A real estate investor could strike gold by providing student housing in a good college town.
Table of Contents
- College Town: What Is It?
- Reasons to Invest in a College Town
- 10 Top Locations That Are Ideal for Student Housing
- Wrapping It Up
With schools and universities transitioning back to in-person learning, plenty of students are once again looking for affordable student housing rentals. And while lots of great universities and state colleges are found all over the country, real estate investors (REIs) will do well to consider college towns as their next investment location.
College Town: What Is It?
College towns are towns or communities that are purely dominated by their university student population.
For instance, Atlanta GA is a city that has a strong university population. It may not be a pure college town, but it has a student population large enough to consider it one. On the other hand, Berkeley in California is known widely as the “quintessential college town.” This town is home to the University of California, Berkeley, one of the top public universities alongside the University of California, Los Angeles (UCLA).
College towns are generally separate towns but can also be a city or neighborhood district depending on the location. They are cities and towns whose economy and culture are greatly impacted by the local educational institutions of higher learning. Countless folks consider college towns idyllic places to live in given their vibrant culture and thriving economy.
Reasons to Invest in a College Town
There are several good reasons for real estate investors to consider college towns for their portfolio expansion. As there are nearly 7,000 colleges and universities spread across the country, it only makes sense that students (especially out-of-towners) will need decent houses to live in. Real estate investors are put in a position to help fill in that need while meeting a few of their financial and investment needs along the way.
To see the bigger picture, you need to understand what a college town has to offer.
Continuous Demand for Housing
Student housing solutions are one of the better investment strategies for REIs mainly because there will never be a lack of people looking for student housing apartments. Every year, there is a fresh batch of students coming into college. These students are in need of a decent place to live in to allow them to focus on their studies. While campus housing is great for what it has to offer, an alternative option is to provide them with off campus student housing in nearby locations.
Another reason for investing in college towns is their reliable and thriving economy thanks to their attractions and tourism. No matter how unstable the market gets, investing in college towns has always been very promising. A college town’s economy has the potential to generate a good enough cash influx to protect it against market fluctuations.
Flexibility in Rates
Because there is a continuous demand for student housing, landlords and property owners have the advantage of setting their rental rates at market value. Generally, college towns see very low vacancy rates because of the influx of both students and university employees. And even during breaks where occupancy is low, income properties can be rented out as vacation rentals.
Investing in apartments for students at this time is a viable option that REIs should consider. Sure, COVID-19 threw a monkey wrench in almost everyone’s programs, but economies have reopened and are quickly recovering. In-person classes are back in business, which means that universities and colleges are expecting to see more students on campus soon.
If you’re thinking about investing in a college town, it might be good to do it now while mortgage rates are still affordable. As more and more schools are opening up, the need for college apartments will inevitably go up as well.
10 Top Locations That Are Ideal for Student Housing
With hundreds of college towns dotting the US map, we have narrowed down 10 top locations that are ideal for residential houses, especially university housing apartments.
Criteria for the Selection Process
Two main factors were considered in coming up with this list. The first one is the quality of education provided by the local universities found in these locations. The college towns selected to be a part of this list were based on their overall performance rankings.
Second, this list is ranked according to the location’s viability and profitability. For real estate investors looking to start a rental property business, we have done the digging for you. The list highlights the important numbers for rental market analysis using actual rental comps found in the said markets. The locations have been ranked based on cash on cash return rate from the highest to the lowest.
All data is provided by Mashvisor, a real estate company that specializes in property location and real estate market analysis.
Important Metrics Used for Ranking
The list also contains the following metrics to give investors a better idea of how much potential each location has:
- Median Property Price – This indicates the average fair market value for a single property in an area.
- Average Price per Square Foot – This shows how much a property is worth in square footage in a given location.
- Days on Market – This metric shows how long (or short) a property stays on the multiple listing services. Investors sometimes refer to this to determine if a location is a seller’s or a buyer’s market.
- Monthly Traditional Rental Income – This number indicates the average monthly rental income traditional rental properties make.
- Traditional Cash on Cash Return – This metric shows a property’s potential profitability by taking the net operating income and dividing it by the total amount of cash invested in the property. Cash on cash return is a great way of projecting the return on investment as it takes into account the financing method used to purchase a property.
- Traditional Cap Rate – A cap rate is another metric investors look at to see how much return on investment they will get. But unlike cash on cash return, the cap rate formula simply divides the NOI by the property’s actual cost or market value. It assumes that the property is (or will be) purchased with all cash.
- Price to Rent Ratio – This number shows whether or not it’s better to buy a house or just rent one. Locations with a high price to rent ratio typically imply that affordable housing is hard to come by and renting is perhaps the best possible option at the time.
- Walk Score – The walk score just shows how walkable an area is. A higher score means there is less need for a vehicle to get around.
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Having said that, here are the top 10 locations with the best universities and colleges that are ideal for investing in student accommodation:
1. Pittsburgh PA
- Median Property Price: $395,049
- Average Price per Square Foot: $221
- Days on Market: 68
- Monthly Traditional Rental Income: $1,454
- Traditional Cash on Cash Return: 2.52%
- Traditional Cap Rate: 2.60%
- Price to Rent Ratio: 23 (high)
- Walk Score: 52
Among all the college towns on this list, Pittsburgh goes straight to the top with a solid 2.52% cash on cash return. It may be quite bigger than most cities on this list, but its student population is somewhat at pace with its population as a whole. Pittsburgh is home to nearly 70 universities and colleges, including the University of Pittsburgh and Carnegie Mellon University.
2. Ithaca NY
- Median Property Price: $472,490
- Average Price per Square Foot: $216
- Days on Market: 51
- Monthly Traditional Rental Income: $1,956
- Traditional Cash on Cash Return: 2.27%
- Traditional Cap Rate: 2.33%
- Price to Rent Ratio: 20 (high)
- Walk Score: 9
Nearly half of Ithaca’s population is made up of students. With a student population of 27,400, investors have lots of opportunities to make a decent amount of money by starting a student apartment business. It is naturally beautiful and has a unique sense of community with lots of student-centered activities and a lively nightlife scene.
3. Gainesville FL
- Median Property Price: $365,852
- Average Price per Square Foot: $215
- Days on Market: 58
- Monthly Traditional Rental Income: $1,489
- Traditional Cash on Cash Return: 2.14%
- Traditional Cap Rate: 2.21%
- Price to Rent Ratio: 20 (high)
- Walk Score: 41
From 2007 to 2011, Gainesville was recognized as the second-fastest growing city in the country. It is a city with a thriving economy, pleasant weather, and lots of entertainment options. These, along with some of the top educational institutions in the region, make it a great investment option for REIs.
4. Iowa City IA
- Median Property Price: $342,159
- Average Price per Square Foot: $205
- Days on Market: 121
- Monthly Traditional Rental Income: $1,436
- Traditional Cash on Cash Return: 1.97%
- Traditional Cap Rate: 2.04%
- Price to Rent Ratio: 20 (high)
- Walk Score: 34
Just like most of the college towns on this list, Iowa City’s student population makes up nearly half of its actual population. It has a well-established literary scene (it is North America’s only UNESCO City of Literature), great nightlife, and a caring community that gives back. These things make student housing Iowa City an investment worth considering.
5. Ames IA
- Median Property Price: $271,814
- Average Price per Square Foot: $206
- Days on Market: 71
- Monthly Traditional Rental Income: $1,259
- Traditional Cash on Cash Return: 1.92%
- Traditional Cap Rate: 1.99%
- Price to Rent Ratio: 18 (medium)
- Walk Score: 26
Iowa State University, as well as other big employers, calls Ames home. It is a small town that has so much to offer in terms of living standards. It is a young city with an average age of only 23.8, thanks to more than half of the population being students. With a reputable university, vibrant nightlife, and plenty of job opportunities, Ames is a great place to start a rental property business specifically aimed at students.
6. Fort Collins CO
- Median Property Price: $517,529
- Average Price per Square Foot: $334
- Days on Market: 96
- Monthly Traditional Rental Income: $1,786
- Traditional Cash on Cash Return: 1.88%
- Traditional Cap Rate: 1.91%
- Price to Rent Ratio: 24 (high)
- Walk Score: 30
Fort Collins, which has consistently placed on Money Magazine’s list of best places to live in the US since 2006, is home to Colorado State U. Although its student population isn’t nearly as large in percentage compared to others on this list (a little over 20%), it still gives off great collegiate vibes with lots of outdoor activities people of all ages will enjoy.
7. Chapel Hill NC
- Median Property Price: $812,909
- Average Price per Square Foot: $280
- Days on Market: 74
- Monthly Traditional Rental Income: $2,126
- Traditional Cash on Cash Return: 1.71%
- Traditional Cap Rate: 1.75%
- Price to Rent Ratio: 32
- Walk Score: 75
The University of North Carolina at Chapel Hill may very well be the town’s biggest blessing as it has given the town of over 58,000 folks a lot to be proud of. Aside from being home to one of the NCAA’s powerhouse basketball teams, it is also part of what is known as the Research Triangle. Because of this, UNC grads are given countless opportunities in the fields of science, technology, and healthcare. Chapel Hill might be the game-changer for real estate investors looking for long-term income opportunities.
8. Ann Arbor MI
- Median Property Price: $622,978
- Average Price per Square Foot: $318
- Days on Market: 55
- Monthly Traditional Rental Income: $2,043
- Traditional Cash on Cash Return: 1.60%
- Traditional Cap Rate: 1.63%
- Price to Rent Ratio: 25
- Walk Score: 97
During the school year, nearly one out of two Ann Arbor residents are students. A huge chunk of the student population goes to Michigan University as well as around 30,000 university employees. However, not all job opportunities are coming from the educational sector as tech and science jobs are rising every year. The high student-to-resident ratio, job opportunities, and great livability make Ann Arbor an investment-worthy choice for REIs.
9. Corvallis OR
- Median Property Price: $632,823
- Average Price per Square Foot: $313
- Days on Market: 40
- Monthly Traditional Rental Income: $1,811
- Traditional Cash on Cash Return: 1.48%
- Traditional Cap Rate: 1.50%
- Price to Rent Ratio: 29 (high)
- Walk Score: 62
Oregon State University is proud to call Corvallis home. This college town is known for breathtaking views of the Cascade Range and a wide range of employment opportunities after university life. It has consistently ranked as one of the smartest cities in the country thanks to the research funding it receives.
10. Charlottesville VA
- Median Property Price: $685,293
- Average Price per Square Foot: $293
- Days on Market: 90
- Monthly Traditional Rental Income: $1,905
- Traditional Cash on Cash Return: 1.37%
- Traditional Cap Rate: 1.39%
- Price to Rent Ratio: 30 (high)
- Walk Score: 58
Around 21,095 students call Charlottesville home during the school year. It is home to a couple of US presidents as well as Monticello, a UNESCO world heritage site. The University of Virginia is the town’s rallying point and pretty much the driving force behind its economy.
Wrapping It Up
Regardless of what investors may feel about college towns, it might do them some good if they paid attention to these locations a bit more. Investing in student housing in these towns have so much to offer REIs, especially for those who are looking for long-term investment stability.
To find the most ideal investment properties in these locations, check out a website like Mashvisor. Mashvisor has a massive database of almost every real estate market across all 50 states. It also offers users access to some of the best real estate investment tools available online.
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