Zach Feldman – Why Student Housing Is The Best Multifamily Investment Ep. 220

Synopsis

Zach Feldman is the VP of Development at Aptitude Development. After buying his first real estate at 22, Zach got hooked and went on to pursue real estate and looked for institutional-level student housing developers. Zach shares the perks of student housing as a multifamily property instead of using the traditional approach.

Key points

From Energy To Student Housing

Zach used to work in the energy sector and would do real estate on his nights and weekends. His first property was in Stamford, Connecticut. He bought the fourplex through an FHA loan and ended up using up all his life savings.

Since then, it was like getting bit by the real estate bug, and he went on to buy a couple more buildings while continuing to work his job.

Getting Into Student Housing

Zach liked real estate investing because it was a tangible asset, and you create value really quickly. So as he thought of it more, he realized there’s an opportunity in student housing as students paid a lot of rent.

Zach pulled the addresses of colleges and some stats from Zillow. From that, he built a portfolio in Buffalo, New York.

As Zach got more into student housing, he decided that he wanted to work for the better student housing developers who were doing it at an institutional level. He found Aptitude Development and contacted them.

Aptitude didn’t have an opening, but Zach was persistent. Eventually, because he brought value to the company, they accepted him.

Differences Between Traditional Multifamily & Student Housing

Compared to the traditional multifamily, student housing has a higher rent per foot. Traditional multifamily involves primarily building studios, one-bedrooms, and two-bedrooms. Student housing is a full bed to bath with shared amenities.

Student housing is designed to have a large study room per floor, tinkerer rooms, and gyms. It is programmed for the modern-day student with a focus on health and wellness.

Dealing With Turnover Costs

Most people think that leasing to students means very high turnover costs. That actually isn’t the case here.

Zach shares that they keep 8-9 people as staff. This includes having a general manager, leasing manager, and community manager. They also put in place security. So in cases of when a student destroys something, they will be held accountable for it.

Turnover maintenance costs are actually a lot lower than people think. Plus they get a 40-50% renewal rate and high rent growth on a year-by-year basis.

COVID Impact

The pandemic led to them increasing their sanitizing costs. But as on-campus dorms had to de-densify, a lot of the students ended up leasing with them.

Student housing is a recession resilient investment. As seen in the 2008 crisis, the people who lost jobs or couldn’t find jobs went back to college. Since they didn’t want to live at home, they’d look for student housing.

Zach revealed that their collection rates were in the mid to high 90%.

Common Pitfalls To Watch Out For

For those who are interested in getting into student housing, Zach recommends partnering first with someone who knows the space.

It’s important to be leased up by the time you open by August. Because if you’re late, the students would have found other places already. Compared to traditional multifamily where you can get tenants year-round, most students would look for a place to live in before their term starts.

Zach shares that with them, they build a leasing office for students to inquire into. In that office, they have a mock unit with the same finish, feel, look, and furniture that will be used in the student housing. This takes away a lot of the guesswork for the prospective tenant.

Financing

Banks are not afraid of loaning for student housing development. Companies spend billions of dollars a year, every year on student housing development because it’s a good market.

The occupancy rate of Aptitude’s projects is around 96-99%. So investors know it is a great asset class.

Timeline for Aptitude Development’s Projects

Aptitude is currently focusing on new construction. They start by picking a market and picking a location. When it comes to looking for the right real estate to buy, they leverage a lot of their broker relationships.

Then they begin the approval process with the city. Construction takes 18 months with the aim to deliver by Spring/Summer.

Aptitude typically buys the land in cash. Land takes up only 2% of their total project costs.

Aptitude holds on to the property for 3, 5, 7, or 10 years. They take out a construction loan then would later refinance after their first year of operations.

Where Investors Come In

Aptitude’s projects have a loan-to-cost (LTC) ratio from 65-75%. Investors are typically friends and family, and high net worth individuals.

Aptitude takes on all the risk with finding the land, putting it on contract, and getting the site approval. It is easy for the company to get investors as they are able to raise money in 30-90 days. Investors stay in the deal until they sell, and the returns are in the high 10% to low 20% internal rate of return (IRR).

Also, the company puts up to a quarter or a third of the equity in the deal. This means they have more skin in the game and are more accountable for making the deal profitable.

For those interested in becoming an investor, the minimum amount to invest varies by project, and only accredited investors are qualified to invest.

Last Tips

If you want to get into real estate then take a dive in the deep end because it will be a good learning experience.

As the saying goes, “You make money from real estate. Everything else is for fun.”

References

More from our guest

• Check out Aptitude Development at https://www.aptitudere.com/
• Contact Zach Feldman at 781-789-4354 or zf@aptitudere.com