Real Estate

Investing in Rental Real Estate in a College Town: Is it a Good Idea?

dianahill
Diana Hill
Professional Real Estate Investor Instructor

The idea for this article came to me from a question posed by a student this past week. Her question was about a rental property in a college town and it got me to thinking that I should provide some guidelines for those of you thinking about purchasing this type of rental property.

Some of the advantages of ownership of rental property in a college town:

1)     First and foremost, the large number of prospective tenants.  These tenants are going to need somewhere to live for at least four years. There are dorms but most colleges and universities have a huge housing shortage. Some are worse than others; it is simple to find this out.

2)     Most students have a budget. If you buy a large home with four to five bedrooms, you can get rent per room which will usually add up to more than the standard house would rent for, which increases the profit.

3)     Students aren’t the only potential tenants.  With college you also have the population of educational professionals and administrative staff.

4)     There is also a new trend of retirees heading to college towns.  Why? Because there are activities such as cultural events, sporting events and lectures to name a few.  Today’s retirees want activity and stimulation and college towns provide this lifestyle.

5)     There is great stability in these kinds of locations.  Not only because of the tenant population but because colleges and universities are a stable industry.  In fact when there is an economic down turn, colleges and universities usually see an upswing in enrollment.

There are disadvantages as well:

1)     Turnover – the likelihood is that you will have a new tenant or set of tenants every year.  Most students will change where they live an average of three times in their college career.

2)     Condition of the property – students tend to be less conscientious than other tenants (and most tenants aren’t as conscientious as a property or home owner).  Most people worry about the party aspect of student life, that can be an issue but I’ve found the bigger issue is the lack of communication when something is wrong.  For example, they won’t tell you if there is a slow drain or leaky faucet.  These kinds of issues unaddressed can create a much larger problem down the road.

3)     Reliable rent – this can be an issue if you don’t properly screen the tenants and get the correct lease (see the tips section for solutions to this issue).

Tips for College Town Investing:

1) Define what is best for the property. For example, say you have a 3 bed 2 bath home near campus but it’s in a family neighborhood with a monthly outlay of $1150.00 a month: option A) rent out each bedroom for $450.00 a month for a total of $1350.00 month.  For this option the student/tenant will have to be willing to live a short distance from campus.  Option B) Find a young family, maybe a member of the administrative staff, who wants to be close to work but in a family neighborhood and rent it for $1200.00 a month.

2) Marketing for either option would be through the college or university.  It might be different departments for students and staff but start with the housing office and they can direct you correctly.  Often this marketing is free of charge.

3)     You can also hold an open house one Saturday afternoon. This way you get many people to see the unit at once and it can create a little buzz.

4)     For Option A, make sure you have a lease from each tenant individually and a security deposit.  You should also have a parent sign the lease and guarantee the rent.  Also, in today’s market, the lease should be for one year.  No one really rents for the nine month school year.  You might want to have a clause about subleasing in the summer.

Review this article for more tips and info on investing in rental property.  Hope this has given you some fresh ideas, I love the questions keep them coming.

Great Fortune

Diana Hill

dhill@tradingacademy.com

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