Savvy investors have been investing in college town real estate for a long time, and if you haven't, it might be time to follow suit. College towns make attractive investments for a variety of reasons. In the following article I will touch on several of these reasons, and even give you some insider tips on how to avoid some of the common headaches investors associate with college town real estate investing.
Why Investing In College Towns Is Attractive
First and foremost, the biggest draw for real estate investors to college towns tends to be the large number of prospective tenants. Of course you have college students - who will need a place to stay for the approximately four years they attend school. You might be thinking - what about all the dorms? Well, the truth is most colleges and universities have a huge deficiency in the amount of on campus housing available for students. Some schools are worse than others, though, so if you intend to target college students, it would be advisable to do some research into which schools have the biggest need for off campus housing. Before we move on, I want to point out one big advantage of renting out to college students - they are willing (and generally looking) to rent single rooms. That means if you buy a big house with five or six bedrooms, you can potentially get five or six tenants out of it. While a single tenant wouldn't pay $2,500 for the entire property, five separate tenants might pay $500 each. By renting out property by the room, you are able to increase your profits substantially.
While students tend to be the first potential tenants that come to mind when you think of college towns, they are by no means the only tenants. One of the often overlooked facts about college towns, is that they have some of the most educated populations in the country. I know that seems obvious, but you'd be surprised how many investors neglect that fact. The reason why this is important is that businesses tend to flock to the more educated parts of the country, because they know that is where the employees they want are. Since college towns are more educated overall then typical towns, they make attractive places for businesses to open up. All these new businesses need employees, and those employees will need housing - you probably get the drift.
Another often overlooked source of tenants in college towns is retirees. That might seem a little strange, but I assure you that more and more retirees are flocking to college towns. College towns actually make great places to retire for a number of reasons. There are numerous cultural and sporting activities and the cost of living tends to be attractive in college towns. Today's retirees aren't happy to just sit around all day, they want to enjoy their retirement, and college towns provide them a great outlet for that.
Beyond the stable of tenants college towns offer, they also make great investment locations because of the stability they offer. Since the rental market in college towns - especially in smaller ones - is centered around the college, they are not impacted nearly as much by economic dips. Most college students don't have jobs, so they don't have to worry about losing one. In fact, the worse the job market gets, the longer students will likely stay in school. They know that as soon as they leave school they will have to start paying back those student loans. So if job prospects are weak, they may elect to go to graduate school - delaying the job search, and making themselves more attractive to employers with the additional education in the process. The number of students attending college is higher than ever before, and with the value placed on education in our culture, that isn't likely to change anytime soon.
Common Problems Investors Face With College Town Real Estate
Since we covered the reasons you should consider investing in college town real estate, we should at least mention the biggest drawback. The biggest problem, and subsequently hesitation, investors have with investing in college town properties happens to be the same reason that makes them so attractive - the students. The sheer number of students means potential tenants are aplenty, however, if you've seen the movie Animal House (or any number of college party movies), you are probably scared to death with the thought of renting your house out to college kids. While frat houses - as they are portrayed in the movies - are certainly not normal, college kids in general don't always make the best tenants. The occasional party is to be expected, and since they are kids - likely living away from their parents for the first time - they are still learning how to take care of themselves, let alone someone's else's property.
Before you completely talk yourself out of investing in college town real estate, though, let me offer up some tips for how to get your cake and eat it too.
Tips For College Town Investing
While it might seem a little counter-intuitive, I suggest that you don't target students for your college town rental property - especially if you are worried about the idea. What's the point of investing in a college town if you aren't going to rent the property out to college students? Well, do you remember earlier when we talked about the other sources of tenants, and the increased market stability? Those positives still remain, and by avoiding college students you remove the main disadvantage from the equation. Even without college students, the rental market in college towns is good.
When targeting non-students for your rental property, you also have the ability to expand your property search beyond the general borders of the school. While most students don't have cars, and thus need to live within walking distance to school, that is not the case with other tenants. Naturally the farther away you get from the school the more affordable property tends to be. It is important not to go too far away from the school, though, or you will lose some of those other benefits we discussed earlier. You want the property to still be convenient for tenants in the event they work at or nearby the school.
Another tip I have for college town investors is that it is possible to use your IRA to invest in these areas. I've found that because of their relative stability, college town properties make incredible investments for your retirement account. If you didn't know you could invest in real property using your IRA, you most certainly can - people have been doing it since the IRA was invented. The common name for the account you need is a self-directed IRA. If you do a quick Google search you can find all sorts of information about self-directed IRAs, or you can contact me directly, and I'd be happy to walk you through what they are, and how you can use them to buy real estate.
College towns have historically made great places to invest. With their huge tenant bases, educated populations and relative market stability - something that is unlikely to change anytime soon. If you don't fear renting out your property to students, as an investor you can enjoy great cap rates - especially because you can rent out your property by the room. If you like the benefits of college towns, but aren't especially keen on the idea of renting out your property to college students, no problem. It is possible to have the best of both worlds. College towns have a lot to offer residents and investors alike, and if you haven't looked into investing in college town real estate previously, I hope I've been able to sway you enough to at least consider the possibility.