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Whether you currently invest in real estate or are new to the idea, buying rental property in a college town might have crossed your mind.
Much of the standard real estate investing advice applies to properties in college cities. But there are some key differences to consider before you start buying rental properties near a college.
As you continue to build financial stability and wealth, it’s wise to take time to ensure real estate investment opportunities are the right decision.
Below, we cover the basics to help you determine if real estate investing in a college town is the best decision for you.
Benefits and Drawbacks of Owning Rental Property in a College Town
There can be several benefits to buying an investment property in a college area.
Keep in mind, each property and location is unique and will yield different results for property investors.
1. A larger pool of tenants. Each year new students enter college and need a place to live near campus. Many of them will look for rentals off-campus.
Also, larger colleges employ a considerable number of people, including professors, administration, and support staff, which increases the potential pool of tenants.
2. Rental rates are consistent. Rental rates don’t tend to fluctuate as much in college towns because of the steady, high demand for housing from student tenants.
3. Stable appreciation. Though smaller college towns can be more variable, larger colleges often create a stable, growing local economy. With this comes more consistent appreciation.
4. Easy access to shopping, restaurants, and other services is a draw for tenants. Colleges and universities typically have most everything you want within walking distance.
Additionally, larger school cities tend to have excellent public transportation systems.
5. Parents often pay rent. Many students receive financial support from their parents – meaning the parents are on the lease and pay rent.
But, in some circumstances, the college will work with you to help provide student housing.
When parents or the educational institution are paying the monthly rent, you don't have to worry as much about receiving payments.
As with any investment, owning rentals in college areas can have its downsides too. Remember, each property and rental situation is unique.
1. Property management is more hands-on (i.e., not passive). With college rentals, there's more potential for roommate issues and disputes, unpaid utilities, complaints from neighbors, maintenance calls, and property damage.
Some student tenants are young and have a level of immaturity. They might have their own place for the first time in their lives. Some have parties and don’t care for the property (especially if they aren't paying their own rent).
2. Maintenance, property damage, and wear and tear can cost you. As mentioned above, some tenants will not take proper care of the property, and you’ll have to make repairs. If the repairs cost more than the deposit, this can cut into your profits.
3. High tenant turnover. Many students leave town during the summer or at the end of a semester. Even those who stay a few years often move to new housing each year as their needs change.
4. Shorter-term leases. One year leases can be more difficult to establish in some areas.
Some students will only want to rent while they're attending classes in the Fall and Spring semesters.* Others will request a month to month option if they’re uncertain of their plans.
*In some college cities, one-year leases are standard practice, so short term leases aren't such a problem.
5. More vacancies during the summer months. Empty rentals are more common during the summer when many students don’t attend classes.
Managing Rental Properties in College Cities
Managing investment property in a college town isn’t usually as passive as rentals in other areas.
Hands-on Property Management
While not all rental properties will require a hands-on approach, many do.
What makes managing a college area rental more time-consuming?
- You need many leases for one property in units with more than one bedroom. Students will need separate contracts to more easily pay their part of the rent.
- Roommate disputes and conflict can lead to unpaid bills, disturbances, complaints, and broken leases.
- Maintenance and service requests are more common. Issues such as clogged drains and toilets, leaky faucets, lockouts, and more can happen at all hours of the day.
- Parties or carelessness can lead to extensive property damage.
Hire or DIY?
Managing a property near a college can present unique challenges. You have to decide if you’re up to the task of managing the property yourself or if you'll hire a property manager.
If you decide to DIY property management:
- Customize your lease to address potential issues, such as subleasing, late rent, parking, and other rules
- Put written procedures in place for everything (maintenance requests, lockouts, etc.)
- Set boundaries with tenants (what is a true emergency, hours when it’s okay to call)
- Develop a plan for how to handle maintenance issues (how are they submitted, who will handle them and when)
- Provide information to help tenants solve some problems themselves (like changing the furnace filter, turning off the water, and phone numbers for emergencies)
If you decide to hire a property manager:
- Put all your property management needs in writing
- Interview several property managers before hiring one
- Check references and referrals
Questions to Ask Yourself as You Consider Rental Properties in College Cities
- Do you have your financial house in order?
- What type of property do you plan to buy (multi-family, duplex, single-family home, studio)?
- Have you researched real estate investing in the specific town? Are you connected with other investors in the area?
- What is the college’s ratio of students living on-campus vs. off-campus?
- What do you need to do to make an informed decision on investing in this city and property?
- Will you manage the property yourself or hire a property manager?
- If you manage yourself, who will handle the maintenance and repairs?
- What’s your exit strategy if the property doesn’t work out?
Next Steps: Do your due diligence
If you decide buying rental property in a college area is right for you, you can line up financing and start your search.
Once you find a real estate property of interest, do your due diligence to make sure it’s a sound investment.
You’ll want to investigate several aspects of the property:
- Make sure it makes financial sense as an investment (run all the numbers – and rerun them!)
- If the property was previously or is currently rented out, check for a rental certificate and ask the property owners for rental income, expense, and lease information (including lease agreements, average rent, security deposits, tenant turnover, etc.)
- Check environmental hazards (such as radon)
- Get the property inspected
- Read the covenants and restrictions for the neighborhood/HOA (Homeowner’s Association) and verify the property can be rented
- Do a title search (if you get a mortgage, your lender will require this)
As with any investment, it’s smart to do your research before buying a property for rental income.
- Additional Reading:
Investigate the rental market in the area. Enrollment is higher at public colleges than private, and housing needs are different.
Also, some schools offer plentiful housing options and have rules about off-campus living, while other public schools will have a high demand for student rentals.
Finally, weigh the benefits and drawbacks, consider the financial factors, and decide how you will manage the property.
Buying a rental property in a college town can be different than a typical rental property.
But if you do your research, consider all the factors, and have a plan to earn a return on investment, it can be an excellent financial investment to help you build wealth.
Article written by Amanda