How to invest in college town real estate
Buying properties in small college towns can lead to big payoffs
When I was growing up, I was lucky my parents afforded me the opportunity to attend college without taking out student loans. (As long as I completed college in four years at an in-state university — done and done!)
While they did a good job of tucking money away into my college savings account, my parents didn’t think about investing any of those funds into real estate in my future college town. In hindsight, I bet they wish they had.
While it’s easy to minimize small college towns as transient party centers for young adults, areas around universities attract savvy property investors. There are a number of reasons why you should consider buying a rental property near a university.
Reasons to buy a rental near a university
- There’s a large pool of renters. At many schools, a large percentage of the student body relocates from other places, and many of those students only stay until they graduate. Then there’s university staff, faculty, and graduate students. Even though they may be more connected to the town for a longer period of time, they still might prefer to rent instead of purchase a property.
- Strong rental rates. Because there’s a consistent demand for rental properties, you’ll be able to maintain market value rental rates.
- Vacancy rates are low. That said, do your best to have tenants sign one-year leases, as vacancy rates go up in the summer because of the school break. If you require students sign a year-long lease, you’ll be covered during the summer months.
- College towns sell themselves. Usually, college towns are filled with restaurants, nightlife, art galleries, and shopping. Plus, college towns have high walkability scores. Those factors can make it easier for you to market your property.
Even though there are many great reasons to buy property in university towns, like with any investment, there are also some risks.
Risks associated with owning properties in college towns
- High turnover. Because college kids tend to move often, you may need to invest more time in finding new renters than you would with other properties.
- Property damage. Students tend to cause a lot of wear and tear to rental properties. Factor this into your deposit requirements and the amount of time needed to prepare the home or unit for the next set of renters.
- Seasonality. As previously mentioned, it can be tough to find renters for the summer months.
- Demanding tenants. Because it’s typically their first time living away from home, college students can have a lot of questions. And unfortunately, they may not treat your property like they would their own. Property owners and managers should be fairly accessible and available, so it’s best to live close to the property or hire a high-quality, responsive management company.
Types of investment properties
If you live locally or have a child attending the college, consider buying a single-family home that your child can live in with a roommate or two while they’re in school. That may mean you’ll have easier access to the property, and hopefully you can better maintain it than if the renters were strangers. If your child is willing to do the job, you could have an onsite manager! But if they don’t want that responsibility, hire a professional manager.
Single-family homes also make great rentals for college professors, other university staff, and graduate students, who may take better care of rental properties and stay longer than an undergraduate student.
Consider a basic multi-unit property, like a duplex, triplex, or quad. These types of properties can yield a better return than a single-family home, because you’ll have more renters in less total square feet. In many cases, you can buy them with a single mortgage, which could make them just as affordable as a comparable single-family home.
If you’re up for a remodel project, shop for a single-family home that you can remodel into a duplex, which could pay off in the long run. Be sure to check the residential zoning laws first.
Maybe you have a lot of capital to invest, and plan to keep the property for more than a few years. In that case, consider purchasing a larger apartment building (more than four units). Appreciation on multi-unit buildings can be high, as long as you maintain the property and keep vacancies to a minimum.
If you’ve never managed a rental property before, consider managing it yourself. With tools like Cozy, which is free for landlords and property managers, you can save lots of money during the duration of your investment. Or hire a quality manager. Just be sure to do your due diligence before hiring someone.
In general, choose properties with basic appliances: a refrigerator, oven, and stove. Renters might consider appliances like dishwashers, garbage disposals, microwaves, and washer/dryers non-essential.
If you don’t live near a college town, but want to take advantage of investing in one, talk to your financial advisor about investing in a Real Estate Investment Trust (REIT) that specializes in college towns.
If you’re planning to attend college, and have enough money to put a down payment on a home, consider buying an investment property.
Owning the property you live in while attending college may pay off big when you graduate.
Instead of paying the equivalent of a mortgage to the university or a landlord, why not purchase an affordable home, get a roommate or two, and pay your own mortgage while you attend college? You can either sell the property and keep your earnings, or keep it and rent it out to other students who will continue to pay your mortgage.
What to research before purchasing property in a college town
- The town. You’ll find better property values in a small college town that’s not near a metropolitan city versus purchasing in cities like Seattle, Denver, or Boston, where property prices are already high. For a good overview of good college towns to invest in, check out Redfin’s picks.
- The school. Is it growing and expanding? Are they adding buildings either on or off campus? What’s the ratio of students who live on campus to those who live off campus? How much student housing does the school own? Does the school plan to increase or decrease its enrollment? What are the rental rates; what are the cap rates?
- The differences between private and public schools. Private schools may have lower enrollments and stricter policies on student housing, while public universities may have higher enrollments and more commuter students.
- Your long-term plan. How long do you plan to own the property, and what is the recent history of the real estate market in the town?
Whether you just had your first child, plan to send your kid to college in the fall, or simply want some new investment opportunities, it’s hard to argue against the earning potential of college town real estate.
Originally published at cozy.co.