Investing in a college town, yes or no?

Question

My daughter is away at college (Oregon) and we are thinking of buying a place for her (and some roommates) to live in after her dorm stay is over. What are the returns like for a rehabbed rental in a college town?  If you upgrade flooring and kitchens/baths are you able to get more in rent?  Also (aside from college aged partying) what are the rates of damage (should I charge a higher deposit in an area like this?) and non-payment of rent among students vs. a single family?  I am just wondering if the numbers make sense on a BRRRR strategy when the area has a consistent clientele like this or if there are more risk factors to account for?

Jonathan Greene · Answer

College area investments can be very lucrative. When it's not your kid, you get the parents to co-sign the leases. I like to be near schools with graduate programs so you have more options for older kids. I also think most college town investors forget that you can rent single-family homes all day to adjunct faculty each year who come with their family. They are the best college renters by far IMO.

Larry Fried · Answer

Historically this is a strategy that has paid off very well for investors in my town of Eugene, OR.  But, particularly in the current market of extremely low inventory ( & high prices), this should be approached as a long term appreciation and/or value add strategy where costs are covered during the 1st few years of hold.  Not great for short term cash flow.  I just had some out of state clients who bought a home specifically for their daughter starting at the UO, and later their son.  They are renting out the two additional beds on a 3 bed/1 bath home to some responsible seniors, and making plans for further rehabbing, even expanding the foot print of the home over the long term.

Dylan Vargas · Answer

@Shelby Willitts Welcome! I had a friend who did this and it paid off very well. Having cash for this would be even better. He viewed the transaction as saving Approx 50k per 4 years for a dorm room or 30k per 4 years if renting a room. Paying cash allows a person to recoup much of their investment and gain  a ton of equity especially when you charge the other renters which could bring in another 50k to 100k over 4 years to add to the equity.  Now to buy with high loan amounts I am not so sure this is worth it unless you BRRRR the property and sell after 4 or 5 years. Not that it wouldn't be a good investment in a college town just after little Jenny moves after graduation do you still want to deal with a rental? Maybe you do. I would run the numbers. If she rents a room or apartment for 600 per month for 4 years= 29k approx you could use for a property to put down. Will that make much of a difference? Good luck and keep us posted.

Joni Chin · Answer

@Shelby Willitts

My first two rental property investments were because 3 of my 4 children went out of state for college. All but one is out now, we have a triplex in AZ and another SFH w/ a detached studio in OR. My criteria was getting the maximum number of bedrooms for the best price close to campus.

We rented by the room initially, but now most are under 1 lease per dwelling unit. It’s worked well for us, we have had very few problems with parties, late rent, or damages to property. Apart from the very occasional “helicopter” mom and /or entitlement attitude student we have had great tenants and parents, who co-sign the lease or a financial responsibility agreement. Both properties have appreciated 100k-150k over the last 5-7 yrs we have owned them, and have nearly zero vacancy over those years even in 2020 with Covid.

Daniel Smyth · Answer

@Shelby Willitts

Yes!

Its on my bucket list!

My daughter just bought a house. Lots of college time before her Masters degree gave her much time in rentals!

Get the parents to sign damage guarantees and you get the deposit plus 1st and last months rent usually!  Too much to tell here!

Lots of money!

Damaso Bautista · Answer

@Shelby Willitts

Hey Shelby,

That is what we are doing now for our son in Bloomington, Indiana.  I just made sure that the numbers were the same as if I were to pay for his housing anyway.  This way in 3 more years when he is done, at minimum I was able to get free housing for four years if I decide to sell the property.

I will also have to option to turn it into a student rental or a long term rental.  Either way it has worked great for me so far.

Good luck!!!

Darius Ogloza · Answer

Our investment in Davis California back in 2010-11 has paid off handsomely.  No vacancies to speak of in 9-10 years and excellent appreciation.  The kids are fine.   I would suspect Corvalis and Eugene are similar markets.

Investing in a college town, yes or no?

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