The student housing sector has attracted much interest from investors in recent years. As a growing market, it offers several ways to invest, and one of the most popular is a real estate investment trust or “REIT”.
But what exactly is a REIT, and what makes it a good choice for investing in the student housing market?
This is your guide to the student real estate investment trust. You’ll discover what a REIT is, why you should consider it, and how to invest in one responsibly as a new investor.
A Real Estate Investment Trust (REIT) is a company that owns, operates, or finances income-producing real estate. If you want to add real estate to your investment portfolio without buying physical property, investing in a REIT is the solution.
Many people who want to invest in real estate without the hassle see REITs as the answer.
REITs are not new to the world of investing. The first real estate investment trust was set up in 1961, but it took another couple of decades before it was accepted as a proper asset class. Today, REITs are a common sight on stock exchanges around the world, including the New York Stock Exchange.
They are typically used for commercial real estate, of which student housing is an example.
Like apartment buildings, student accommodation is residential, although it is also considered a type of commercial real estate, similar to hotels, for instance. This is why commercial REITs may include student housing in their portfolio of commercial real estate assets.
So, what about the investors' motivations? Why do they seek out student housing REITs as their investment vehicle of choice?
Student housing is considered a recession-proof investment. It is always in demand thanks to a continuous stream of students looking for accommodation. Coupled with the high dividend potential of REITs, it’s no wonder that REITs that include student housing investments are a winning choice.
Do you want to learn how to make stronger investment decisions based on supply and demand? Educate yourself about supply and demand dynamics in the student housing sector to better identify growth opportunities.
Investors have different objectives when they choose their investment asset classes. However, the primary motive for most people who invest in REITs is to earn dividends.
A student housing REIT, like other REITs, offers regular dividends as a source of consistent income. Most REITs pay dividends to shareholders four times a year (quarterly). That said, the type of properties held and the amount of income they generate dictate the frequency of the dividend payouts.
A student real estate investment trust also provides investors with the benefits of portfolio diversification.
They can offset the risk of their other investments with the stability of a student housing investment. All investment is inherently risky but if you diversify your investments you won’t stand to lose everything in one bad investment choice.
Student housing is one of the least risky real estate investment choices. It’s a good bet for a diverse and lower-risk portfolio.
To be considered as a real estate investment trust company must own, operate, or finance real estate.
Most REITs concentrate on one type of commercial real estate, for example, hotels, office buildings, or shopping malls. Some even own or finance holiday resorts. As forms of residential and commercial real estate, apartment buildings and student housing feature in REIT portfolios too.
A REIT generally leases out the properties that it owns, generating revenue from rental income. However, it does not necessarily have to own the properties outright. It can choose to finance the purchase of property and generate income through interest on the financing.
The above-mentioned features are common to all real estate investment trusts. However, that is not enough to qualify as a real estate investment trust. The company must also meet all of the following criteria.
Equity REITs are real estate companies that purchase commercial properties to rent them out. Equity REITs own and sometimes operate properties and provide lease income to unitholders in those properties.
Real estate equity is the difference between a property’s value and anything owed on it like a mortgage. As real estate values increase over time, so does the property’s equity. If the equity REIT sells the property, unitholders receive a pro-rata portion of the gain or loss incurred in the sale.
A mortgage is a loan used to purchase real estate. Mortgage REITs are companies that act as intermediaries between capital markets and real estate markets. They raise capital from investors and use it to purchase existing mortgages.
Unlike equity REITs, mortgage REITs do not purchase the properties themselves. Nor do they operate or manage the properties in any way. Instead, they purchase the debt secured by these mortgaged properties.
Mortgage REITs hold mortgage notes on properties, collecting payments on the principal debt as well as interest on that debt from the mortgage holders. If the mortgage holder defaults on the mortgage loan and discontinues the monthly payments, the REIT can foreclose on the loan and seize the property.
A hybrid REIT, as the name suggests, is a hybrid of the other two types of REITs. It purchases real estate that it rents out, and it purchases the debt on mortgaged real estate.
Therefore, a hybrid REIT shares some characteristics with both equity and mortgage REITs. This diverse approach offers managers of REIT companies more flexibility with less investment risk.
It is a good choice for investors too. Not only does a hybrid REIT offer diversification, but it also addresses the issue of investment uncertainty. Investors who are unsure of the type of REIT they want to invest in, typically choose these hybrid options.
Some REITs are open to the public while some are not. Publicly traded REITs may also be exchange-traded, or not. This can all be very confusing for anyone new to this type of investment. However, it’s not as complicated as it sounds.
Let’s briefly examine the different ways that REIT assets operate and are traded.
Investing in student housing through REITs can carry costs aside from the cost of the actual shares. Don’t be caught by surprise. Understanding these fees and taxes will ensure you make informed financial and investing decisions.
Operating a REIT costs money. This means there are some fees involved. They are mostly brokerage fees related to buying or selling REIT shares on trading platforms. REIT managers may also receive a base fee.
This is not unique to REITs. You will incur similar fees in other types of investments too. It’s worth noting, that said, that REITs are always more affordable than the high costs associated with buying and managing a student housing property yourself.
Dividends in general do not typically qualify as passive income according to the Internal Revenue Service (IRS). Conversely, REIT dividends can possibly qualify as passive income. But they can also be taxed at ordinary income rates. Much revolves around the different ways in which REIT dividends are classified.
Dividends can be classed as ordinary income, Return of Capital (ROC), or Capital Gains.
An ROC is a payment that an investor may receive as a portion of their original investment amount. It is not considered income or capital gains from the investment. Capital Gains are gains in the proceeds from the disposing of assets, subtracted from the cost of acquiring the asset (the base cost).
Other, smaller dividends are usually viewed as ordinary income. However, we recommend that novice investors, or those unfamiliar with REITs, consult an investment or tax consultant for more information before investing in a REIT.
Student housing real estate is and will continue to be a popular investment choice.
Investing in a real estate investment trust allows you to invest in real estate easily and affordably. Many of these trusts include student housing properties along with other commercial properties, and some focus exclusively on them.
This type of investment allows you to enjoy the benefits of student housing real estate investment without buying property yourself. You won’t need any specialized real estate knowledge. Best of all, thanks to the 90% rule mentioned earlier, it’s a rich source of dividends. This is one of the chief reasons for its popularity.
Investors can purchase shares in publicly traded equity REITs with a minimum purchase of one share. You can buy and sell REIT shares on national stock exchanges.
Public, non-traded REIT shares may be purchased on secondary marketplaces. They may also be purchased or sold through brokers. If you are using a broker to buy shares in a REIT, verify that they are sufficiently qualified and licensed.
You can also invest in REITs through a real estate mutual fund.
Investing in student housing through REITs is relatively easy and can be a sound investment with a steady stream of income through dividends. REITs are one of the most popular ways you can invest in student housing. However, there are many others.
If you want to take advantage of the profitability of the student housing market, our top real estate investment strategies will show you how.
The real estate market and the student housing market in particular offer savvy investors the opportunity to earn a sizable income stream. However, before you rush out to invest in REITs, here are some handy tips for making more confident student housing REIT investments.
There are different types of real estate investment trusts and they can own various real estate assets. Before you invest in any particular trust, ensure that they offer shares in the property sectors you are interested in.
There are different types of real estate properties and also different types of student housing. Some may prove to be a more profitable investment than others. Have a look at our analytics strategies to unlock profitable student housing investment opportunities.
If you are new to investing, we advise that you start responsibly, and start small. Your investments should always align with your finances. You can always scale up your student housing investments at a later date, once you have gained more experience and knowledge about the student accommodation sector.
Speak to your financial consultant about student housing REITs. Let them guide you in the process, and ask them any questions you have about fees, tax implications, etc. Speak to real estate experts in the student accommodation industry to learn more about its general profitability.
Leverage data through reputable data analytics providers like College House to empower your decisions.
Choose a company that is very familiar with student housing investment. REITs that focus exclusively on student housing, rather than a mix of commercial real estate, will probably have more student housing investment opportunities to choose from.
They will also have more of the expertise that comes from experience in student accommodation investments.
Check their history of investing in real estate, especially in student housing. Check their credentials and track record, too. How long have they been doing this and how well have their assets performed?
You can increase your knowledge about the evolving student housing landscape, with our top highlights of the December 2024 national student housing report.
Investment advisors often recommend diversification. A diverse portfolio will give you more potential rewards and mitigate investing’s inherent risks. If you choose to invest in student housing REITs exclusively, you can diversify within that asset class too, with different student housing property types.
Our research indicates that purpose-built student accommodation is trending now and will continue to be highly sought after in the future. However, all student housing types have unique benefits, and that means they can all be potentially profitable investments.
Whether you choose to invest in REITs or one of the other investment options that deal with student housing, one thing is certain: industry knowledge is power.
You don’t have to be an expert in real estate or student accommodation, though. All you need is accurate, relevant, and recent data. And to understand the data, you need access to data analytics and insights. That’s what you’ll find at College House.
We offer investors, property developers, and property managers the advanced data analytics they need for the student housing industry. Empower yourself to make better student housing market investment decisions. Book your free demo today.
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