Results from one of Move’s earlier studies indicate that in the next two years, real estate investors are expected to outnumber homebuyers in local college markets by three to one. Move takes those findings a step further by listing the ten best college towns for real estate investments. With a guaranteed pool of renters and a perennial need, college towns are a wonderland of supply and demand.
How to Purchase Real Estate With No (or Low) Money!
One of the biggest struggles that many new investors have is in coming up with the money to purchase their first real estate properties. Well, BiggerPockets can help with that too. The Book on Investing in Real Estate with No (and Low) Money Down can give you the tools you need to get started in real estate, even if you don’t have tons of cash lying around.
Top 10 College Towns for Real Estate Investing
1. Boston, MA
2. Nashville, TN
3. Chicago, IL
4. Washington, D.C
5. Houston, TX
6. South Bend, IN
7. Atlanta, GA
8. Baltimore, MD
9. St. Louis, MO
10. Syracuse, NY
Here, Jennifer gives us the scoop on their latest survey results, proving that, despite all the trouble we’ve seen, investors are giving it the old college try.
How did your college survey come about?
We did a study back in May about how real estate investors are outnumbering home buyers in the current marketplace. And to further that, we thought we should look at some really good places to invest. We feel that one of those markets is the college town. There is a ready supply of renters. We know that you can cover your mortgage if you invest wisely. You can make your average mortgage payment from renting out your home, and maybe even make a little bit of money depending on the market.
Has investing in college-town property always been a good way to go, even before the current crisis?
Definitely. Investing in college real estate has always pretty much been a safe bet. You get something substantial — especially with the stock market turmoil, where people are not quite sure where it is going. Studies seem to show that if you are associated with a good university, people will always have a need to further their education and that they need a place to live while they are doing that. And a lot of universities don’t have housing of their own. They can’t house their entire student body.
Therefore, given the current market, this type of investment is considered more sound than ever.
It is. Normally when we were in a housing bubble, you had to look to see if prices were going to hold. It was also harder to get properties because they came on the market so quickly. And if you were investing in a town that you didn’t live in, it was harder to have your finger on the pulse of it. You wouldn’t want to get into a bidding war about an investment property. But now that houses are on the market a little bit longer, you have more of an opportunity to choose the right fit.
Is this list in any particular order?
It is based on the median list price, and the year-over-year change in it. And what the average rent is and the average monthly mortgage. We also looked at some of the studies that US News and World Report did, rating the best colleges. So we are looking at where people are attending school.
Where is the hottest spot for this kind of investing?
[Students] will always be going to Boston. There are so many schools, so many universities. The median list price in Boston is a higher list price than the US average, but it’s also in very high demand for rent. It is down from last year, about 2.6%. So the price is a good value right now.
I would imagine that New York, with all of its schools, is not as lucrative a market for the average investor.
New York – that’s a very tough market to get a good deal. Not that there are not great universities. It’s about the price points.
What are some of the common threads you’ve found?
If you notice the median price on all ten cities, the highest one that we have is $375,000 in Washington, DC. Most of them are under $250,000. For a smaller investor, that is more do-able. When you look at the mortgage payments, except for two cities, the average mortgage payment — if you put 20% down — is under $1,000. It’s a great investment without a huge outlay of cash. You’re not looking to be investing $10,000 a month.
What types of investors are most interested in college-town investing?
It can be a mom and pop. It can be [the type of investor who says], ‘hey, my kid is going to this university, so instead of spending $10,000 to the college’s room and board, let me invest that money.’ It does run the gamut. We didn’t do a study on this. It’s more anecdotal from real estate agents that we spoke with.
Most of the real estate agents that we have outreached to had clients who had done this — alumni of the school who rented property while they were there, and saw that it was a good way to make money.
I think most homeowners at some point in their lives had rented something and had always had that thought of ‘why am I giving the money to a landlord when I could be making money myself?’
What are some of the trends you are seeing?
Anecdotally, we are seeing that one of the reasons the market isn’t growing as much is that people aren’t necessarily selling their previous home. People are holding their real estate. We’re noticing at Move.com that our historical listing counts are lower than they have been. There are fewer properties on the market. People hold their property to grow their investment. It’s not the short-term flipper that it used to be. It used to be that people would hold a property for a few weeks or a month or under a year. Now people are expecting property prices to rise and they’re holding for years.
The study that we did back in May says that only 11% of the people who are investing in real estate expect to sell within a year of purchase. And two-thirds said that they are investing for the long term. They are buying real estate to hold.
Any predictions for the next 12-18 months?
There are definitely people sitting on the fence, trying to decide. We’re waiting to see how the government is going to define. There is a lot of housing legislation pending. Just how that gets resolved is too soon to predict. We don’t want to say the worst is over yet. It seems to be trending that way, but it is still fragile, and it is fragile on a market-by-market basis. Some markets are recovering and are trending up. Washington DC certainly seems to be one. Some other markets are stabilizing. We are hopeful, but it’s too soon to say the worst is over.
When you look at the stock market, and they’re saying that we’ve never had four days in a row of this kind of up and down, it does make people nervous. With real estate, if you are in it for the long term, it does seem to trend up.
Photo: David Smith