Why It’s Smart to Invest in College Town Real Estate

by Steve CookSeptember 1, 2017

The annual end-of-summer ritual of returning sons and daughters to their colleges or universities for the coming academic year brings parents to campus communities. As they drive past rows of rental houses and high-rise apartments, some might think about participating in one of the fastest growing trends in real estate.

Why not buy a single-family rental or a condo close to campus to cover their child’s housing expenses and make a profitable real estate investment that will appreciate and generate rental income for years to come?

College town real estate is a hot market because the tenant base of students and faculty in college communities assures a consistent demand in neighborhoods where rental options are often limited, and rent rates are steadily rising. The National Center for Education Statistics predicts college enrollment in the U.S. will reach 19.8 million students by 2025, an increase of 14 percent from its 2014 enrollment of 17.3 million. Many schools can’t keep up with the demand for housing. While year-to-year numbers may vary, the number of people enrolling in higher education continues to rise, driving up demand for housing.
College Moving
Does the thought of becoming a college town landlord conjure up fears of Animal House? Don’t worry. Many college rentals are sought after by more mature adults: graduate students, faculty members, research assistants, and staff.

According to the president of Local Market Monitor, Ingo Winzer, they “don’t want to buy a home. Grad students, junior faculty, and many administrators don’t plan to remain in one place – their careers involve moving (up) from one university to another. This is an important consideration for you as a landlord, because, despite the inconvenience of frequent turnover, it means there’s always a large market for your product.”

For most college rentals that are located close to a college, tenants are willing to pay a premium price to be close to school and to live with their friends. Since college rentals demand more rent than a single family home, many investors feel they can make more money renting to college students. Most college rentals are leased in the spring after school is over or in the fall right before school starts.

Here are three markets with significant college housing needs:

Boston

Home Trends in Boston
Home to about 150,000 college and university students, Boston, Massachusetts may be the “capital” of college towns. Between 1995 and 2010, university enrollment in the greater Boston area increased 21 percent, and the growing student population has caused a major shortage of housing, promoting students to pool their money to afford a typical apartment.

Acquiring a rental home in the Boston market is expensive. A recent monthly report by the Massachusetts Association of Realtors found that the median sales price for a home in this state had risen to $410,000 in June, a record figure and almost an 8 percent increase over the same time last year.

SFR vacancy in Boston is among the tightest in the nation, hovering just above 2 percent, and rent growth up to 2.9 percent is expected by year’s end. Renter demand near Harvard, MIT, and other universities in the Cambridge sub market will enable operators to push rents above the metro average; the average apartment rent over the prior six months in Boston has increased by $28.

Grand Rapids

There are 19 colleges within 50 miles of Grand Rapids, MI. The city offers a variety of college experiences to choose from: state universities, private colleges, Christian colleges and some of the nation’s finest community colleges. Downtown campuses offer the opportunity to live and study in the midst of a dynamic business and entertainment district. Suburban campuses offer more of a secluded feeling, often in lovely landscaped settings.

A 2015 survey found 78 percent of downtown renters to be millennials, born between 1977 and 1996, and Grand Rapids has a higher percentage of people ages 18 to 39 than the state and national average.

As of July 2017, the average rent for an apartment in Grand Rapids, MI is $963 which is a 0.21% decrease from last year when the average rent was $965 and a 0% increase from last month when the average rent was $963.

Austin

Austin Home Trends
Home to both the state capital of Texas and the University of Texas, Austin is also a booming market for technology companies. Investors drawn to this Texas metro are targeting properties desired by young families in the technology field, while traditional home buyers are facing higher home prices. Furthermore, Austin investment sales are growing while owner-occupied sales are softening, as first-time buyers are being priced out of the market.

The vacancy is forecast to tighten to 3.9 percent by the end of the year, and rents are forecasted to reach $1,735 per month, up 2 percent for the year. In 2016, SFR rents jumped 3.9 percent.

If you are thinking about investing in a rental home, a college town real estate may be the way to go. The combination of a strong demand, affordable supply and attractive appreciation that will result in a profit when you sell makes the perfect formula to succeed in real estate investing.

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About The Author
Steve Cook
Steve Cook is editor and co-publisher of Real Estate Economy Watch. He is a member of the board of the National Association of Real Estate Editors and writes for several leading Web sites, including Inman News. From 1999 to 2007 he was vice president for public affairs at the National Association of Realtors.

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