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Landlords: How to Make a Buck in College Towns

Housing prices have fallen by half in some areas, and mortgage rates have sunk to a record low while university enrollment is surging as people go back to school in the wake of job losses. That has led to a dearth of student housing, which means it's a great time to buy low and rent high.

"An investor is certainly more likely to profit from a rental property than what was possible two to three years ago," says David Stiff, vice president of quantitative analysis at Fiserv, which publishes the Case-Shiller housing indexes. "Home prices have dropped substantially in many markets. But absorption rates seem to be stabilizing, in part because the surge in foreclosures has pushed many households into the rental-housing market." Supply and demand are in the landlord's favor. Freshman enrollment at post-secondary schools in the U.S. surged by 144,000 students from the

fall of 2007 to the fall of 2008, the biggest boom in 40 years, according to the Pew Research Center. The freshmen of 2008 are now entering their junior year — and junior year is often when students start living off-campus. For a prospective landlord, it makes sense to seek college towns where prices are especially low. In Columbus, home of Ohio State  University, housing prices have dropped 10% in the past five years, according to Case-Shiller.

Landlords who own 1 or 2 rental properties may want to hire a property manager to deal with rents and maintenance.

College town properties should be treated differently

by Carmen Nobel, from MainStreet MSN, April 20, 2013

In San Luis Obispo, home of California Polytechnic Institute, prices have plunged 31% since 2007. In Tallahassee, home of Florida State University, prices have fallen 16% in the past three years and are expected to go down an additional 1.5% in the next year. In Gainesville, home of the University of Florida, home prices are down 22% over the past three years and are expected to drop an additional 15% between the first quarter of this year and next.

 

Meanwhile, student-housing development and management companies seem to be holding steady. American Campus Communities, which operates 53 student-filled properties, booked second-quarter revenue of $76.7 million this year, up 7.6% from $71.3 million a year earlier. "We've been able to maintain high occupancies and growth even through the downturn," says Michael Orsak, vice president of acquisitions at Campus Advantage, an Austin, Texas-based real-estate company that manages off-campus housing near 37 universities across the country. "And in general, for the most part, rent per square foot for a college student is higher than the market value. It is going to cost you a little more for upkeep, but it is going to give you a better return."

 

That upkeep issue is more important than prospective landlords might expect, says Don Stoppe, owner of Stoppe Management Services in Plymouth, N.H., which operates rental properties near Plymouth State University.

 

Tenants turn over annually, and today's students may not suffer slumlords gladly. According to Stoppe, the economic downturn has made students — and their parents — pickier about where they're willing to spend their money. They're willing to pay rents well above market value — even in rural New Hampshire, Stoppe collects at least $3,100 per student each semester. This means a six-bedroom apartment will bring in $37,200 a year, and that doesn't include summer residency.

But a dump won't do.

 

"People have been way more demanding," Stoppe says. "Where they used to be happy with a kitchen that was done over in the '60s, now they want a dishwasher. People who are trying to get away with keeping the broken cupboards from the last tenants are not going to be able to rent their places."

 

Students are tougher on apartments than the average tenant, so prospective landlords need to take extra care to protect their property legally. That's why Stoppe's standard lease includes clauses such as this one: "No trespassing on any roof. Candle burning, fireworks or fires of any kind are prohibited on the property. Charcoal grills are not allowed. Gas grills must comply with fire codes. BB guns, paintball guns or weapons of any kind are not to be discharged or displayed on the property."

 

Students can be harder to vet financially than professionals. While the latter are generally subject to credit checks, students often don't yet have credit to check.

 

"We'll run a criminal background on the students and run the credit of the parents, because they're the ones paying the bills," Orsak says. And to gauge relative domestic responsibility: "The schools will tell us whether they've been kicked out of the dorms or not," says Stoppe, who favors students "who don't reek of pot when they show up to look at an apartment."

 

Landlords who want the benefits of rent payments without the hassle of making sure students don't trash the property can hire a third party to play the heavy. Campus Advantage hires "community assistants," tenants who get free rent in exchange for acting as "24-hour eyes and ears," Orsak says.

Landlords who own only one or two rental properties may want to consider hiring a property manager to deal with rent collection and maintenance. Property-management fees often range from 10% to 15% of the rent, which can be well worth the peace of mind for an absentee landlord.

 

"If you manage the property yourself, you will more than earn that 13%," Stoppe says.

Read the full original article here.

See also: IPU Interviews Whittier Mayor Newcomer - What he has to share to owners

March 4, 2013 1:00 PM

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