Buying college town real estate can lead to big payoffs. As a real estate investor, college towns may scare you. You might think, "transient party centers for young adults." But savvy property investors buy in areas around universities. Why? There are lots of great reasons. Read the list below to find out why you should consider buying a rental property near a university.
Reasons to buy college town real estate
1. 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 easy for you to market your property.
2. 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 stay only 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.
3. Strong rental rates
Because there’s a consistent demand for rental properties, you can maintain market value rental rates.
4. 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 to sign a yearlong lease, you’ll be covered during the summer months.
Even though there are many great reasons to buy property in university towns, there are some risks:
1. 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.
2. 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.
As previously mentioned, it can be tough to find renters for the summer months. By creating a lease, for example, that runs from August-August you can help eliminate this problem.
4. 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
1. Single-family home
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.
2. Multi-unit property
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 these properties with a single mortgage, which could make them just as affordable as a comparable single-family home.
3. Apartment building
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’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.
If you’re a college student
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.
Managing the Property
If you've never managed a rental property before, consider managing it yourself (and doing your research) or hire a quality, results driven manager to do the work for you. Knowledgeable and local property management can give you expert advice, find renters, and ensure you are paid!