Real estate has long been one of the most popular methods for wealth generation. Most people consider their primary residence a substantial investment. Some folks have chosen to “flip” houses by buying homes in need of repair, repairing them, and then selling them for a profit. Others have chosen to become landlords and bought one or many houses to rent out, thereby letting their renters pay the monthly mortgage on the property.
If you pay attention to real estate trends or are already in the business, then you have heard the phrase “location, location, location!” This is a simple phrase which refers to the importance of buying a property in the right area. Knowing which streets in a neighborhood are the most popular will drastically increase the value of your property, and increase your chances of selling it for a premium. Knowing where the trendy area of town is will help you make strategic real estate decisions.
Whether you choose to buy and hold, flip, or rent your properties, you should invest your money in a stable and growing market. I define this as one where the property values have increased over the last 10 years and where the properties do not sit idly for sale longer than 90 days. If you choose to rent, then you need to be sure that there is a stable community of people looking to rent.
The best locations that I have found which rank very highly in all of these areas are college towns!
Buy Real Estate in a College Town
It’s no secret that college students need a place to live. The vast majority of colleges and universities do not build enough on-campus housing to contain all of their students so they depend on the housing options close to the campus to provide adequate housing for their students. Most of this housing comes in the form of apartment complexes, but a growing trend has been for college students to rent out single-family homes, duplexes, or condos.
This is an incredible opportunity for you as an investor.
I work at a college in the southeast, and the average rental rate for a three-bedroom apartment is between $1,200 and $1,500. This increases for most single family homes or condos. The average price for a condo is around $130,000 and the average home price is around $150,000. If you were to purchase one of these properties with a generous 5% APR mortgage, your monthly mortgage payment would be $700 to $1,000. You tack on taxes and rental property insurance, and you’re still only around $900 to $1,200 in total costs.
Renting this property at the above rates would allow you to cover all of your expenses each month and receive a few hundred dollars extra. This additional money could be saved for repairs, or used to pay down the principal on your mortgage.
Many people would be nervous about renting to college students. I admit, this is a legitimate concern. The good news, however, is that the vast majority of college students (whether we agree with this or not) receive the funds for their housing either directly from their parents or from student loans.
You can also structure your lease agreement to a flat rate for the property. So if you have six tenants living under the same roof it becomes the responsibility of all six of those tenants to pay rent each month. If the total rent is not met each month, all six tenants are affected rather than just one. Peer pressure is powerful! Also, you can require a security deposit from each tenant. This allows you to have some protection if they trash the place as they leave and you have to pay for repairs.
Buy a Home for Your Own College Student
Another excellent way to invest in real estate in a college town is to buy a home in the college town where your child attends. This works even better if you have multiple children going to the same college or university, but it can still work with just one child. Buying a home as an investment, and allowing your child to stay in that home during their college years lets you invest the money you would otherwise pay to the college or some other apartment complex, into your own property. You are essentially paying yourself.
The beauty of this scenario is that your child can also bring in roommates who are charged a rental fee, thus offsetting your costs for the home even further. In many cases you’ll be able to cover the entire cost of the property through the rental rates of the roommates, thus securing free housing for your child.
When your child has graduated you can then decide to either keep the property and rent it out to future generations of college students, or sell it and recoup your investment. Either way, you should come out with a tidy profit.
The Bottom Line
Investing in real estate always comes with risks. Investing in real estate in a college town does not avoid those risks, but it does minimize the most costly ones. You will always have a thriving rental market, people will always be looking to buy property in that area, professors and professional staff will always be looking to buy and sell homes, and your property values will continue to increase. I encourage you to consider a college town for your next real estate investment.
Have you ever invested in real estate in a college town? Would you consider buying a rental home when your child goes off to college?
DJ works in financial services at a large public university. He lives in the Southeast with his wife and young daughter.