Whether you have children who will be attending college or you’re simply a savvy investor on the lookout for diverse real estate investments, buying and renting college real estate can prove quite lucrative. However, it takes very careful research, a detailed plan for ongoing maintenance, and a strong stomach.
Many real estate investors steer clear of investments in college towns because they perceive too much risk and not enough reward. However, if you approach these investments in a calculated manner, you can benefit more than most.
• Captive market. If you’re able to secure real estate close to a major college campus, that’s as close to a “sure thing” as you can get in real estate. You have a captive market with thousands of students that need a place to live. Additionally, most college enrollments grow over time. With real estate being a finite resource, this means demand is always increasing, or remaining steady at the very least.
• Higher rents. You can get away with charging much higher rents in college towns because parents and students are used to paying outrageous fees for room and board. You can also charge on a per-tenant basis, as opposed to a flat monthly fee. By charging five tenants $400 each, everyone gets a good deal. They get to live somewhere at a good price, while you collect $2,000 in monthly rent (whereas you may only have been able to get $1,500 in a standard market).
• Lower expectations. The majority of college students don’t have extremely high living standards. Most are living on their own for the first time and aren’t super picky. Not to say they’ll put up with major problems, but they probably won’t require you to fix minor nuisances that other tenants would complain about.
• Possible advanced payments. This isn’t always the case, but it’s not uncommon for parents to go ahead and pay the full amount of the lease for their student – as opposed to funneling money into their account every month.
• Easy referrals. If one set of tenants enjoys living in your property, it’s quite likely that they’ll refer their friends after ending the lease. This word of mouth marketing is invaluable and encourages minimal vacancy.
While these five benefits may sound great, you still have to choose the right properties. That means knowing exactly where and what to look for.
• Location. You obviously need to start with location. In most cases, the closer you are to campus, the better chance you have of staying occupied. However, understanding housing trends in specific markets is also important. Some campuses are more spread out than others, meaning there will be pockets of student housing in different outlying areas.
• Future plans. Has the college or university announced any future building or expansion plans? This type of inside information can prove to be very lucrative – allowing you to buy up cheap real estate that you believe will appreciate in the near future.
• Housing requirements. One of the first things to do is read up on the school’s housing requirements. While most major colleges only require students to live on-campus for one year, some have stricter rules. It’s common for smaller private schools to require students to stay on campus for two, three, or even all four years.
• Number of rooms. As mentioned, college students aren’t the pickiest tenants. In fact, most are willing to live with a bunch of their friends – just for the experience. Instead of looking at the number of bedrooms when buying a house, consider the total number of rooms. You may be able to convert an office or second living room into another bedroom at very little cost.
• Work needed. It may seem counter intuitive, but you should look at older homes that need some cosmetic work. College students are notorious for putting heavy wear and tear on a property, so you don’t need to waste your money on brand new construction and high quality features. Do your due diligence and make sure it’s a safe, healthy, quality home, but plan for renovations and repairs down the road.
The beauty of buying real state in college towns is that you’re afforded a number of flexible investment options. These include renting to the general student population, flipping houses and selling to other investors, holding raw land for future development, and even renting to your kids and their friends.
This latter strategy is becoming very popular. You buy a house, rent it to your child and his friends for three to four years and then start renting to the general student population. This not only allows you to develop a stream of passive income, but it also lets you save by not having to pay your own student’s rent for six or eight semesters.
It would be unwise to assume everything is perfect when investing in college real estate, though. While they may be vastly overstated in many circles, the following potential negatives and risks do exist:
• Damage. The thing most investors are worried about is damage. They don’t want to rent to students because they believe they’ll throw excessive parties and exhibit little care for the property. While this is the exception to the rule, it does happen. However, most of this risk can be mitigated with proper tenant screening protocol.
• Lack of experience. Because most student renters are living on their own for the first time, they can be oblivious to certain things seasoned tenants and homeowners typically notice. Things like water leaks, drain clogs, HVAC problems, and other seemingly minor issues may go unnoticed or unreported.
At Green Residential, we understand the ins and outs of a variety of different real estate investments. If you’re interested in college real estate investments and need a property manager to oversee your portfolio, please don’t hesitate to contact us today. We’ve been in the Houston property management industry for more than 30 years and would be happy to work alongside you in a variety of capacities.
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