Many investors, both within the US and internationally, are unaware of the vast range of upscale luxury student housing servicing many of America’s Universities and Colleges.
Upscale student housing in the USA does in fact exist, and is increasing every year. The numbers invested in these assets is actually quite substantial.
Read on as in today’s article we outline the growth in Luxury Student Housing in the USA and how it could be the right investment to diversify your portfolio.
Part of the allure of attending an American university in this era is the accompanying lifestyle, accommodation being one of them. Every year there are higher numbers of students looking for their ideal university. The more options – including luxury- a university campus and area can supply, the quicker the university can fill alumna quotas. For this reason, universities and colleges at times outsource developments with private investment developers. These developers can construct the housing at better rates and can offer the development investment as an private equity fund whereby shareholders collectively own the property and share in rental revenue. Many private developers, including BAI Capital, purchase surrounding land to develop one of a kind luxury living for both students, faculty and related professionals. Creating opportunities for investors to both purchase condo units as well as become equity shareholders in the rental apartments, investing in upscale luxury student housing is becoming a significant way to diversify the portfolio in a steady growth market.
- Increased demographics in the student sector
- Increased numbers of international students
- Increased developments from private investment firms
Luxury student housing investment types
These investment generally present themselves in 2 main forms: Outright property ownership and asset ownership as equity shareholder.
Types of Luxury Student Housing Ownership / Assets:
- Individual Development Project Funds (equity shares in rental apartment ownership and rental revenue)
- Pooled Funds/ REIT’s- Real Estate Investment Trusts ( REIT’s build, own, and manage student housing facilities, allowing investors a hands off way to profit from rental income and shared property ownership
- Outright Ownership of Rental Condo Unit (ownership of condo units marketed at university students.
Each of these 3 luxury student housing investment types has its advantages.
In the first, one gets to invest as equity partner in a specific housing development.
In the second, one pools funds with other investors into several or many luxury housing developments.
In the 3rd, the investment is directly in property ownership.
In the first 2 investments types, the fund managers are responsible for managing or outsourcing the management and administration of the housing units. In the 3rd type, the condo owner can self-manage the investment, or choose a turn-key rental management service.
An example of a managed student housing development is Archer Place in Gainesville Florida, adjacent to the University of Florida. This one of kind upscale project will feature luxury condos and student housing, side by side on a full featured property in the heart of the medical and student sector. Archer Place will offer students, faculty and medical professionals with the housing amenities, comfort and services they look for and have come to expect.
In 2018, real-estate fund managers raised $2.5 billion for student housing projects, a small but growing slice of the nearly $138 billion raised for all kinds of real estate, according to the data firm Preqin.
Since then numbers have risen steadily and have weathered the economic downturn of 2020.
Investment opportunities in Luxury Student Housing
First off: Why?
In comparison to regular rental housing, student housing revenue is more capable of withstanding fluctuations in economic cycles.
This feature is driving this asset class and sets it apart from many other type of investments, pushing it into multi-billion dollar yearly territory in the US alone.
“Rental growth in the sector has proven to be less volatile than that of conventional apartments — partially as a result of the sector being less economically sensitive. Results for some of the largest players in the market show rental growth volatility, as indicated by the standard deviation, was lower than conventional apartments, and capital expenditures are in line with those of conventional apartments,” said Tom Park, senior director, strategy and research, in a statement from irei.com article.
- Growing number of millennials entering their family starting and home buying years
- Mortgage rates are all time low
- Stories of renters destroying the place almost never happen (renter screening process)
- You can deduct mortgage interest and real estate taxes on rental properties
- You can write off utilities, insurance, repairs and maintenance, yard care, association fees
- Write off upgrades such as decks, pools, tankless water heaters, and even landscaping
- Write off depreciation of assets/home
- Write off solar power generation unit
- The income won’t become taxable until you run out of upgrades/repair costs
- The renters will have to cover any cost of living or mortgage rate growth
Whether its equity fund shares or condo ownership, the opportunities are growing in this sector, alongside the student demographics.
Luxury Upscale Student Housing is a massive asset sector in the US, growing every year with no signs of slowing down. As education is a relatively recession proof institution, student housing revenue is less impervious to ups and downs in the economy.
This results in an investment class that may be the right choice is you are looking for a risk-averse method to spread your portfolio.
BAI Capital can help you navigate through these risk-managed investment options; you can be assured your questions and plans remain at utmost discretion.