Why Student Housing Is a Strong Investment in the Recession – Multifamily Real Estate News

Patrick Nelson

Today, the US economy is in a state of unpredictability. No one knows exactly where it goes. Rising interest rates and inflation drive a variety of personal financial decisions, including control over how and where to invest. Historically, real estate has been one of the safest investments. Investing in real estate is safe and protected by the asset itself, and rarely will the investment lose value, and if it does, it is usually short-term.

There is significant demand for student housing due to years of deferment, particularly among international students.

Student housing is one of the most predictable industries, so investing in this sector is an excellent option for the low risk you take. Also, the property type is fascinating because the stock market is unpredictable, interest rates are unpredictable, office space is unpredictable, etc., but student housing is largely predictable with long-term appeal. In short, there is no wrong time to start investing.

There are several reasons why investing in student housing is recession-proof. One reason is that it is very loosely connected to the overall economy. Since the demand for student housing is primarily based on age, it doesn’t matter if the economy is booming or going through a recession.

It was proven during the Great Recession of 2007-08 that student housing boomed when people returned to finish their degrees to maintain a competitive edge. The sector is usually a great place to invest even in a recession because more people are going back to school to finish their degrees or acquire new skills to stay more competitive in the job market. According to the National Center for Education Statistics (NCES), US postsecondary enrollment grew 4.7 percent in 2008 and 6.3 percent in 2009, the highest growth since at least 1981. At the same time, demand has increased and industry performance has improved.

Overall, the student housing industry is largely recession-proof due to years of deferment, and demand is stronger than ever. In addition, many institutions limit the total number of new students the school is eligible to admit, making demand even higher. Realistically, there are not enough universities for students, so demand will always be there.

One of the reasons student housing tends to be poorly correlated with the overall economy is that students go to school and universities for graduation and the idea of ​​personal advancement, not for the economy specifically.

For example, people don’t buy single-family homes based on age. They buy them based on whether they can afford them, how the economy is doing, and whether they have a good, stable job. In comparison, students go to college after graduating from high school, so the supply of student housing is very predictable.

The best buying opportunity right now

Think about it. Each university is its own micro-economy, and the micro-market and housing intended for the student population varies from city to city. For example, Utah State has minimal housing supply because the university is surrounded by significant mountain ranges and a huge canyon that runs down one side, so a small area of ​​student housing is zoned. While Texas A&M is a large school with endless amounts of land, there are plenty of opportunities to build. The best indicator of success in student housing is located.

Most student housing was also built in the early 1970s and 1980s. Because the location was so prominent and crucial, they were able to keep them full without putting any money into them. Once an older facility is updated with modern appliances, new countertops, new carpet, amenities, etc., the door opens for rent increases, sometimes $100 or more per bedroom. So that creates value. This creates appreciation in the property, which increases rent, ROI and overall value.

For example, the University of Arizona Nelson Partners has a student housing property where there were two by two rooms, meaning there were two bedrooms and two bathrooms per unit. In the 1970s, these rooms were designed to be shared with two people in each room. This essentially made the kitchen, family room and outdoor area too big for two people because it was designed for four people. Adding a third bedroom by reconfiguring the family room in half, which is still enough room for three students, creates an additional $600 per month in 50 of our units. So if you do the math, that’s a huge return on investment for sensible upgrades to the property.

For investors looking to continue to grow or diversify their portfolios, even during tough economic times, real estate investing should continue to provide secure long-term returns, especially in the student housing segment.

Patrick Nelson is CEO of Nelson Partners Student Housing. Based in San Clemente, California, Nelson is a real estate investor and developer managing 18 student housing properties on college campuses nationally.

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