Campus Cribs: Investing in College Town Real Estate

Be aware of the pros and cons of investing in real estate near a college town. © Aaron Yoder, Getty Images/iStockphoto Be aware of the pros and cons of investing in real estate near a college town.

If you’ve been thinking about investing in real estate, there are many options available to you. You could flip a home, purchase a multi-unit property, buy a vacation rental, lease your ‘starter home,’ etc.

But there is another opportunity in greater Lansing that you may not have considered: off-campus student housing.

A stable investment

The National Center for Education Statistics predicts college enrollment in the U.S. will reach 19.8 million students by 2025, an increase of 14% from its 2014 enrollment of 17.3 million. While year-to-year numbers may vary, the overall number of people enrolling in higher education continues to rise, driving up demands for housing.

While college town investments have their pros and cons, REALTOR® Rob Buffington, associate broker with Berkshire Hathaway HomeServices, Tomie Raines REALTORS®, says this built-in demand is one of the benefits.  

“The university isn’t going anywhere and students will always need a place to live,” he said. “And because of their proximity to the university, these properties tend to enjoy steady – and often significant – appreciation.”

An attractive option for parents

In addition to investors looking to expand their real estate portfolio, local REALTORS® often get calls from financially-savvy parents who are interested in purchasing a property for their children.

According to the Michigan State University (MSU) admissions website, the current cost of room and board for in-state freshman is $10,676. And a quick check of MSU’s off-campus housing search website, shows apartments ranging anywhere from $420 to more than $1,400 per bedroom. 

“The costs can add up quickly, especially if you have more than one child attending college,” said REALTOR® Brian Ozbun with Keller Williams. “I have clients with three children attending MSU over the next few years. They purchased a home in East Lansing for $175,000. This not only allows them to save money on room and board, but it also enables them to invest the money they would otherwise pay to the college or a landlord, into their own property.”

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And Buffington adds that if a property has the appropriate license, adding roommates can offset costs even more.

“In many cases you can cover your entire monthly costs, essentially securing free housing for your child,” he said. “After they graduate, you can continue to use the property as an investment or you can sell. Even if the market stays flat, and you sell for the same amount you paid for it, your child was able to live rent free for four years, and that’s a significant value in itself.”

A few things to consider

There are downsides to any investment property, and college town rentals are no different. For one, these rental properties are by no means a passive investment. If you aren’t able to handle the day-to-day needs of your tenants, then the best option would be to engage a property manager.

And while renting to any tenant comes with risks, investors who rent to college students may deal with a combination of noise complaints, increased wear and tear, and a lack of maintenance on the home. However, issues can be minimized with open communication, strict tenancy agreements, and reference checks.

Perhaps one of the most important things for potential investors to understand is that in East Lansing specifically, there are many nuances within the rental market. The city has several types of licenses and each one comes with different stipulations, including how often the license must be renewed and how many unrelated people can live on the property.

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“For instance, just because a home has four bedrooms doesn’t mean you can rent it to four students,” said Buffington. “And the ramifications for leasing outside of the license requirements are pretty severe. I knew someone who was hit with a $115,000 fine, so it’s really important to be educated on what you are buying.”

Ozbun says there is the option of going a bit further out to look at properties in Lansing, which are less expensive and have less stringent licensing requirements.  

“I’ve had clients buy homes along the Michigan Ave. corridor off of Kalamazoo Ave., Pennsylvania Ave., etc.,” he said. “Just recently a client purchased a property on Francis Ave. It’s a 5-bedroom, 2-bath, beautifully maintained home not far from MSU. They can have five people in there and with a property management team they can probably get about $1,800 a month for rent.”

If you’re considering a college town investment, both Buffington and Ozbun say their biggest piece of advice is to meet with an experienced REALTOR®.

“When researched and managed properly, college town real estate can be an incredible opportunity for any investor, but the best way to ensure success is to partner with a local REALTOR®  who can be your resource through the process,” said Buffington.

For a list of local agents visit the Greater Lansing Association of REALTORS® website at www.lansing-realestate.com.  

This article originally appeared on Lansing State Journal: Campus Cribs: Investing in College Town Real Estate

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