Invest Smart: The Rise of Lifestyle-Oriented and Student Housing Investments
Much like ships battening down the hatches during a fierce storm at sea, many real estate investors have dropped anchor and taken shelter, awaiting the calmer waters of lower interest rates and an influx of inventory.
Still looming is the threat that the Federal Reserve will maintain its current inflation-fighting interest rates, making them the new norm. Will this tumultuous voyage through turbulent economic seas ever find safe harbor?
Fortunately, there are still real estate investing opportunities for those seeking them. Along with workforce housing and 55+ communities, market niches such as lifestyle-oriented and student housing properties can offer attractive investment opportunities.
This is the third article in our series addressing niches within the current residential and commercial real estate markets. It explores why investing in lifestyle-oriented and student housing properties is a potentially lucrative opportunity worth exploring in your self-directed Individual Retirement Account (SDIRA).
Understanding Lifestyle and Student Housing
Before we dive into the investment potential, let's first understand what these housing types entail.
Lifestyle-Oriented Housing
This niche market caters to a specific demographic seeking a particular lifestyle or amenity-rich living experience. Think upscale apartment communities with resort-style pools, state-of-the-art fitness centers, trendy social spaces, pet spas, and concierge services. These properties are designed to attract young professionals, empty nesters, or anyone seeking a vibrant, community-driven lifestyle.
The primary appeal of lifestyle-oriented housing lies in its ability to offer more than just living space. It promises a lifestyle, a community, and an experience tailored to the desires and expectations of its residents. Here’s why people might choose this type of housing:
Convenience and Comfort: With numerous amenities and services readily available, residents enjoy a high degree of convenience and comfort that enhances their daily living.
Desirable Locations: Living in prime areas allows residents to easily access the best of what a city or location offers, from dining and shopping to cultural and recreational activities.
Community Feel: The opportunity to live among like-minded individuals and participate in community activities can be a significant draw, especially for those looking for social engagement.
Luxury and Exclusivity: For many, the luxury and exclusivity associated with lifestyle-oriented properties are a major attraction, reflecting their personal and professional success.
Student Housing
On the flip side, student housing targets the ever-growing population of college students seeking off-campus living arrangements. These properties are typically located near universities and offer amenities tailored to the student lifestyle, such as study lounges, high-speed internet, laundry, and recreational facilities. What makes investing in student housing particularly appealing is its resilience; it tends to remain in demand regardless of economic conditions, as education is often prioritized even during downturns.
The appeal of student housing lies in its combination of practicality and community support explicitly tailored to the needs of students:
Convenience: The close proximity to campus and included amenities reduce daily stresses for students, allowing them to focus more on their studies and less on commuting or household issues.
Social Interaction: Living among peers provides a built-in social network, which can be particularly beneficial for first-year students or those coming from far away. This can enhance the university experience and promote a healthier, more engaged student life.
Cost-Effectiveness: While not always cheaper than off-campus living, the inclusive nature of many student housing leases (often including utilities and internet) can simplify students' budgeting.
Safety and Security: Parents and students alike are often reassured by the enhanced security measures and the presence of staff and management dedicated to the residents' well-being.
Why Invest in These Niche Real Estate Markets?
While traditional investments might feel unpredictable, lifestyle and student housing offer a compelling counterpoint. Here’s why:
Resilience During Economic Fluctuations: Lifestyle-oriented housing appeals to a segment of the population that typically maintains spending power even during economic downturns. These renters usually have an above-average income. They often prioritize lifestyle and location over cost, providing a steady demand for luxury housing.
Student housing offers a counter-cyclical appeal. Even in tough economic times, universities often see increased enrollment as individuals seek additional education to improve job prospects, thereby boosting demand for nearby housing.High Tenant Demand: The specific nature of lifestyle-oriented properties often leads to lower vacancy rates, as these are highly coveted by tenants looking for a "more than just a home" experience.
Student housing sees a perennial influx of new students every semester, keeping demand consistent and rental turnover systematic and predictable. Nearly 19 million undergraduate and graduate students attend a university each year and seek somewhere to live.
Premium Pricing Capability: Both types of housing allow for premium pricing strategies. Lifestyle-oriented properties can command higher rents due to their luxury features and prime locations. Similarly, student housing can leverage its proximity to campus and tailored amenities to justify higher rent compared to standard accommodations.
Potential for Appreciation: Well-maintained properties in high-demand areas can appreciate over time, offering a potential long-term return on your investment.
Demand Outpaces Supply: There's a shortage of high-quality rental housing in many areas, particularly for students and young professionals. This creates a situation where your property is unlikely to sit vacant for long, ensuring a steady rental income stream.
Diversification: Using your SDIRA to invest in niche markets like lifestyle-oriented or student housing offers greater control and diversification within your retirement portfolio.
Real Estate Investing Benefits: Both lifestyle-oriented and student housing investments offer various benefits, including tax advantages, steady cash flow, and the potential for long-term appreciation.
How to Approach Investing in Lifestyle and Student Housing
Know Your Target Market: Understand the demographics and their preferences. For lifestyle housing, delve into market trends around luxury real estate in the desired area. For student housing, keep a close eye on university enrollment numbers and planned campus expansions. Understanding your target market will help you choose the right property with the right amenities.
Location, Location, Location: You've undoubtedly heard this adage, which also holds true for this niche market. For lifestyle housing, focus on regions known for their high quality of life, cultural amenities, and overall desirability. Prime urban centers or scenic coastal towns often fit this bill. For student housing, proximity to campus is paramount. Properties within walking or biking distance of the university are ideal.
Consider the Long-Term: Look at long-term trends in the area. Is the local university planning to expand? Is the area attracting tech companies or other major employers? Such factors can influence long-term demand for housing.
Do Your Due Diligence: Don't be swept away by the allure of rooftop pools and pet spas. Research the property's financials, vacancy rates, and the overall condition of the building. Know the competition in the area.
Legal and Regulatory Compliance: Ensure compliance with all local regulations concerning rentals, especially those impacting student housing, which may have specific codes regarding safety and occupancy.
For my clients seeking to diversify their retirement portfolios, investing in lifestyle and student housing through your SDIRA can be a strategic move. By leveraging the tax-advantaged nature of these accounts, you can potentially maximize your returns while enjoying the benefits of real estate ownership.
How Chicago Trust Administration Services Can Help
In the ever-evolving real estate landscape, lifestyle and student housing present a compelling opportunity for savvy investors seeking resilience and diversification in their investments. With the right approach and thorough understanding, these real estate ventures can offer more than just financial gains — they can become enduring assets that bolster your investment strategy for years to come.
At Chicago Trust Administration Services, our team of experienced professionals is dedicated to guiding you through the complexities of these niche markets, ensuring compliance, and facilitating seamless transactions.
To see how we can help, we invite you to schedule a complimentary meeting with us by calling 312-869-9394 or emailing steve@ctasira.com.
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*The content and opinions in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
**CTAS professionals are not financial advisors and cannot provide advice or recommendations regarding specific investment decisions.