusing on quality over quantity. Each potential investment undergoes rigorous underwriting analysis, We examine university enrollment trends, supply and demand metrics in the campus market, the property’s walking distance or transit access to campus, and even the university’s financial health and growth plans. Our team vets properties and development partners thoroughly, only green-lighting deals that meet our strict criteria for occupancy potential, projected yields, and downside protection. This disciplined underwriting ensures that LCM investors participate in institutional-grade student housing investments, backed by data-driven projections and conservative assumptions. By filtering opportunities carefully, we aim to deliver consistent returns and avoid markets that might face oversupply or other hidden risks.
- Focus on Growth Markets & Top Schools: Larson Capital Management targets high-growth university markets where student housing demand is robust and growing. This often means investing in secondary or tertiary cities that have major universities with rising enrollments or limited housing supply. We look for markets with barriers to entry (e.g. constrained land near campus or lengthy permitting processes) that help insulate against overbuilding, thereby protecting rent levels. Whether it’s a flagship state school in the South or an up-and-coming university in the Midwest, we zero in on locations where the university is a stable economic engine for the area. By concentrating on these growth areas, LCM positions our student housing portfolio to benefit from strong occupancy and rent upside. We also favor projects with modern amenities and designs that align with student preferences. These include study lounges, high-speed internet, and fitness centers to ensure they remain highly competitive in their respective markets.
Integrating Student Housing into Your Portfolio Strategy
Student housing is a compelling sector for investors looking to expand their real estate horizons with a resilient, income-producing asset. Its consistent tenant demand tied to university enrollment and its capacity to withstand recessions make it stand apart from many traditional real estate investments. When combined with the potential for higher yields and the diversification benefits it brings as an alternative investment, student housing merits serious consideration as a strategic component of an accredited investor’s portfolio.
Of course, success in this arena hinges on knowledgeable management and careful asset selection. Challenges like turnover and seasonal vacancy are very real, but with an experienced operator, these can be effectively mitigated. At LCM, we believe in the long-term value of investing in student housing, and we have the team and processes in place to unlock that value on behalf of our investors.
How Larson Capital Management Can Help
As you evaluate ways to strengthen and diversify your real estate portfolio, consider allocating a portion to student housing assets. With its recession-resilient performance, steady demand dynamics, and solid returns, student housing can play a key role in achieving a well-rounded investment strategy. Larson Capital Management is here to assist in navigating this sector, from pinpointing high-potential opportunities to expertly managing the properties post-acquisition.
Investing in student housing through a trusted private equity real estate partner can provide not only attractive financial returns but also peace of mind that your investment is grounded in an asset class backed by enduring demand through generation after generation of students. It’s an opportunity to earn solid grades on your portfolio’s performance while contributing to the housing needs of future leaders. Consider making student housing a part of your portfolio strategy and let Larson Capital Management guide you in capitalizing on this dynamic and rewarding investment class.
[i] https://www.nmhc.org/research-insight/research-notes/2021/is-student-housing-recession-proof-evidence-from-43-years-of-university-enrollment-data/#:~:text=Owners%2C%20developers%20and%20managers%20of,a%20critical%20driver%20of%20demand
[ii] https://www.nmhc.org/research-insight/research-notes/2021/is-student-housing-recession-proof-evidence-from-43-years-of-university-enrollment-data/
[iii] https://www.wealthmanagement.com/estate-planning/kkr-strikes-725-million-deal-to-sell-student-housing-properties
[iv] https://www.multihousingnews.com/why-student-housing-scores-high-marks/#:~:text=Against%20that%20backdrop%2C%20investors%20from,be%20investors%20on%20the%20sidelines
[v] https://www.wealthmanagement.com/estate-planning/kkr-strikes-725-million-deal-to-sell-student-housing-properties
Investment advisory services are provided by Larson Capital Management, LLC, an investment advisor registered with the Securities and Exchange Commission. All securities involve risk and may result in significant losses. Investing in private placements also requires long-term commitments. Risks and Limitations: the risks associated with making investment decisions based on targeted metrics is that they are targets. Commercial real estate investing is risky, and that means that the investment will not always play out according to expectations. Criteria and Assumptions: how a sponsor approaches the underwriting process (conservative, moderate, aggressive) may change the assumptions of the model which include targeted: cash yield, equity multiple, IRR, investment period and distribution rates.
For Accredited Investors Only. According to the SEC, an accredited investor, in the context of a natural person, includes anyone who earned income that exceeded $200,000 (or $300,000 together with a spouse or spousal equivalent) in each of the prior two years, and reasonably expects the same for the current year OR has a net worth over $1 million, either alone or together with a spouse or spousal equivalent (excluding the value of the person’s primary residence).
