Do College Towns Make Good Investments?

Posted by: Chris Palmeri on August 08

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If your kid is heading off to college this fall, does it make sense to buy him a place to live? In many cities the answer is yes, according to website Cyberhomes.com. The site studied home prices and rents in fifteen college towns. In thirteen of them, the monthly mortgage payments and taxes are less than the local rents. For real estate investors, that’s called positive cash flow.

Now, honestly, nobody should buy a home just to avoid dorm fees for four years. But as a long term investment college towns can make sense. They have a steady source of tenants and are less dependent on the economy. The downside is high tenant turnover and a good chance they’ll trash the place on Saturday night. I remember a Realtor in Santa Barbara telling me that he bought a special (cheap) kind of carpet for the rental properties he owned near the state university. I think he called it campus carpet.

In any case, here are some college-oriented cities you might want to buy in:
• Oklahoma City, OK – Home Payment $764, Rent $1088
• Tampa-St. Petersburg- Payment $1074, rent $1506
• Lawrence, KS - Payment $1074,Rent $1506

And three to avoid:

• Los Angeles, Payment $3163, Rent $2270
• Eugene-Springfield, OR – Payment $1384, Rent $1272
• Fresno, CA – Payment $1432, Rent $1352

Reader Comments

Brett

August 8, 2008 11:05 AM

Brett Shaw from Cyberhomes:

I can see why some people might be averse to purchasing a home in a college town because of the potential damage, but that can be taken care of with a security deposit and a contractual damages clause. The high turnover should not be an issue. There will always be tenants, which means there will always be cash flow.

The "campus carpet" is a good idea. I'm sure there are several other products that can be purchased to avoid heavy damage. College students aren't really looking for high quality dwellings. Anything is better than a dorm.

Smart Parent

August 11, 2008 03:01 PM

My kid is going to a college that is a few miles away. I will not pay for dorm or apart., which translates to a scholarship for her. She will be walking and busing this fall.

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About

BusinessWeek editors Chris Palmeri, Prashant Gopal, Peter Coy, and Dean Foust chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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