Buying near a University

12 Replies

Hi all,

I'm new to REI and I am considering purchasing a multifamily property with an FHA loan. I am not sure what location I should be looking in, but there is a local university here. What would be a better investment, buying near a university or in a higher income family-based area? Would there be more upkeeping to do on a university property because these are college kids? Not really sure where to start looking so any advice/opinions would be helpful. Thanks in advance!

(Update: Just realized as I was re-reading this that with an FHA loan I would have to live in the property. I will have to consider that I would be living with college students in this case. Something to think about...)

Hi @Sue Anne Cho ,

I think investing in a college area is great. I am a new investor and that is my ideal location. I'm no expert and this is just my opinion from my own research. Having the ability to market to college students looking to move off campus is great for a rental property. The only exception is the high turnover and possibility of property damage. It will take a creative lease to address the issues, but I think it's an awesome strategy. I also know that it's competitive. A lot of long-time investors and homeowners have been holding these properties for some time now and will probably do so for some time to come. I'll be there when someone is ready to sell!

On the flip side with high-income family based rentals, you'll get a tenant for a much longer term. I think turnover rates will just depend on the area and the current state of the market. I think having to live in the property is something to think about especially if you have a family to look after. I think if you're single and looking to own a home and get benefits that come with it, there's not much else to consider!

Good luck! I hope this helps.

I rent to college students sometimes, as most of my properties are close to the college. If you screen carefully it can work out really well. My last students, their parents pre-paid the entire semester, and they probably never once used the stove or dishwasher. Downside is that they are usually not the cleanest of people, even if they're not party-throwers, so you should expect a little more cleaning up than normal. 

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@Jamal Wilson Thanks for the quick reply! Those are good things to consider. I am conflicted because my husband and I need to look for a home for ourselves. We don't have much capital so we were thinking about getting an FHA loan for the multifamily but in that case we would have to live in one of the units (not ideal for us). Our other option is to put 20% down and continue renting our current apartment. If we do that then I'm not sure when we would be able to get our own home, I guess it all depends on what kind of income the rental property will bring us. It's just all making my head spin, lol.

@Sue Anne Cho It just depends on what your financial goals are. If you want to supplement your income I don't know if buy and holds are the right strategies. If you're looking for financial freedom living in one of your multi-family units and renting out the other unit(s) is a no brainer. The road to financial freedom requires you to generate enough passive income to cover your expenses. Housing is one of our biggest expenses. By cutting that out as an expense, you will surely fast track your way to financial freedom! Just a thought.

@Account Closed I have had a rental near USC in Columbia, SC for ten years. It's been a great rental. It's walking / biking distance to campus which seems to be a popular feature among prospective tenants. I have primarily rented to graduate students who are typically enrolled in a 2-5 year program. They are often beyond the partying phase of school, have shown to be more responsible and reliable than undergrads, and tend to renew if they stay in their program. If you buy in a university area and plan live along side your tenants, consider marketing to students in grad programs for potentially quieter neighbors. 

In addition to all the great points above, purchasing a Buy and Hold near a university is also an excellent idea because universities drive economies! And you want to have your investments in areas that are growing -- having all of the students around creates job growth and many times alumni get internships or long term jobs in the same cities they went to school in. 

Apartment properties around universities usually have high occupancy because the on-campus housing can be limiting and out-dated (unappealing to students) or in such high demand that some students just can't get in, so they turn to the next best option. I would check - you will be able to look at the university enrollment stats and see which ones are actively increasing enrollment or turning students down. The schools that are allowing more students coupled with market trends indicating job growth are the areas to invest in. 

University areas are great because of the consistency of tenant availability. One HUGE pitfall that I've learned is the cyclicality of the University market. It is virtually impossible to get market rent for properties in my area outside of a summertime start date.  I've missed the market several times and had properties sit vacant for a semester and even an entire year, a couple of times.

Thanks @Will Gaston for the reply. What do you think about having the tenants sign a year lease, so they would be responsible for paying throughout the summer (or finding a sublet)? I remember when I was in college we all had to do that.

Search the forums for student rentals and you will see alot of discussion that will help you understand this market.  If you are the landlord you make the house rules as long as you follow fair housing.  You can screen out students who don't have their own income thus only getting grad students. You can let them know your pet peeves upfront and that may turn some away.  Essentially if you are living there you have a say in picking your neighbor which you don't in an apartment. 

The length of lease and cycle to start renting for a student rental is more fixed and depends on your area. It is 9 months lease here but most places lease is one year. Also students want certain areas of town. Some neighborhoods they just don't rent. Partying students also prefer a certain neighborhood- so don't buy there.

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