Given the high cost of higher education, buying a condo or house for your college-bound kid may sound like a far-fetched idea. But real estate agents in college towns say it’s actually pretty common, and not just for the very rich. In many a college town, in fact, the monthly cost of owning real estate – after you account for rental income on extra rooms – may actually be less than the cost of renting off campus or paying for the dorm.
That was what Cincinnati residents Randy and Nancy Bartell had in mind when they bought a four-bedroom house in Winston-Salem, N.C. in 2006. Their twin sons, Chris and Ryan, moved into the house prior to their junior year at Wake Forest University and rented the other two rooms to their fraternity brothers. “It not only made financial sense, it was a much better environment for them to live in than they would have had,” says Randy.
Granted, the deal made more financial sense back when real estate prices were still trending higher. But the couple have no regrets, especially now that their daughter, Allison, has started her freshman year at Wake Forest. School rules require Allison to live on campus her first two years, during which time the Bartells will rent out the house to other students. Come Allison’s junior year, though, she and her friends can move in. “We’re hoping the market will turn around by the time Allison graduates,” says Randy. In that case, they’ll not only have saved on housing expenses, they just might come out ahead.
When it comes to investment property, you could do worse. College towns often don’t experience huge increases in rent or home prices, says Michael Sklarz, a senior economist for Cyberhomes. “That’s a function of income,” he says. What they do have going for them, however, are relatively stable economies – which can help hold up home values in down markets – and strong demand for rental properties. That demand doesn’t just come from undergraduates (who, let’s face it, don’t have the best reputation as renters). Graduate students, college faculty and young professors represent a large share of the rental market.
Cyberhomes compared the cost of owning versus renting in 15 of the top NCAA football schools and found that owning costs the same or less than renting in all but three of these real estate markets (assuming you buy a median-priced house with a 20 percent down payment and 30-year fixed-rate mortgage).
As with any real estate investment, you’ll want to research the local market to understand whether buying is really a better deal than renting, especially after you account for taxes, insurance and maintenance. Rob Howard, a real estate broker and investor in Knoxville, Tenn., likes to see monthly rental income equal to at least 1 percent of the home’s cost.
Zoning is something else to consider. Many communities limit the number of renters in a single-family home, and some neighborhoods or condominiums may ban renters altogether.
Also, keep in mind that the dynamics of college rental properties are different than traditional rentals. Good schools, quiet streets and open floor plans may be high priorities for families or young professionals. In the case of college renters, however, it’s all about proximity to campus, access to public transportation and the number of bedrooms and bathrooms, says Jeremy Starr, a broker with John L. Scott in Eugene, Ore. All things being equal, your rental income is directly related to the number of bedrooms in the house.
The decision is a personal one. Obviously, not everyone is cut out to be a landlord, much less to college students. Don’t expect the lawn to be perfectly manicured or the house to be spotless. And unless you live nearby, you’ll need to count on your busy college student to look after your real estate investment and make sure the roomies get their rent checks in on time.
Still, when it comes to filling vacancies, many college students have a leg up on other landlords; marketing the property is often just a matter of getting the word out among friends and classmates.
Here are seven sample college town real estate markets where buying might make sense for you and your student.
University of Michigan
Where: Ann Arbor, Michigan
Students: 41,000 in Ann Arbor
Off-campus housing: Parents looking to invest in this quintessential college town have several options, says Andy Piper of broker with Piper Partners. Some well-to-do parents put their kids up in luxury condos and lofts near downtown. Others shop for smaller single-family homes near the bus line. But the most common venture for investors looking for rental income are the bigger homes near campus that have been converted into four- to six-bedroom homes. At $300,000 and up, they’re pricey. But, the rental income is steady and usually enough to cover the mortgage and upkeep.
Typical rent: $500 to $600 per room
Sample listing: This six-bedroom home is a very typical Ann Arbor rental, says Piper. It comes with six parking spots and is just around the corner from the athletic stadiums. Annual rental income on this house rings in at more than $37,000 a year.
Information: piperpartners.com
University of Kansas
Where: Lawrence, Kansas
Students: 29,000 at Lawrence and Edwards campuses
Off-campus housing: Circa 1950s and 1960s three-bedroom houses a mile or so from campus sell for about $150,000. Condos and townhouses start at about $100,000. It’s not uncommon for parents to buy property in Lawrence, especially if they have two children headed to school there, says Thomas Howe, president of the Lawrence Board of Realtors. “In many cases, they’ll not only save on rent but end up making money on the deal.”
Typical rent: $300 to $400 per room
Sample listing: This two-bedroom two-bathroom townhouse, listed for $139,900, is a few miles from campus in a relatively new subdivision. Features include a fenced yard, patio and fireplace. The townhouse is very low maintenance, making it ideal for parents who don’t want to worry about upkeep.
Information: thomashoweonline.com
University of South Florida
Where: Tampa, Florida
Students: 39,000 on Tampa campus
Off-campus housing: During the real estate boom, investors and parents were eager to scoop up rental properties near the main campus. Things have since cooled quite a bit, says Dan Milchner, an agent with Keller Williams Realty. But that’s not the worst news for parents wanting to get their foot in the door on a house in the area. Three-bedroom houses now sell for about $150,000, says Milchner.
Typical rent: $400 to $600 per room
Sample listing: This four-bedroom, two and a half bathroom in the Terrace Park subdivision is listed for $160,000. The house is sold as is but with a right to inspect.
Information: irptampabay.com
Wake Forest University
Where: Winston-Salem, North Carolina
Students: 6,800
Off-campus housing: While Winston-Salem has its share of historical homes, investors and parents in the market for student housing find the most value in the circa 1950 and 1960 homes that are functional but not fancy, says Jim Parrish, a broker with Prudential Carolinas Realty. Rental properties near campus sell for anywhere from $100,000 to $200,000 depending on the size and location. For many parents, the investment pencils out, says Parrish, especially if they’re able to rent some of the rooms.
Typical rent: $300 to $400 per room
Sample listing: This $162,000 cottage sits on a wooded one-acre lot near campus. It has four bedrooms, two bathrooms and such features as hardwood floors, basement, fireplace and central air. Estimated annual rental income is about $20,000 per year.
Information: http://www.home-search-now.com
Clemson University
Where: Clemson, South Carolina
Students: 17,000
Off-campus housing: Condos are where it’s at in the college town of Clemson, which has several upscale condominium complexes catering to college kids. Depending on where you buy, you can pick up a two-bedroom condo for as little as $50,000, says Monica Zieminski, a broker with Carolina Real Estate. Investors in the market for detached dwellings can find three-bedroom houses starting around $125,000. Before you buy a single-family home, however, be sure to ask about zoning in residential areas as you may only be able to rent to two students at a time.
Typical rent: $200 to $400 per room
Sample listing: The new Highpointe condo development gives a whole new meaning to student housing. Four-bedroom, four-bathroom units start at about $204,000 and includes access to study room, exercise room, tanning beds and swimming pool with a lazy river. Rental income averages $425 per bedroom.
Information: highpointeofclemson.com
University of Tennessee
Where: Knoxville, Tennessee
Students: 26,400
Off-campus housing: There’s a wide-range of rental properties in the old neighborhoods near campus. Small, two-bedroom houses sell for as little as $60,000 and tend to appeal to more studious renters, says Rob Howard, a broker with Wood Realtors. Houses with four to six bedrooms go for about $120,000. “Unfortunately, those tend to be the party houses,” he says.
Typical rent: About $300 per bedroom
Sample listing: This four-bedroom, two-bathroom house, which is listed for $114,900, is about three miles from campus. The house, with its hardwood floors, fireplace and alarm system, is “a little nicer than your typical rental,” says Howard. “It’s something that would appeal to graduate students or young professors.”
Information: robsellsknoxville.com
University of Oklahoma
Where: Norman, Oklahoma
Students: 23,000 on Norman campus
Off-campus housing: Houses on the south side of campus start at about $75,000 for three-bedroom, one-bathroom houses built in the 1960s. Location is a big factor when looking for rental property here, says Kyle Davis with Keller Williams Realty in Norman. “People want to be able to walk or ride their bikes to campus,” he says.
Typical rent: $300 per room
Sample listing: This three-bedroom house is great buy for university faculty or even parents who want to follow their kids to college. The house, which is listed for $199,900, has the charm of an old home but has been completely updated with thermopane windows, granite countertops, stainless steel appliances and the like.
Information: kyledavis1.point2agent.com