Our strategy is simple. We try to understand what investors are looking for and what they value most; then find opportunities that best align with those goals. It was this mindset that pointed us toward student housing.
We believe well-positioned student housing has the ability to offer a variety of benefits that matter to investors; monthly cash flow, stable performance, inflation-friendly, appreciation, tax efficiency through depreciation. All from a brick-and-mortar asset anchored by the historical stability of a university.
Nelson Brothers typically divides investment opportunities into four categories, each with their own unique goals and objectives.
Nelson Brothers often acquires newer assets that are believed to be stabilized and well-located in strong markets. For these properties, Nelson Brothers typically employs a more conservative buy and hold strategy – where the property is held for a 5 – 6 year period. These assets are 1031 and IRA eligible.
Nelson Brothers believes that increased diversification can help with capital preservation and safety. With this in mind, Nelson Brothers created an LLC that owns smaller interests in various Nelson Brothers properties. Investors can buy shares of the LLC and have direct ownership benefits of a more diversified portfolio. The LLC is IRA eligible but not eligible for 1031 exchanges.
Every now and again, Nelson Brother will encounter a dilapidated property or a vacant plot of land with an ideal location near a growing university. For Nelson Brothers, this can translate into tremendous upside potential through an all-new, ground-up development. Especially in markets where demand is growing faster than supply and the current competitive set is antiquated or lacks modern appeal to today’s pickier students. In this case, Nelson Brothers believes a well-executed strategy can potentially bring high returns. Keeping in mind, construction projects inherently bring on a number of risks and uncertainties. For these opportunities, investors should be sure the risks and benefits of a project are consistent with their goals and objectives.
Our strategy is to be disciplined in assets that fit a carefully crafted set of criteria that can potentially help deliver on these benefits.
Less Market Correlation
We look for universities that have shown consistently inclining enrollment, even during times of recession or a struggling real estate cycle.
Monthly Cash Flow
Properties are acquired based on the net operating income in relation to the sales price. Inherently, most of the properties we buy are already profitable and producing income each month. From there, our goal is to maintain high occupancy to preserve the cash flow and do all we can to potentially increase the income through rental rate growth, efficiency operations, etc.
With each property, we see an opportunity to potentially grow income and add value. This may be through steady rental growth in a tight market where demand is growing but supply is limited. Or, it may be a more assertive strategy where we’re initiating substantial renovations to upgrade and modernize a property.
We like properties that have demonstrated a track record of consistently high occupancy in markets where there nearest competitors have also performed well historically. Further, we try to single out properties that we feel have a sustainable competitive advantage (such as a location within walking distance to campus) that may be difficult to replicate. That way, we think the property can maintain steady performance.
Tax Efficiency Through Depreciation
A dollar saved can be a dollar earned. Real estate is unique in that it may be one of the few assets that tend to appreciate over time but that the IRS will allow depreciation to write off the usage of the property. We tend to favor property with lower land costs, written off at the 27.5 year schedule allotted by the IRS. For most of our current properties, this practice has enabled us to shelter up to 100% of the income on the majority of our assets. It’s a huge benefit. Oft-overlooked.
Nelson Brothers believes that well-positioned housing for students near campus can leverage the economic stability of a major university and cater to a demand with less volatility than the macro-economy. Our strategy is to target the well-located properties within walking distance to growing universities that fit within the company’s proprietary buying model. In particular, the company will emphasize value-added opportunities, targeting well-located properties that can be upgraded from extensive renovations with a more contemporary look and feel. The key will be to make cost-effective improvements that students could potentially be willing to pay a higher premium for; helping to raise rents, grow income and appreciate property value.
What distinguishes Assisted Living Facilities from a business and an investment standpoint is that they are assisted but not medical. There is no medical staffing or services. Not only does this keep payroll and insurance costs dramatically lower than other care options, it also reduces vulnerability to legislative changes to federal funding. A well-operated Assisted Living Facility offers a vibrant social community and engaging daily activities while still helping to maintain a sense of autonomy and independence.