Things to Consider When Investing in a College Town

June 21, 2022

When it comes to real estate investing in a college town, there are many risks and rewards. Here’s what you need to consider as you explore this option.

One niche within rental property investing is becoming a landlord in a college town.

A college town may be a great long term real estate investing strategy. Proponents mention reasons such as demand given the vast pool of college students. Bigger universities create surging demand with tens of thousands of students looking for housing. Not to mention, thousands each year sweep around the town looking for a temporary place to live off of campus as others graduate.There’s opportunity in every college town, but real estate investors should know what they’re getting into before doubling down on this niche.

Do you want to rent to college students?

The first thing you need to do is decide if you’re willing to even rent to college students. It’s better suited for active investors or those who use property management companies that can take care of day-to-day operations. Turnover with renting to college students is higher than most investments since most students are on the search for one to two year rentals before graduating. You’ll have to actively advertise the property and prep the home for rent each time a tenant moves out.

It’s also important to check in regularly and make sure your student tenants are following your well written policies. A majority of students are living on their own for the first time and gain a helping hand from parents and loved ones. It’s not a guarantee that students will demonstrate destructive behavior, but it’s a fresh experience for them and they don’t always have the financial obligation of paying for damages on their own. Given the high turnover, students renting from you may feel less motivated to treat your property like a long term housing solution.

Is a college town a good fit?

As an active investor, buying a home in a college town has benefits you can’t really get anywhere else. However, each investment strategy has pros and cons that all depend on your investing goals and lifestyle.

Low vacancy rates

The demand for finding temporary housing is competitive in college towns. Even though students frequently target one year rentals, there is a wide pool of prospective tenants looking for a place to live. Your main concern with vacancy is during the summer months while students are out of school. However, you can focus on short term month-to-month rentals for students taking summer classes or advertising your property as a vacation home. There’s also the option of making your tenants sign a one year lease so the home is theirs to rent even during the summer.

High turnover

Low occupancy rates and high turnover is a unique characteristic of college town rentals, but it is necessary. A high turnover means that you’ll have to be more involved with the checkin and check out process with most tenants being turned over in six to twelve months. You will need to set aside time and a budget for advertisements in between semesters unless you hire a property manager. Not to mention, the rental property has to be inspected and cleaned as you make sure it’s safe and functional for a new tenant each time.

Broken lease agreements

As a main challenge for landlords, you have to write out a clear written policy when it comes to students. Lots of students live together and share common space, have guests, and create higher than normal noise levels. It’s crucial to walk students through their lease agreement to minimize broken rules. They should know the consequences of damaging behavior that could accelerate the wear-and-tear on your rental property.

Financial stability

Investing in a college town proposes the unique benefit of being able to rent by the bedroom. For instance, you can invest in a house with four bedrooms and you can rent to four tenants instead of one shared rent price. Oftentimes, this strategy leads to greater profits.Not only does this hold each student responsible for their own actions, but it creates four streams of income. If one of your tenants requires eviction or breaks the rules, you still have other income streams coming in. Additionally, many college students will require a cosigner because they lack credit history. This can be advantageous if someone “forgets” to pay rent.

Potential appreciation

College towns are a window of potential and growth with a thriving educational institution. Major colleges create a strong job market and boost the economy of the town. When the market in your targeted college town is healthy, it can lead to rental property appreciation. Every investor looks for a place that appreciates in value to protect their initial investment. That’s why it’s important to evaluate the performance of the college along with companies and corporations moving into the town. Businesses look for growth opportunities just like a real estate investor would.

Other considerations in a college town

Keep an eye out for amenities that appeal to students

Before you invest in a college town, your property location really matters when you’re selecting. Students often prefer public transportation so they can get to class or work part-time jobs. While students spend most of their time in school, they also look for entertainment areas, shopping, and food places on the weekends. It’s important to find somewhere with action nearby to keep your demand for tenants competitive.

Students aren’t the only residents in college towns

While the majority of college towns are populated by students, there are other groups to rent to. Professors and other employees of the university may also look to rent. If you’re focusing on this demographic within a college town, be sure to consider what adults may want as opposed to college students.

Find your next college town rental with Sundae

Investing in a college town is a special opportunity with a unique set of advantages and disadvantages. The potential for a lucrative cash flow along with appreciation is hard to pass up on for those with access.

On Sundae’s Marketplace, you can find deals in areas with major universities with potential growth opportunities. Even if you haven’t searched for properties before, Sundae can assist you with an investment advisor, quality listing photos, title reports, and much more after you join for free.

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