College Town Real Estate Investments Score High Marks

college real estate

The closest thing to a sure bet in real estate may be going to college.

Investments in college towns -- places where the community is shaped by a university's presence -- have done well while other niches in the housing market have, for the most part, fallen off the Dean's List. It comes down to the basic law of supply and demand. College enrollments have increased while the supply of on-campus housing hasn't. More often, students are turning to off-campus options. And that's where you should be standing with your wallet ready to fill with rent checks.

How secure an investment is college housing stock? The default rate for Fannie Mae and Freddie Mac's student housing portfolio has been less than one-half of 1 percent -- outstanding given what's been going on in the rest of the housing market.



Michael Zaransky, co-CEO of Prime Property Investors and author of "Profit by Investing in Student Housing: Cash In on the Campus Housing Shortage," says the formula to finding the best deals is simple. Take the number of students in a university and divide it by the number of on-campus beds. Start with the big universities that get a lot of applicants, the schools everyone wants to get into, Zaransky said.

Yes, you have to be willing to become a landlord, and some of your tenants may be frat boys majoring in Partying 101. But if you can get beyond that, there is money to be made.

A Steady Stream of Available Tenants

Zac Bissonnette, 22, a 2011 graduate from the University of Massachusetts, Amherst, agrees. He bought his first rental condo near campus at the end of his freshman year. While he intended to move into it, he realized that he could rent it out -- even hiring a management company to handle any problems -- and still be cash-flow positive. A year after he bought the first unit, he bought a second, larger condo that he shared with a friend whose rent helped cover the carrying costs.

"It's a smart investment," said Bissonnette, the author of "Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents." He added, "When was the last time you heard of a college or university spending money to build a new dorm?"

Zaransky says the key to the success of the student housing niche is that the tenants' ability to pay rent isn't tied to their having jobs. In most rental situations, renters leave when they lose or change jobs. A vacant apartment is a siphon hose to an owner's bank account. But when it comes to students, there is a steady stream of them; those who graduate in June are replaced with new faces in September. College enrollment has been up, no one is building new on-campus alternatives and, even in communities with rent control, the turnover is so rapid that the laws don't seem to curb rental income growth.

Where the Growth Is

Zaransky likes the sun states with high population growth: Florida, Texas, California. He says to stick with the top-tier marquee schools -- "the places where everybody wants to go." At some state universities, like the University of New Mexico in Albuquerque and the University of Nevada in Las Vegas, fewer than 10 percent of students live on campus.

His company is the largest off-campus landlord for Purdue, Notre Dame, the University of Tennessee and Florida State in Tallahassee.

According to a national study by Move, Inc., investors are expected to outnumber traditional homebuyers in their local markets by 3 to 1, and 56.5 percent plan to put their investments to work as rental properties.

"Local markets with universities or colleges can be an attractive option for many local real estate investors," said Move, Inc., Chief Executive Officer Steve Berkowitz. "Housing demand in college towns is generally high and vacancy rates are usually low. Combine the supply and demand ratio with rising admissions and the 5 percent rise in rental rates expected by the end of the year, and rental property in college towns can be a smart option for the right investor."

Also see:
How to Make Renting Off-Campus Pay

Off-Campus Rentals: Staying Safe in a College Town
Why Are So Many Real Estate Deals Falling Apart?


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percheron1

Just as people are discovering a college education just means LARGE DEBT and NOT HIGH PAYING JOBS...some real estate weanie tries to hype ownership in college towns...if the trend against a college education continues...there may be a GLUT of available real estate in these college towns...:(

August 11 2011 at 3:09 AM Report abuse rate up rate down Reply
ADMIRAL CJ RORIE

Where was Vanderbilt in Nashville, Tennessee?

Warm Regards,

Admiral Rorie

August 11 2011 at 1:07 AM Report abuse rate up rate down Reply
vlady1000

If history repeats itself, this could be true, but only if banks start to loan the money to investors (which they are not doing right now) and some confidence comes back in real estate market in general. After the market set back many years ago, college RE did spike up about 35% in 2 years and it became a bidding war by us, but the banks were willing to loan $$ then. After the last market crash (2008), nothing, no money, RE value dropping nationwide (but not dropping much on the student rental properties as the value is based on rental income, not the color of the kitchen). When this happens most "newbies" discover soon it is more work than they thought and sell within a couple years. Differnt game this time with the banks, etc. Time will tell. BTW there are no foreclosures anywhere near any of my student rentals, however, there are tons of them in my nieghborhood I live in. Can't figure banks out, still loaning on the risky properties, but not on the safe properties. I guess that explains how we got to where we are now.

August 11 2011 at 12:01 AM Report abuse rate up rate down Reply
vlady1000

I got into college rental market 9 years ago when my daughter was in school. I own 10 rental properties and do all my own work on them (plus a full time job). I gave up on the IRA, 401, etc that was going nowhere after 20 years. It is a world wide known University. It is work and you have to have a certain personality for it, but I will be able to retire in 6 years when they are all paid off , on the positive cashfloow alone. Never a vacancy, rent increase every year (expect one year was flat), inflation protected, etc. Smartest thing I ever did!!!

August 10 2011 at 11:14 PM Report abuse rate up rate down Reply
shiloh1388

There has been a pirahna feeding fest at the top for a long time. Why charge the customary rate of $75 dollars to change the distributor on a Chevy Tahoe, when you can charge $450??? (for the labor). So my dad's college town and the fact that he and I walked to school in nice neighborhoods is a secret. It should remain so. It's not my problem. (greed and predatory biz practices, based on people's pyschological distress, when something they need to survive is not working, maybe even their love life). I support the Fundamentalist Christian Laws, that greed is a mortal sin. So many will burn in hell forever in eternal damnation. Not my problem. Good riddance.

August 10 2011 at 9:59 PM Report abuse rate up rate down Reply
Hey Dave, relax!

Every time one of these Best Places to Live articles comes out, or a Best Places to Buy this or that comes out, you drive people with more money than sense into communities where They Aren't Wanted. Furthermore, it's amazing that your "writer" has the temerity to use expressions like "a sure bet" in light of the recent downturn of the economy, based largely on "sure bets" gone terribly wrong.

August 10 2011 at 9:54 PM Report abuse +1 rate up rate down Reply
ty

Indirectly milking the government, good work. Tuition rises to cover faculty wages for rising housing, they plead the government for more grants and loans for students as attendance drops, everybody pays more. This type investment and those similar are the reason for the 2008 debt crash, eventually you can't bid things up higher.
That said, I think the brick and mortars are going to go down over the next few years as online schools gain more popularity.

August 10 2011 at 8:23 PM Report abuse rate up rate down Reply
leonpb7

The best cure for our Country is for all of us to insist on term limits for ALL Federal Elected Officials. The term limit should be one four or five year term with a maximum of TWO TERMS. ALSO, no fringe benefits, insurance, or any other type of gratuity should continue after they leave office. The pay for ANY elected official should be equal to that of the average civilian with similar duties within the state he/she represents, plus 10%. The only exception would be for the one who serves as President of the United States. That office would be given lifetime insurance for them and their spouse only, plus a monthly Social Security retirement, regardless of the number of terms served, or their age at completion of same, comparable to anyone else with that size of income. There would never be a raise given to any Elected Official since there wages would be tied into the general economic standers of living. In addition, ALL states, and Territories, within this union, should be encouraged to do the same with all State Elected Officials. One exception, would be that the Governor of any State would be treated the same as all other State Representatives, that is NOTHING in the way of fringe benefits would be paid to them after there term(s) of office.

Len

Pass it along

August 10 2011 at 8:15 PM Report abuse +1 rate up rate down Reply
1 reply to leonpb7's comment
dfrogers7

I was just discussing the very same with my wife the other day. Len you need to run for office on this platform!

August 10 2011 at 8:43 PM Report abuse rate up rate down Reply
cla0524

If you are considering investing in properties near the University of Nevada or even relocating or purchasing a second home in a fabulous climate and the living is easy I highly recommend the realtor I used. He is supremely patient and was rated one of the top 20 realtors in Nevada. I cannot give him higher marks. His name is Eric Gorton who relocated from NY 17 years ago. Most important he is as honest as they come. You can contact him at EGorton@aol.com. Good luck I have never been more satisfied when spending my hard earned money.

August 10 2011 at 7:59 PM Report abuse -1 rate up rate down Reply
2 replies to cla0524's comment
stroudmds

Thanks Eric...

August 10 2011 at 8:02 PM Report abuse rate up rate down Reply
smartalec1321

Nevada?! **** that place!

August 10 2011 at 8:09 PM Report abuse rate up rate down Reply
Joepalooka

if you live on Notre Dame's campus there is no reason to live off campus!

August 10 2011 at 7:18 PM Report abuse rate up rate down Reply