Investing in a second house used to be a no-brainer. Not any more. With a slow residential market and no jump in rents, returns in house purchase have been dismal. Still, there are a few options that have the potential for returns without high risk. One such is buying properties in places close to educational institutions.

Why buy

There are two key reasons to buy in a town that has institutions such as colleges, coaching classes and universities. One is the rental income. Many students and families move to these places for a few years to prepare for exams or get a degree. So, there is a good demand for rental housing. This trend is only growing. There are about 36 million students enrolled in higher education. Data from JLL show that over three-fourths of them live outside their homes.

Besides primary users, there may also be a market from individuals or companies that offer paying guest services or service apartments. There are also many start-ups in the space of student housing that take your house on lease, add furnishing and provide services such as food.

These providers charge ₹7,000-12,000 per student per month, based on location and amenities. This co-living segment is growing and can be another tenant choice.

The second driver is the potential for price growth. Typically, colleges are not located in large metros or in the business districts of cities. The price is therefore relatively low — which also reduces your investment outlay. As the city expands — due to urbanisation and infrastructure growth — there is potential for price growth.

Also, data from Knight Frank notes that the student housing market is largely unorganised — only 5-10 per cent is catered to by organised players. You can likely see price appreciation when larger companies enter the space and buy existing property.

Where to buy

One choice of location would be where your children are planning to study. This will make it easier for you to understand the place and manage it in the first few years; you can sell or rent out after they move out.

Alternatively, there are many prime educational hubs to consider. Larger regions such as Chennai and NCR are seeing good demand for student housing in select micro-markets near colleges and coaching centres. Kota in Rajasthan, for example, is a hub for engineering and medical entrance exam coaching. Hyderabad is also emerging along these lines.

Colleges and universities in smaller towns are also an option. Jaipur, for instance, has 635 educational institutes — the second-highest, after Bengaluru’s 1,025. It is also a popular tourist destination; so you may be able to find tenants for short-term rentals as well. Pune is also a good bet with a variety of colleges — law, commerce, management, medical, engineering and film — and has a strong student population. This can give better diversity over other cities where there may be only a few premier colleges.

You can also consider investing early in places where colleges are expected to come up. For example, Pandit Deendayal Petroleum University was started in Gandhinagar in 2007. This has spurred housing launches in the area — for students, faculty, employees and others.

What to check

After you pick a location, find out a few things before buying. For instance, if your target is college students, check the ratio of students who live in the hostel to those who live off-campus. It is also good to know if the college plans to expand its enrolment and add new streams.

Consider the type of college, as the dynamics differ. Undergraduate students in medical colleges would stay for longer duration than postgraduate students in programmes such as MBAs. Likewise, private colleges/universities tend to have less hostel availability than government ones. In areas where coaching classes are the focus, find out the drop-out rate. In Kota, many students quit within a year due to pressure. So, you may face higher churn.

Also, the market is seasonal. Houses get rented out at the start of the year, and if vacant mid-year, finding other tenants may not be easy. And, students can cause a lot of wear and tear to the property. You must factor this into your deposit requirements.

You must also find out the recent housing property dynamics of the market. For example, ask about unsold inventory, price trends, number of transactions and details on recent ones.

What to buy

If the checks work out favourably, you can decide what type of house to buy. For instance, smaller units — say, single-bedroom units — may appeal to graduate students or visiting faculty; three-plus bedroom units may be better for shared student housing.

Look for a place that would appeal to students, if that is your target. For example, they prefer places close to their college, multiple transport options and proximity to food outlets. Safety is always a key consideration, and locations in busy areas are a good choice.

You can enhance your rental return by providing a furnished place with Wi-Fi connection.

The writer is an independent financial advisor

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