College Towns: "Can't Lose" Investments?

Are college towns the best investments? With the fall semester gearing up (summer is flying by!), we turn our attention to college towns. In many American cities and towns, demand for housing is predicated on the economy: mainly, jobs. Other factors, like good schools, good weather, and natural beauty also come into play, but are highly subjective so aren’t necessarily stable draws. But college towns, particularly those that grow around highly respected colleges, always generate a need for housing. Between students, professors and staff, few colleges can provide enough homes for everyone who needs them. Here enters a fairly constant demand for off-campus housing. As an investment then college towns could be one of the more sure bets available.

An example of this is Cambridge, MA: the median home price in Cambridge (host city of Harvard University) as of July, 2012 is $480K, condos and single-family homes included. Compare this to the median for the entire Middlesex County at $350K. Though not the exclusive reason for this discrepancy, the fact remains that in late summer, students and staff pour back into the city. Property value increases follow in their wake. Check it out yourself by searching homes for sale in Cambridge, MA. We see a similar trend near Stanford University, where property values spike in Palo Alto, CA at $1,416,000. This is dramatically higher than Santa Clara County’s collective median of $575,200, something you can see when you search through homes for sale in Palo Alto, CA. And in Portland, OR, Reed College helps drive the property values in Eastmoreland up to $445,890 this July—a figure more than double Multnomah County’s median properly value of $219,900. You can tour this lovely area-- and see the corresponding prices-- by searching for homes in Portland, OR's Eastmoreland.

These are all private colleges, expensive and well known. But savvy buyer could likely find similar good investments near smaller colleges, even community colleges, for all the reasons already discussed.

Who’s Investing?

Forbes Magazine recently reported on Baby Boomers investor wooed by the benefits of college town real estate. The National Association of Realtors confirmed this in April of this year as well, citing surveys in which respondents explained their intention to purchase 2^nd homes in college towns. Their reasons:

1) As rental income properties
2) To be close to children affiliated with the colleges
3) As places for children to live while in college, then to rent or sell later to fund retirement

This doesn’t mean a different generation couldn’t find advantages in investing in college town real estate, however. Gen Y, a generation of youth identified as even larger than the Baby Boomer generation, is coming of age now, and the upwardly mobile among them already buying homes and 2^nd homes. The same logic that appeals to Boomers could apply to their grandchildren investors.

How Can You Invest?

Investopedia identifies many of the ways you could invest in college towns—the options go way past simply buying a condo and renting it out.

Real estate investment trusts (REITs) that focus on financing properties located in college towns or cities
Commercial buildings that lease space to local businesses
Single-family homes for “flipping” - fixing and quickly reselling, holding and selling later after an appreciation in value, or renting
Condominiums, townhomes or duplexes for resale or renting
Companies that own multifamily (apartment) complexes in college towns
Raw land for future development

Do Your Research

Additional things to discover are less intrinsic. You should be able to find out if enrollment is rising or falling by contacting the college itself. If you identify yourself as a potential landlord, you should also be able to find out how many students the college predicts will need off-campus housing, most likely from that college’s office of student housing. Discuss also the availability of faculty housing. These figures can help you predict how in demand your property will be, either for rent or for sale.

Private or Public?

Public universities are usually bigger, so bring in more students and staff overall. On the other hand, private schools generally cost more, so the economic spending power of those students and their families may be higher.

Being a Landlord Isn’t Easy

Especially if you live in another city or state, make sure you’re ready to be a landlord. It could be a full time job if the tenants or the home itself present problems. Property management companies can help, but then they get to keep a percentage of the profit.

In order to choose from these options, consider your time line, your tolerance for risk, the tax implications and your long term goals. An experienced Realtor® who works and lives in these towns will be an excellent sounding board in making these decisions.

Anna Marie Erwert writes from both the renter and new buyer perspective, having (finally) achieved both statuses. She focuses on national real estate trends, specializing in the San Francisco Bay Area and Pacific Northwest. Follow Anna on Twitter: @AnnaMarieErwert.