Real Estate Right Now is a video series covering the latest real estate trends and opportunities and how you can make the most of them. In the episode below, we cover the main advantages of investing in student rental properties.

Student housing properties have earned a significant niche in the commercial real estate market, and while they may evoke a natural reluctance on the part of the investor, they actually offer several unique investment advantages.

Investing in student housing properties often carries less risk than investing in traditional multi-family properties. The need for student housing is on the rise, with a projected 46 million people falling into the college age-range by 2031. In response, off-campus rentals have been attracting capital from savvy investors.

Universities and colleges are historically unaffected by recession or economic flux. Education is always a commodity in demand. By association, student housing properties are also less susceptible to economic downswings. College enrollment runs in continuous cycles, so new housing is needed every semester. This means that demand for this type of property remains stable and cash flows are predictable, albeit the downside of constant turnover.

Because student spaces are usually shared by multiple renters, student housing offers the investor higher returns. It also offers opportunities to generate ancillary income by supplying amenities like parking, bike storage or a gym.

In terms of risk, student rentals have lower default rates than most multi-family units because parents are often the ones to cosign on their kids’ rentals.

Student housing is considered residential, and therefore qualifies for a 27.5-year depreciation schedule, as opposed to industrial and retail real estate, which has a 39-year depreciation schedule. This means there are more deductions to shelter the property income.

Of course there are some disadvantages to consider when you’re thinking of investing in a student rental property. These include lower cash flow in summer months and the high potential for damages. Investors in student housing must also be equipped to deal with an inexperienced renter population and should be prepared to communicate with renters’ parents, who are often involved in the rental process.

To identify lucrative investment opportunities in the student housing market, the investor should stay informed about which universities are growing in enrollment. Higher enrollment means the demand for off-campus housing will increase. A property’s location is an essential factor in assessing the property’s success. Student housing located near a main campus will attract renters more easily than one further away and can demand higher rents. Amenities are important to the student population, with Wi-Fi, gyms, and communal spaces acting as a heavy draw. Lastly, look out for college towns with a stable economy, or an economy that’s on the rise. Colleges and universities in growing towns will look to expand and attract more students – and those students will need housing.

Diversifying your investments to include student housing properties can insulate your investment portfolio from risk and may offer a profitable option for optimizing its value. Speak to your investment advisors to learn more about this promising investment.

This material has been prepared for informational purposes only, and is not intended to provide or be relied upon for legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.