College Towns: Better Investments for Landlords?

When you think about buying a second property for income potential, you have to think of the actual potential a certain property has to produce said income. And with rental properties, just as with all real estate, location and location matter… as does location.

What makes one location better for a rental property than another? Similar things that make any property valuable: Proximity to a major employer is a plus, as is easy access to a commercial area or beautiful outdoor space. But perhaps the most reliable “plus” for rental properties is a neighboring college. From such rentals, the landlord can expect a steady stream of tenants. Of course, some people could argue the tenants aren’t ideal: students can be a bit, shall we say, lackadaisical about home maintenance in this, their first taste of freedom from parent and dorm supervision. On the other hand, graduate students, lecturers, college staff, and professors also vie for homes close by a college, and these people make up an older and (hopefully) more mature tenant pool.

Does property in a well known college town sometimes fare better on the market than its neighboring, less academically inclined neighbors? In a word, yes. Not only is the rental market often stronger, but so is retail and hospitality, to serve the many students, staff and instructors. And colleges breed culture: plays, lectures, concerts—all the arts and ideas that make a community diverse and stimulating.
As August brings us back to school, we focus this week on property in college towns. Of course, this information has more than one audience. 1) Potential landlords, take note; but 2) Anyone looking to buy in an area where property values stay generally strong might consider a college town.

For today, we pulled data on three college towns in ZipRealty territory: Berkeley, CA, Palo Alto, CA and Cambridge, MA.

1.Berkeley, CA
The East Bay region of the San Francisco Bay Area has definitely felt the effects of real estate’s downturn, but in Berkeley, one city within this region, far less so though neighboring cities. One reason: Berkeley is home to the world renowned University of California at Berkeley.

This chart shows you the median price-per-square foot of homes sold in Berkeley in the last two years, in contrast to those sold in the East Bay as a whole.

Not only leading the pack, Berkeley has doubled the median of the region as a whole.
Next, look at sale distribution data for the entire East Bay.

Berkeley proper follows, and again, the difference is marked:

See all available homes for sale in Berkeley, CA

2. Palo Alto, CA
The South Bay region of the San Francisco Bay area has many draws for homebuyers and potential landlords, including the Silicon Valley as a major employer. But Palo Alto, one city within the region, continues to perform magnificently even in troubled economic times, even better than that neighboring tech-industry giant, the Silicon Valley. And Palo Alto is home to Stanford University, again an internationally regarded institution.

Here is Palo Alto’s median price per-square foot in comparison to Silicon Valley.

Drawing back to the South Bay as a whole, we bring you the market sale distribution for the region as a whole, and then offer Palo Alto proper’s data. This too shows how strong Palo Alto has remained.

See all available homes for sale in Palo Alto, CA

3. Cambridge, MA
Cambridge is home to two of the country’s, if not the world’s, finest colleges: Harvard University and M.I.T. And those aren’t the only colleges in the area! We should not be surprised then to see Cambridge fetching more per-square foot for its median price than other areas in Boston.

And in market sale distribution, a similar trend emerges: First, all of Boston; Second, Cambridge alone.

See all homes for sale in Cambridge, MA

The upshot then: When thinking about buying a home, whether as a primary residence or as secondary property, one meant to generate rental income, going “back to college” might be the ticket to success for real estate… as much as it can be for life in general.