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I am looking to purchase a property very close to a university, probably to rent out. Slightly more than half of the owners there are renting out their homes. What long-term effect on value and resale do all these rentals have, and what other potential issues are there to consider?
The long-term effects in this case are generally good -- if not great. In fact, if you buy right, you may be purchasing a hedge of sorts against the rocky housing markets of the present and future.
Statistics seem to favor investment potential for homes in college communities at present, particularly with oversupply issues still dogging the housing sector and average times on the market ballooning to months instead of weeks.
College enrollment is expected to rise 15% over the next decade, according to the National Center for Education Statistics. And yes, some institutions are responding to increased housing needs by building dorms, while developers are hustling to construct apartments in nearby infill sites, if they can find them. But the housing stock in mature college communities will always be limited, especially if there are such elements as medical schools, research labs or technology facilities that draw additional nonstudent employment.
Unlike some neighborhoods, where a disproportionate number of homes that are converted into rentals may signify an impending downturn, that's generally not a worry in college neighborhoods. You are placing yourself in a community where there is a constant churn of demand every semester. But you'll most likely pay a premium for your house.
More from MSN Money and Bankrate.com
Though there's little hard and fast data on the subject, real-estate agents estimate that homes in the immediate vicinity of colleges fetch an average of 25% more than similar homes in noncollege communities.
The catch? You're renting to students
There are some potential negatives of being a landlord to college kids, as you might well expect. Even the most fastidious college students have little motivation -- other than the anticipated loss of a damage deposit -- to keep the place orderly, especially if they are moving on next term. There are often issues with noise, parking and parties (beer busts and, um, beer recycling) that could attract unwelcome attention to your house.If you don't plan to live in the area and check on the place regularly, hire someone who can. You might find your place packed full of unauthorized "sublessees" if you're not careful. And of course, screen your tenants thoroughly. That's not always easy to do with college kids because they usually have no rental history.
Before you buy, know that some communities and neighborhood associations try to keep the percentage of for-rent homes at bay or place special restrictions on new owners. Discuss this thoroughly with your agent and even city zoning officials.
As for resale potential, the law of supply and demand is in your favor. No matter how bad the overall market is, someone will likely want your home. Potential buyers range from instructors, school administrators, staffers and visiting professors to other home investors who know they'll have a captive rental market.
And here's more heartening demand data: Last year, a National Association of Realtors survey of second-home buyers showed that 8% bought a home for their college children to live in while at school. As always, proceed with caution.
This article was reported and written by Steve McLinden for Bankrate.com.
Published June 13, 2007
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