The Pros and Cons of Investing in Property in College Towns
You'll Have Plenty of Prospective Tenants but They Might Be Destructive
Properties located in college towns can offer some unique opportunities for investors. The advantages include a large potential tenant market and fairly stable rental prices. But there are disadvantages as well. You'll probably have frequent tenant turnover, and you'll experience major wear and tear issues.
Appreciation is the goal behind investing in anything. You want your money to grow during your period of ownership. Properties in college towns tend to enjoy steady and significant appreciation. The schools help to support local economies.
A Larger Tenant Pool
There's usually a large population of renters in a college town. New students enter school every semester and they must find a place to call home. A college town should provide you with a large pool of prospective tenants from which to choose.
Rent Is Stable
The high demand for rentals in these locations can keep rental prices in the area strong even when other parts of the housing market are failing. And off-campus housing is often paid for by students' parents or even by the college itself, so you might be able to get more rent for the property than you otherwise could.
The high demand for rentals in a college town can also lead to fewer vacancies. There's always the next student or college employee looking for a place to live.
The Area Sells Itself
You won't have to spend a lot of time or money on marketing because the area sells itself.
Attractive amenities draw people to college towns. There are typically endless activities available in the arts, sporting events, and entertainment. Guest speakers and musical acts are popular and common events. College towns are known for having a large number of restaurants and shops, and the restaurants are often within walking distance.
Another draw of college towns is that they're often pedestrian-friendly, and they offer superior public transportation. University shuttles, public buses, plentiful taxis, and sometimes even railroad systems abound.
There are negatives to buying investment property in any area, and college towns are no exception. Although you'll enjoy a large rental market, these tenants are often short-term and this can result in vacancies. Tenants might stay in town while they're attending school or working at the university, but then they move on. Even students who will be attending a university for four years often split that time between on-campus and off-campus housing and they typically change housing each year.
Don't expect your tenants to sign long leases. You'll be lucky if you can get a student to sign a one-year lease. Be ready for high turnover, but, as mentioned, your units probably won't sit empty for long between tenants.
It Can Be Hard to Find Tenants "Off Season"
Fewer students attend college in the summer so you could be looking at vacancies during these months. One way to plan for this is to try to have all your tenants sign 12-month leases instead of month-to-month or nine-month school year leases. This way the tenant is responsible for paying you even if she's not living there during the months she's absent.
College Life Is Hard on Property
College students can be quite destructive when it comes to their living spaces. Excessive alcohol, immaturity, and knowing that their parents are footing the bill can all contribute to a lack of concern for their homes.
Property damage is very common in college towns, and it's often more than the amount of any security deposit you might ask for. Damaged floors, holes in walls, and broken cabinets, doors and even windows aren't unusual when you're renting to college students.
It's Not a Passive Investment
Property investing in a college town isn't usually a passive investment. In addition to all these other concerns, you should also be prepared for noise complaints and roommate conflicts that could lead to one or more tenants breaking their leases.
This type of investment becomes more workable if you or your property manager live close to the rental property. You might find that you're frequently on call to deal with various issues.
Determine if being a hands-on property investor is the right fit for you, and size up the area in which you plan to invest. Keep in mind that you'll pay more for properties in metropolitan areas if this is where the college or university you've targeted is located. But you can often charge more rent in these areas.
Additionally, enrollment is usually higher at public schools than at private schools, so you might have more of a tenant pool to pull from. But by the same token, public schools tend to attract more commuters who won't need an apartment because they're living at home with mom and dad.