Student housing can be a particularly lucrative real estate investment niche. In fact, investing around the University of Oregon was how my father originally got his start in real estate. (You can hear him talk about his story on the BiggerPockets Podcast here or me and him discuss the ins and outs of student housing here.)

But student housing is not some easy A, nor is it something you want to jump head first into after pulling an all-nighter cramming. While student housing can be very profitable, it comes with a variety of dangers that you need to be well aware of beforehand.

As I note in this article, student housing has several distinct advantages and disadvantages, which broadly speaking are:

Advantages

  1. Higher rents
  2. Mostly guaranteed rents (because you will require the parents to co-sign for the students)

Disadvantages

  1. Annual turnover (most students leave each year)
  2. More damage to the units (and more parties the police might get called out to)

If you do want to take the plunge into the student housing niche, these are the steps you should take.

1. Pick a school and confirm it is NOT a commuter college.

The first thing you need to do is pick a university. Preferably, this will be a fairly large university, probably over 15,000 students. But it can work with smaller universities as well. The key is to make sure it’s not a commuter college. A commuter college, as CollegeVine puts it, “…is a college to which a student commutes for classes, rather than living on or off the actual college campus. Instead, the student typically continues to live at home while commuting to school just as one would commute to a job or other commitment.”

The problem with such schools is that since the students aren’t making any special commitment to live near the college, there is no premium on student housing near the campus. While investing near such a school can make sense, it’s just regular, good-ole real estate investment, not student housing investment.

Almost all community colleges and trade schools will be commuter colleges. Smaller schools made up mostly of working professionals taking night classes would also be commuter colleges. Large universities with a lot of full-time students (such as the University of Oregon), on the other hand, are perfect for student housing.

Some universities will be hybrids. For example, the University of Missouri in Kansas City (UMKC) has just shy of 17,000 students. Many are full-time students, but many are not. Its MBA program, for example, is a part-time program with night classes. There are student housing opportunities around UMKC, but substantially fewer than there would be around the University of Oregon or the larger University of Missouri campus in Columbia, MO.

Some colleges have also been “discovered.” Basically, they’ve been overbuilt by large developers that found out how lucrative student housing can be. The University of Oregon is, unfortunately, one of these universities.

Related: How My Investor Friend Grew a Student Housing Empire Using Private Money

The best way to determine both whether a campus has been overbuilt and whether its a commuter school is to talk to people. Ask local property management companies, other investors who do student housing as well as the students themselves. Do you see a lot of student housing be listed for rent near the end of the school year and during the summer? That’s a good sign that the college has been overbuilt. On the other hand, if you don’t see rental ads for properties near campus that highlight that it’s near campus, the school is probably a commuter college.

2. Find the right “zone.”

My dad breaks student housing into three “zones,” which are as follows:

  • Zone A: Walking distance from campus (approximately half a mile from campus)
  • Zone B: Biking distance from campus (approximately a half mile to a mile from campus)
  • Zone C: Driving distance from campus (approximately a mile to two miles from campus)

Of course, you can walk a mile or bike two, but this is just shorthand. Visually, it would look something like this:

Unfortunately, life doesn’t put things into simple circles for us. Regarding the University of…