How to Buy An Investment Property in A College Town

Being a huge college football fan, I once again kicked around a lingering idea that has remained on my potential investment list for some time:  buying an investment property in a college town.

Now, if you’re like me, I initially dismissed the idea because I flashback to things I did to the first home I rented in during my collegiate years.  The five kegger bash of August 1999 is a perfect example because somehow, my roommates and I awoke to beer stains on the walls, fish to rescue from a leaking fish tank, and stair railing to replace on our outdoor deck.  Crazy times to say the least.

However, if keeping out semi-delinquents (like I used to be) is a possibility, the case for owning a college town investment property seems rather attractive on paper.

  1. A constant supply of new renters each fall.
  2. Decreased chance of vacancies due to consistent demand.
  3. New home construction around established universities is generally low to non-existent.
  4. Less fluctuation in home values thanks to consistent supply and demand.
  5. Almost certain price appreciation over the long term due to the growing demand for higher education.

Now, this sounds like a perfect case for running out and buying the first multi-bedroom condo you can find two blocks from your alma mater, but there are a few things to consider.

  1. The distance from your home to your investment property. The further you live from your investment property, the more difficult it becomes to check on the overall appearance and perform necessary maintenance.
  2. Hiring a property management firm to watch over your investment property can be expensive. I’ve dealt with property management firms in the past, and they can charge substantial up front fees, plus a hefty percentage of the overall rent payment each month.  Alternatively, if you have a problem tenant they can be a godsend alleviating you of most (if not all) of the legal burden.
  3. Dealing with deadbeat tenants. Evicting tenants can be a costly and time consuming process, where you are no longer receiving payments but are still responsible for paying the existing mortgage (if applicable), insurance and taxes.  This is often the worst case scenario for landlords.
  4. Excessive maintenance costs can wreak havoc with your budget and free time. Depending upon your renters, you can expect a major expense approximately once every five years.  This can vary depending upon the age of the property, and your tenants “lifestyle” while in the property.  However, it’s customary to pay for new carpet every or putting up a fresh coat of paint, but landlord horror stories are commonplace regarding shady renters who can virtually destroy any profit margins you hope to make.  Of course, your main weapon fighting such issues is a well written lease agreement.

Of course, I’m purposely telling you all the negatives just to cover my ass(ets) from any future hate mail I could receive.

If I were to proceed with this idea in the future, I would take certainly take a adequate precautions to protect myself from the antics of younger undergraduate students to avoid anything eating into my profit margins.

  1. Eliminate all possibilities of renting to party animals. An ounce of prevention is worth a pound of cure, so the old adage goes.  Carefully interview your potential tenants, and ask for references from past rental agencies if applicable.
  2. Target the older and wiser student body. One of the fastest growing segments of the collegiate ranks are the graduate student or professional student population.  Chances are, if you are renting to a future medical doctor or history professor, they will have much less time for shenanigans similar to my antics mentioned at the beginning of this article.
  3. New faculty and staff always need a place to stay. Universities bring in new brain power each year, so the potential for finding young professionals or traveling professionals (such as medical residents or traveling nurses) is always a possibility.
  4. Special situation students. Many students choose to get married or even have a family during their course of study.  Such students can live in so called “university special housing” or live off campus in a rental property.

Whether such a purchase is for an investment only, or if you happen to have kids attending (or about to attend) college and wish to purchase an investment property instead of throwing away your money paying someone else’s mortgage, any such purchase requires a significant review of your current financial situation and the long term implications of putting your money into a non-liquid asset like real estate.

Overall, real estate investing is an exceptional method for wealth building and generating multiple streams of income.  Thus, the argument to pursue this type of venture will likely appeal to most individuals with the means to do so.