“An investment in houses in the cheapest ten percent of the market earns returns that are substantially higher than an investment in the most expensive ten percent."
What would it take to convince you that low-rent apartments “consistently earn significantly higher returns” compared with high-rent apartments? Three researchers who examined property markets in three different countries, including the U.S., came to this key finding in recently published research. But, perhaps anticipating skepticism, they titled their paper with a question mark, “An Alpha in Affordable Housing?” That made us curious.
In fact a few findings in this research challenge intuition, so in this article we’ll dig a little deeper into the conclusions than usual. Still, if these findings are directionally right, they present a clear path to alpha for real estate investors, but our bet is you won’t go down it. We explore at the end why that might be. Let’s get into it…
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