Do College Towns Make Good Investments?

Posted by: Chris Palmeri on August 8, 2008

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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 3:01 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.

Matt

August 13, 2008 11:38 AM

Dear "Smart Parent",

Way to teach your son/daughter some independence. When junior can't get himself together to move out of the basement 10 years from now, you'll have this decision to look back on.

When my kids go off to college, I'm insisting they look at least 50 miles away from home. Preferably further, enough to make weekend trips home no more than a monthly thing.

The first month is rough for all involved, but after that you'll all be much happier and more well adjusted.

Recent Duke Grad

August 20, 2008 7:25 PM

Having your kid live at home when going to college, though significantly cheaper, destroys one's college experience. Living in the dorms among the other students is the best way to make friends and engage in experiences that cannot occur elsewhere.

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About

BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy 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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