Student Housing Syndication vs Multifamily: What Passive Investors Should Compare

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1. How does leasing by the bed work?
2. Why is the pre-leasing cycle the main risk?
3. What do turnover and the August turn cost?
4. Furniture, utilities and amenities are part of the product
5. How much does the university drive demand?
6. Purpose-built vs conventional apartments near campus
7. How does financing differ?
8. What to ask a student housing sponsor
9. How DoorRaise fits in
10. FAQ

A student housing syndication and a conventional apartment syndication use the same legal structure: an LLC, a Regulation D raise, a loan and a business plan. The property underneath runs very differently. Purpose-built student housing usually leases by the bed, not by the unit, with a parent or guardian guaranteeing each lease. Nearly every lease starts and ends on the same dates, so the building has one leasing season a year and a large share of residents move out at once each summer. Units are typically furnished and many include utilities in the rent. Demand comes mostly from one university, so enrollment and the school's own housing plans matter more than the wider metro economy. A conventional apartment building, even one near campus, leases by the unit on staggered dates to a mix of residents, and its risks are spread across the year and across many employers.

This post is part of our guide to real estate syndication. It compares the two for an accredited investor deciding between a student housing deal and a conventional apartment deal. It contains no return or market comparisons, because those depend on the specific deal and market.

How does leasing by the bed work?

In a purpose-built student property, a four-bedroom unit is often four separate leases. Each resident signs for one bedroom plus shared use of the kitchen and living room, and pays rent for that bed only. If one roommate leaves or never shows up, the other three are not responsible for the empty bed: the owner is. That is the main attraction for students and parents, and it means the owner carries vacancy one bed at a time.

Leasing by the bed changes how you read a rent roll. Ask for occupancy and rent per bed, not just per unit, and check how the sponsor counts a unit with three of four beds leased. Two buildings with the same physical occupancy can have very different collections, so look at economic vs physical occupancy for both.

Parental guarantees

Many student residents have limited income or credit history, so operators commonly require a parent or guardian to sign a guaranty. A guaranty can help collections, but it is only as good as the operator's willingness and ability to enforce it, which takes time and follows state law. Ask how often the sponsor's properties have actually collected from guarantors, and what share of residents sign without one (international students, for example, may use a larger deposit or a third-party guaranty service instead).

Why is the pre-leasing cycle the main risk?

Most student leases run on the academic year, often starting in August and ending the following summer. Leasing for next fall typically begins months earlier, during the current school year. By the time classes start, the building is usually as full as it will be for the year. A bed that is not leased by then may stay empty until the next cycle.

That is the single leasing season risk. In a conventional apartment building, a slow month can be made up the next month because leases expire throughout the year. In student housing, a slow spring can set occupancy for the next twelve months. When you review a deal, ask for:

• Pre-leasing history for at least the last few years, measured at the same dates each year (for example, the share of beds leased by certain dates in the spring and at move-in).
• Current pre-leasing for the coming year, compared with the same date last year.
• The rent per bed achieved at each point, including any concessions or gift cards used to fill the last beds.

A sponsor who cannot show a consistent pre-leasing curve is asking you to trust the market more than the property.

What do turnover and the August turn cost?

In a conventional building, turnover is spread out, and the turn budget comes a few units at a time. In student housing, a large share of beds can turn in the short window between move-out and move-in, sometimes only days or a couple of weeks. Every unit needs cleaning, painting, repairs and furniture checks at once, often with temporary crews at premium pay.

That makes the turn line both large and predictable in timing. Underwrite it as a seasonal cost, not as an average monthly figure, and check that the operating budget and reserves can carry the cash outlay in late summer. Our post on apartment turnover cost underwriting explains how turn costs are built; for student housing, multiply the work by the share of beds that turn and compress the schedule.

Furniture, utilities and amenities are part of the product

Purpose-built student housing is usually rented furnished: beds, desks, sofas and kitchen basics. Furniture wears out faster than a building, so it needs a replacement budget of its own. Many properties also include some or all utilities, internet and streaming in the rent, which moves utility cost and usage risk to the owner. Amenity packages (study rooms, fitness centers, pools, shuttles) add operating cost and can date quickly as newer properties open.

In a conventional apartment building, residents usually bring their own furniture and often pay utilities directly or through a billing system, and amenities are typically simpler. When you compare expense ratios between the two, make sure you are comparing like with like.

How much does the university drive demand?

A student property's demand comes mostly from one school, so read that school closely:

• Enrollment trend. Use the university's own published enrollment figures (most schools publish a fact book or census report each year). Look at full-time undergraduate enrollment on the main campus over several years, not a single headline number.
• On-campus housing supply. If the university builds new residence halls, or requires first or second year students to live on campus, demand for off-campus beds can fall. Ask what the school has announced and what it requires.
• New competing supply. Other private student properties near campus compete for the same beds in the same season.
• Distance to campus. Walking distance to the core of campus is usually a key factor for students. Ask for the actual walking distance and route, not "near campus".

A conventional apartment building depends on a whole metro area: jobs, household growth and supply across many employers. See how to choose an apartment market for the factors that drive conventional demand.

Purpose-built vs conventional apartments near campus

Not every building near a university is student housing in this sense. A conventional apartment building near campus leases whole units to households, on staggered dates, usually unfurnished. Some residents may be students, but many are graduate students, staff, faculty and local workers. It runs like any other apartment building, with some extra summer turnover.

A purpose-built student property is designed around bedrooms with matching bathrooms, leased by the bed, furnished and operated on the academic calendar, often by a specialist manager. Converting it to conventional use later can be hard because the floor plans suit roommates, not families. That makes the exit depend on buyers of student housing specifically.

How does financing differ?

Lenders generally treat purpose-built student housing as a specialized product. Some agency and other lenders have specific requirements for dedicated student housing, such as minimum pre-leasing, sponsor or manager experience in the sector and proximity to campus, and the pool of lenders and terms may differ from a conventional apartment loan. A conventional building near campus with a normal resident mix is usually financed like any apartment building. Ask the sponsor which lender and program the deal uses and whether the loan has any requirements tied to pre-leasing or occupancy at certain dates.

What to ask a student housing sponsor

On top of the questions in questions to ask an apartment sponsor before investing and how to vet a real estate syndication, ask:

1. What was pre-leasing at the same dates in each of the last several years, and where is it today?
2. How many beds, and what share of revenue, came with a parental guarantee, and how often were guaranties enforced?
3. What is the walking distance and route to the center of campus?
4. What does the university's own published data show for enrollment over several years, and what has the school announced about new on-campus housing or live-on rules?
5. What is the budget for the summer turn and for furniture replacement, and when is the cash spent?
6. Who manages the property, and how many student properties has that manager run?
7. Who are the likely buyers at exit, and does the plan assume a conventional buyer could take over?

For a wider comparison of property types, see multifamily vs single-family vs commercial for passive investors. Senior housing is another specialized type with its own operating model; see senior living vs apartment syndication.

How DoorRaise fits in

DoorRaise helps sponsors raise equity for apartment buildings with 5 or more units from their friends and followers. A conventional apartment building near a campus, leased by the unit, can be a regular DoorRaise deal. Purpose-built student housing leased by the bed is a different business and is outside what DoorRaise is built to support. For apartment deals, DoorRaise forms the deal's LLC, prepares the offering documents, files Form D and verifies every investor's accreditation, in 506(b) and 506(c) deals. Investors fund by wire into escrow at Enterprise Bank & Trust, and after closing DoorRaise runs quarterly distributions, investor updates and K-1 delivery (the deal's accountant prepares the K-1s). DoorRaise charges two flat fees: $1,500 to set up (non-refundable) and $5,000 a year for administration, the first year paid at closing from the money raised and only if the deal closes.

FAQ

What is the difference between student housing and multifamily?

Purpose-built student housing leases by the bed on the academic calendar, usually furnished and often with utilities included, and depends on one university. Conventional multifamily leases whole units on staggered dates to a broad mix of households.

What is pre-leasing in student housing?

Signing leases for the next academic year months before it starts. Pre-leasing at set dates each spring is the main measure of how a student property is performing.

Why do student housing leases need a parental guarantee?

Many students have little income or credit history. A parent or guardian signs a guaranty so the owner has someone to collect from if rent is not paid.

Is an apartment building near a university student housing?

Not necessarily. If it leases whole units to a mix of residents on normal leases, it is a conventional apartment building that happens to be near campus.

Where can I check a university's enrollment?

Most universities publish enrollment each year in a fact book or official census report. Look at several years of full-time enrollment on the main campus.

Sources

• SEC, Investor.gov: investor bulletin on private placements under Regulation D
• 17 CFR 230.506, exemption for limited offers and sales
• Fannie Mae Multifamily
• Freddie Mac Multifamily

This article is general information, not legal, tax or investment advice. DoorRaise is not a real estate broker, lender, law firm, broker-dealer, investment adviser or funding portal.