There are many aspects to consider when investing in real estate, regardless of location. College towns carry a stigma for being party locales and, therefore, less desirable for conscientious landlords and property managers. Regardless, they’re often prime spots due to high, inflexible demand for rentals as students move in and out each year.
Whether or not investing in college towns appeals to an investor depends on their involvement in property maintenance, proximity to university towns and other factors. We’ll help you determine whether this opportunity is the right fit for you.
Perks of Buying in College Towns
Most universities have some sort of student housing, but room and board can be overpriced. That means young people will be looking for somewhere close to their campus to live that might be a little more affordable. Plus, residence halls can have overbearing rules that push older students to choose more independent living options even if price isn’t a concern.
Then, there’s the unique needs and lease terms students have compared to working adults. Most college students living off-campus will look for roommates. Their concerns aren’t high-end features, but location, safety and livability. This means prep work for a new property can be pretty low, and you may be able to rent the place at a higher rate depending on demand in the town and the number of roommates splitting lease terms.
Finally, there’s the nature of demand. There will always be students and faculty who want to live close to school, so vacancies won’t last long, if they exist at all. University towns also have a very predictable cycle — many students will start a lease in August and leave in May — which means landlords do the bulk of move-in and move-out work in just two periods of every year.
Know Where to Look
Experts say secondary markets are the best places to look right now. It is not as wise as it once was to invest in big cities if you’re new to the game, as investment has a higher upfront cost and is more competitive.
Fortunately, many colleges and universities are located in small towns that command their own sphere of influence. Suburbs of areas with large universities could also have excellent investment potential since housing for students is somewhat limited overall, and you could meet the needs of graduate students and other university staff looking for a quieter lifestyle.
Smaller but highly active cities like Boulder, Colorado, and Austin, Texas, tend to experience a strong housing market performance. An ideal rental spot would be right outside of a town like this. Landlords that look closely could find the perfect location for themselves and future tenants.
Best Cities to Invest In for Student Housing
High-cost-of-living cities like Boston have always had limited housing since there are multiple colleges and job centers in the area. This level of competition could be a great investment opportunity for investors with the capital and resources to manage rentals in a fierce market.
However, as we mentioned, secondary markets are usually most fruitful. Smaller cities with major universities, like Champaign, Illinois, and Rochester, New York, yield a high return on investment (ROI). Champaign had a 14.02% yield in 2018 and Rochester had 13.49%. These two cities were the best college towns for landlords that year.
Jump to today, and Salt Lake City, Utah, holds the No. 1 spot for the best rental investment. It has a combined sales and price growth of 23.7%, with a median home price of $564,062, which is up 8.5% this year. Salt Lake City has both education centers and an attractive lifestyle for residents who enjoy outdoor activities and city amenities.
Boise, Idaho, comes in at No. 2 for the best rental investment this year. The annual appreciation rate in Boise is about 20%. It’s an excellent place to live if tenants enjoy skiing and hiking. Boise State University draws in residents as well.
How to Appeal to Student Renters
Once landlords have invested in their property, they will want their rental property to succeed. College students don’t necessarily all fit the stereotype of heavy partiers that are hard on houses, but they can still be a risky demographic for investors to cater to. Keeping maintenance reasonable while appealing to renters with student-friendly amenities will be key.
As mentioned, one of the key perks for students will be location. Properties that are walkable to campus or near campus transportation stops will be most attractive. If you’re managing a multifamily property, including dorm-style amenities like game rooms and common areas can be attractive for peers. For roommate accommodations, bedrooms with separate bathrooms can be a layout choice students appreciate.
Offering high-speed Internet connections and/or including Wi-Fi would be a terrific way to encourage renters to choose a space. Students can’t survive without Internet these days, especially if they need it to access their classes.
Finally, with all these nice perks in mind, remember not to overinvest in high-end materials. Years of student leases can wear on expensive flooring and top-end appliances quickly, and many students don’t place as high a value on these features while in their undergraduate years.
College Town Considerations For Landlords
College towns have the potential to generate a significant profit margin no matter where money is invested. Landlords with a smart investment plan and the capacity for some maintenance risk will be well positioned to meet student needs in these markets.
Evelyn Long is the editor-in-chief of Renovated, a web magazine covering real estate market trends. Her writing has been published by the National Association of REALTORS®, Insights for Professionals and other online publications.