A buddy of mine has been making a killing in college housing for years. Unlike what has happened to the residential real estate market, the college housing market has been largely insulated from both the initial bubble and the subsequent crash. Why? Well, valuations are based on actual cash-flows (real money) and not speculation, flipping and no-doc loans like the mess we got into with residential real estate. In essence, if a certain unit is return X cash per year, it can be reasonably valued at Y dollars. In general, the cost of college housing has been increasing at or more than the rate of core inflation for years pretty steadily. There’s no shortage of college students requiring off-campus housing if you pick the right university. Zoning laws and insider dealings make it a bit of a tough nut to crack, but once you’re in, you’re in. So in the end, my friend is making 20% on cash and continues to roll equity from one property to the next. He’s building a small empire – the one you used to hear about with condo flipping in Miami…but this one won’t pop unless universities start going belly up.

In thinking through how I could participate in this seemingly handsome reward per modest risk without being an insider myself, I came across a great proxy – a Real Estate Investment Trust (REIT list of dozens of tickers referenced there) based on college campus housing. There are a couple of these out there but I identified what I felt to be the best in class – American Campus Communities Inc (ACC). I like ACC for several reasons, enough to actually buy some for my self-directed IRA. I prefer holding dividend payers in this account since they’re protected from taxes and I love the benefit of the overall dividend return equating to close to half of the total stock market returns over time as indicated graphically there.