The economy of the United States is currently unpredictable. Nobody knows where it will end up. Rising interest rates and inflation are influencing a variety of personal financial decisions, including how and where to invest.
Real estate has historically been one of the safest investments. Real estate investing is safe and secure due to the asset itself, and the investment rarely loses value, and if it does, it is usually in the short term.
Due to the years of deferral, there is a significant demand for student housing, particularly among international students.
Student housing is one of the most predictable industries, so investing in this sector is a great deal for the low risk you’re taking. Furthermore, because the stock market is volatile, the property type is appealing, interest rates are unpredictable, office spaces are unpredictable, etc., but student housing is largely predictable with long-term appeal. In short, there is no wrong time to begin investing.
There are several reasons why student housing property is recession-proof. One reason for this is that it has a very low correlation with the overall economy. Because student housing demand is primarily determined by age, it makes no difference whether the economy is booming or in a slump.
Throughout the Great Recession of 2007-08, student housing boomed as people returned to finish their degrees in order to maintain a competitive edge. Even during a recession, the sector is a good place to invest because more people return to school to finish their degrees or learn new skills to stay competitive in the job market.
According to the National Center for Education Statistics (NCES), enrollment in postsecondary education in the United States grew by 4.7 percent in 2008 and 6.3 percent in 2009, the highest growth since at least 1981. At the same time, demand increased, and the performance of the industry rose.
Overall, the student housing industry is largely recession-proof as a result of years of deferral, and demand is higher than ever. Furthermore, many institutions limit the total number of new students they are permitted to admit, increasing demand even further. In reality, there aren’t enough universities to go around, so there will always be a demand.
One of the reasons student housing tends to be unrelated to the overall economy is that students attend school and universities for the sake of graduation and the prospect of personal advancement, rather than for economic reasons.
People, for example, do not buy single-family homes based on their age. They purchase them based on their ability to pay, the state of the economy, and the availability of funds. In comparison, college students go to college once they graduate high school, so the student housing supply is very predictable.
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Consider the following. Every university is its own micro-economy, and micro markets and student housing vary from city to city. For example, because Utah State University is surrounded by significant mountain ranges and an enormous canyon that drops on one side, only a small area of student housing is zoned. Whereas Texas A&M is a large school with an abundance of land, there are numerous building opportunities. The most important indicator of success in student housing is location.
Most student housing facilities were also built in the early 70s and 80s. Because the location was so notable and crucial, they have been 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 to increase rent, sometimes $100 or more per bedroom. So, this creates value. It creates an upside in the property’s value, which increases the rent, the ROI and overall value.
For example, at the University of Arizona, Nelson Partners has a student housing property where there were two by two rooms, which mean it had two bedrooms and two baths per unit. In the 70s, these rooms were designed to be shared rooms with two people in each room. This essentially made the kitchen, the family room, and the open area way too big for two people because it was designed for four people. Adding in a third bedroom, by reconfiguring the family room in half, which is still plenty enough room for three students, creates an additional $600 a month in 50 of our units. So, if you do the math, it’s an enormous return on investment for reasonable upgrades to the property.
For investors wanting to continue growing or diversifying their portfolios, even during strained economic times, investing in real estate should continue to harbor safe long-term returns, especially within the student housing segment.
