Real Estate Right Now is a video series covering the latest real estate trends and opportunities and how you can make the most of them. In the episode below, we cover the main advantages of investing in student rental properties.

Student housing properties have earned a significant niche in the commercial real estate market, and while they may evoke a natural reluctance on the part of the investor, they actually offer several unique investment advantages.

Investing in student housing properties often carries less risk than investing in traditional multi-family properties. The need for student housing is on the rise, with a projected 46 million people falling into the college age-range by 2031. In response, off-campus rentals have been attracting capital from savvy investors.

Universities and colleges are historically unaffected by recession or economic flux. Education is always a commodity in demand. By association, student housing properties are also less susceptible to economic downswings. College enrollment runs in continuous cycles, so new housing is needed every semester. This means that demand for this type of property remains stable and cash flows are predictable, albeit the downside of constant turnover.

Because student spaces are usually shared by multiple renters, student housing offers the investor higher returns. It also offers opportunities to generate ancillary income by supplying amenities like parking, bike storage or a gym.

In terms of risk, student rentals have lower default rates than most multi-family units because parents are often the ones to cosign on their kids’ rentals.

Student housing is considered residential, and therefore qualifies for a 27.5-year depreciation schedule, as opposed to industrial and retail real estate, which has a 39-year depreciation schedule. This means there are more deductions to shelter the property income.

Of course there are some disadvantages to consider when you’re thinking of investing in a student rental property. These include lower cash flow in summer months and the high potential for damages. Investors in student housing must also be equipped to deal with an inexperienced renter population and should be prepared to communicate with renters’ parents, who are often involved in the rental process.

To identify lucrative investment opportunities in the student housing market, the investor should stay informed about which universities are growing in enrollment. Higher enrollment means the demand for off-campus housing will increase. A property’s location is an essential factor in assessing the property’s success. Student housing located near a main campus will attract renters more easily than one further away and can demand higher rents. Amenities are important to the student population, with Wi-Fi, gyms, and communal spaces acting as a heavy draw. Lastly, look out for college towns with a stable economy, or an economy that’s on the rise. Colleges and universities in growing towns will look to expand and attract more students – and those students will need housing.

Diversifying your investments to include student housing properties can insulate your investment portfolio from risk and may offer a profitable option for optimizing its value. Speak to your investment advisors to learn more about this promising investment.

This material has been prepared for informational purposes only, and is not intended to provide or be relied upon for legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.

January 2023

Investors: The market feels very risky right now. With inflation still very high, and the Federal Reserve aggressively raising rates, I’ll play it safe and invest in short duration treasuries yielding a risk-free 5%.

Stock market: LOL

At first glance, investing in non-volatile assets in response to an unstable and risky market may seem sensible. But it brings to mind one of Warren Buffet’s best pieces of investment advice: “Be greedy when others are fearful, and fearful when others are greedy.” This is the essence of successful investing; take advantage of opportunities when others are too apprehensive to seize them.

At the close of 2022, Wall Street had weathered a backbreaking annual percentage drop. The S &P market cap, the Dow, and Nasdaq fell drastically. It was a year of sharp losses and hefty interest rate hikes. Investors ran scared and turned risk-averse. They abandoned the market and went into safe, predictable government treasuries – investments that promised no variations in outcomes and no surprises.

In hindsight, we can see that the market bottomed on October 13th, 2022, a day when the Consumer Price Index (CPI) came in much higher than expected, with inflation running at 8.2% year over year. By that time, the Federal Reserve had already raised rates five times, with three consecutive hikes of 75 basis points; and they showed no sign of stopping until the inflation was under control.

Curiously, on that day, the market opened down by 1.5% and then, against all odds, managed to close with a 2.5% increase. At that point the market was down about 26% from previous highs. Since then, the market has risen 23% and is only a small percent away from reaching its previous highs. This unpredictability highlights the cruel irony of the market: it tends to be forward-looking and often thrives when things seem bleak on Main Street.

It’s natural for the investor to feel the need to run for cover in a volatile market. But historically, from an investment perspective, it’s always better to stay the course. Investors that abandoned the market after 2022’s debacle are still left with their stable government treasuries, while those who were able to endure the risk are now reaping higher returns. Had those timid investors remained invested, their shares would have ridden the waves and ended up high with the market.

From our vantage point at Equinum, we often witness how emotions play on an investor’s ability to make effective decisions. From our conversations with clients and prospects, we have seen patterns emerge: When investors are comfortable they tend to invest more, and when they are hesitant, they bail out – often counterproductively. Moving in and out of the market based on feelings is never a sound approach in the long-run.

As advisors, we are tasked with keeping our clients’ emotions level through both the good times and the uncertain ones. And given people’s innate tendency to make the wrong decisions when investing, it becomes crucial to adopt a big-picture approach and remain invested for the long haul. Emotional reactions to short-term fluctuations can lead to impulsive actions that may not align with one’s overall financial goals.

For more information, please reach out to us at info@equinum.com.

In the aftermath of the 2008 financial crisis, the Federal Reserve implemented a Zero Interest Rate Policy (ZIRP) to stimulate the economy. Interest rates remained near zero for an extended period, leading to the emergence of the acronym TINA – There Is No Alternative. TINA became the prevailing rationale for investors, suggesting that with treasuries and other fixed income securities offering minimal returns, the only viable option was to invest in equities and real estate.

But financial markets are dynamic, and nothing stays the same forever. In recent months, interest rates have experienced a significant rise as the Fed attempts to control inflation. As a result, a new buzzword has entered the investment lexicon: TARA – There Are Reasonable Alternatives. The concept behind TARA is that investing in short-term treasuries, which yield around 4-5%, presents a prudent opportunity.

This new trend has spurred a surge in investor interest, with flows pouring into treasuries. The allure of treasuries as an alternative to more traditional investments has taken hold. But is this shift truly beneficial for long-term investors?

Relying on short-term treasuries for long-term assets may prove to be a mistake. While the immediate satisfaction of a decent return may feel appealing, it is not conducive to long-term economic success. It’s the financial equivalent to subsiding your hunger with junk food. Sure, it provides momentary pleasure, but it ultimately leaves you unsatisfied.

Successful investing involves persevering through challenging times and sticking to a long-term plan. It comes from weathering market fluctuations and staying committed to a long-term strategy.

So for short-term assets – like funds earmarked for a house down payment or investments that cannot tolerate volatility – treasuries serve as an excellent option. Treasuries provide stability and security, which is why we encourage investors to consider this option. For corporations and nonprofits sitting on cash, this can be an amazing opportunity. However, when it comes to longer-term investments, adhering to the original plan and maintaining a steadfast approach is the optimal choice.

The key to achieving long-term financial goals lies in maintaining discipline and resisting the allure of short-term gains. While TARA may present attractive alternatives in the current market landscape, remember that TINA is still relevant. Remaining fully invested according to your long-term financial plan is critical, and that should not be compromised for the comfort of short-term options.

For more information, please reach out to us at info@equinum.com.

As an investor, it’s easy to fall prey to “recency bias” – the tendency to base investment decisions on recent market performance rather than taking a broader and more forward-looking perspective.

Fighting the last war is a natural human tendency that results from our innate desire to find patterns and make sense of the world around us. But, in the world of investing, this can be a dangerous mindset to adopt. For example, after the 2008 financial crisis, many investors rushed to allocate billions of dollars to so-called “black swan” strategies that were designed to protect against rare and extreme events. This reaction was misguided, though. It came after the feared black swan, and at that point, was a useless strategy.

A more drastic example? A study conducted by Fidelity Investments on their flagship Magellan fund, during Peter Lynch’s famed tenure, from 1977-1990. His average annual return during this period was 29%, as compared to 14.47% of the S&P 500 index. This is a remarkable return over the 13-year period and made him one of the best investors ever. It was clear that investors were aware of the fund’s stellar performance as inflows made it one of the largest mutual funds of its time. Given that amazing performance, you would expect that Magellan Fund investors got really rich during Lynch’s tenure. Shockingly, a study by Fidelity Investments found otherwise. The average investor lost money under Lynch’s leadership. Rub your eyes and read that again: The average investor lost money in the Fidelity Magellan fund under Peter Lynch’s tenure during a period of time when the fund returned around 29% annually. How did the average investor lose out on Magellan’s success?

Markets swing up and down. When the market went up, the Magellan fund rose even higher. This excited and enticed investors who rushed to invest. But when the market and the fund declined, investors immediately sold. At every robust period, investors moved money into the fund, and at every decline, they sold – with Magellan’s value swinging lower than before. Recency bias killed Magellan’s performance.

Similarly, in the current market environment, investors are reacting to what worked in 2022, without considering whether those strategies will continue to be successful in the future. To avoid the pitfalls of fighting the last war, investors must adopt a progressive approach. This means taking a longer-term view of the investment landscape and considering how trends and risks might evolve over time. By focusing on the future, investors can avoid getting caught up in short-term market movements and can make better-informed investment decisions.

Be aware of this tendency, and look out of the windshield as opposed to the rear-view mirror. You’ll make more knowledgeable investment decisions and avoid getting caught off guard by unexpected events. You won’t get caught up in the latest market fads. Instead, you’ll be primed for long-term financial success.

This material has been prepared for informational purposes only, and is not intended to provide, nor should it be relied upon for, legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.