Landlords: How to make a buck in college towns
College towns have innate demand for apartments, whose rents often are pegged to room-and-board fees, not market rates. In some towns, off-campus rental rates can exceed average mortgage payments.
In Columbus, Ohio, where Ohio State University resides, home prices have dropped 10% in the past five years. // © Corbis/SuperStock
While the economic recession is bad news for the real-estate industry, it's a boon for prospective college-town landlords.
Housing prices have fallen by half in some areas, and mortgage rates have sunk to a record low, while university enrollment is surging as people go back to school in the wake of job losses. That has led to a dearth of student housing, which means it's a great time to buy low and rent high.
"An investor is certainly more likely to profit from a rental property than what was possible two to three years ago," says David Stiff, vice president of quantitative analysis at Fiserv, which publishes the Case-Shiller housing indexes. "Home prices have dropped substantially in many markets. But absorption rates seem to be stabilizing, in part because the surge in foreclosures has pushed many households into the rental-housing market."
Supply and demand are in the landlord's favor. Freshman enrollment at post-secondary schools in the U.S. surged by 144,000 students from the fall of 2007 to the fall of 2008, the biggest boom in 40 years, according to the Pew Research Center. The freshmen of 2008 are now entering their junior year — and junior year is often when students start living off-campus.
For a prospective landlord, it makes sense to seek college towns where prices are especially low. In Columbus, home of Ohio State University, housing prices have dropped 10% in the past five years, according to Case-Shiller. In San Luis Obispo, home of California Polytechnic Institute, prices have plunged 31% since 2007. In Tallahassee, home of Florida State University, prices have fallen 16% in the past three years and are expected to go down an additional 1.5% in the next year. In Gainesville, home of the University of Florida, home prices are down 22% over the past three years and are expected to drop an additional 15% between the first quarter of this year and next.
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Meanwhile, student-housing development and management companies seem to be holding steady. American Campus Communities, which operates 53 student-filled properties, booked second-quarter revenue of $76.7 million this year, up 7.6% from $71.3 million a year earlier.
"We've been able to maintain high occupancies and growth even through the downturn," says Michael Orsak, vice president of acquisitions at Campus Advantage, an Austin, Texas-based real-estate company that manages off-campus housing near 37 universities across the country. "And in general, for the most part, rent per square foot for a college student is higher than the market value. It is going to cost you a little more for upkeep, but it is going to give you a better return."
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That upkeep issue is more important than prospective landlords might expect, says Don Stoppe, owner of Stoppe Management Services in Plymouth, N.H., which operates rental properties near Plymouth State University.
Buy low, make no repairs, and rent high. Sounds like your typical Pittsburgh slumloard.
What great advice.
Get students to sign a one-year lease if you can, since they usually move out during the summer months. Ask for a big damage deposit - you may need every cent of it to repair the mess. Be responsive, and fix broken appliances, roof leaks, etc. immediately. Students are immature, but they're not stupid. Don't take advantage of them, and don't let them gouge you either.
I live in a city where the city owned utility company will have your power shut off by the end of the month if your current month's bill isn't paid *late* by the 25th of the month.
If the gov'ment can enforce payment of their own services.....they can pass laws with enough teeth to encourage tennants to pay their rent....OR ELSE.
Landlords should be able to notify law enforcement of past-due status of rent.....and the police should show up and arrest the renters and haul 'em off. We have laws about stealing. Start enforcing the laws.