Multi families in college towns

[Pat McCandless]

Looking to hear success stories and horror stories (if they're out there) regarding purchasing multi families in need of repair near colleges. My biggest fear is that you know you'll need to find tenants every year and will your property get trashed to the point where it's just too much to deal with.

[Cary F.]

@Pat McCandless @Chris Low @Ty Goulding @Scott Dixon

I want to challenge real estate investors on this issue! I feel that people are too optimistic on college towns.

I don't like the idea of investing in anything that depends on the performance of something else. 

Follow my logic if you would:

1. You invest in a college town that has 10,000 year round population and 25,000 during the school year. (Assume year round residents are mostly home owners.)
2. Everything is good...  Enrollment is up, town is busy, economy is good
3. Slight downturn hits the economy, student loan bubble pops (look into this)
4. Lenders stop underwriting student loans or make them much more difficult to get
5. Enrollment drops 15 - 20%
6. Now the student population shrinks by 3,000
7. Rents shrink significantly, vacancy increases significantly
8. Cash flow is squeezed, some investors suffer foreclosure, no profit, etc.

I believe that there is a bubble in student loan debt. I believe that this will hurt highly levered universities who will then have to reduce expenses, headcount and cut back on development projects and academic program upgrades. These are the things that made the schools popular in the first place so a permanent decreased enrollment is possible. 

I like cities that have year round populations that are stable. If you invest in areas where there is volatility in the renting base, then you might be taking more risk than you realized at first. 

Student loan debt has been expanding drastically for 20 years. I would certainly pay attention to the performance of these loans and the companies that underwrite them. 

I'm glad that you guys are doing well in college towns and wish you all continued success. I just want to see how you would all look at this form a different angle. I could be 200% wrong here but these things have crossed my mind.