College towns are a breed apart, and they can present unique investment opportunities when some key factors are aligned. In some of these markets, rental yields can be as high as 14%, so they’re a smart choice for investors.
The demographics in a college town help create this favorable environment for rental property. There are several major advantages to owning rental property in college towns:
- Large Tenant Pool: College towns have a large population of renters, with new ones coming in every semester.
- Low Vacancy Rates: Demand is high for rentals in college towns, from both students and college employees.
- Stable Rent Levels: Demand keeps rents strong, and the population is generally able to afford slightly higher rents.
- Simple Marketing: Tenants will come to you, drawn by the presence of their chosen school. You don’t have to sell the area. College towns offer a lot of variety in culture, entertainment, dining, and shopping. They often have good public transportation as well, and may be more walkable than communities of comparable size without colleges.
In addition to these pros and cons, the performance of the individual market should play a role in investment decisions. Contrary to what you might first imagine, a high student population doesn’t always mean that a city is a good choice for commercial investment.
For example, Boston has the country’s highest concentration of college students, and the average for a 2-bedroom rental is right at $1500. High demand, high rent rates. But the cost of real estate in Boston, particularly near the higher education institutions, is also very high, so relative returns are not as good as in some other markets.
The American Institute for Economic Research provides a very useful map that details the top 75 college destinations in the U.S. Click on a location to pull up current ranking and statistics including population, cultural life and attractions, and work opportunities for students. National Real Estate Investor Online quotes RealtyTrac to help clarify the effect that the local market has upon rental rates, even in places where college students are plentiful:
Many towns with many young residents have strong gross annual rental yields, averaging around 10 percent, including East Lansing, Mich., Gainesville, Fla. and Athens, Ga.
Just being a college town does not guarantee single-family rentals will be a good investment. For example, in Arlington County, Va., 38.1 percent of the population is made up of young Millennials, including students attending Marymount University, George Mason University and a dozen other schools. But with the average price of a three-bedroom house at $705,000 in 2015, average rental yields for single-family houses were just 3.58 percent in 2015, according to RealtyTrac. Other expensive college towns like Washington, D.C., San Francisco and Boston all show rental yields of less than 5.00 percent.
Here are some other college towns that are ripe for investment, with the combination of attractive property prices, high demand, and strong rental rates.
- Ft. Lauderdale FL Yield: 8.8%
- Lincoln NE Yield: 9.7%
- Kent, OH Yield: 10%
- Pittsburgh, PA Yield 10.2%
- Dekalb, IL Yield: 10.4%
- Columbus, OH Yield: 10.9%
- Cincinnati, OH Yield: 11.2%
- Gainesville, FL Yield: 11.3%
- Trenton, NJ Yield: 13.2%
- Akron, OH Yield: 14%
Coldwell Banker Commercial Benchmark agents Chip Sistare and Glenn Palmer of the Jacksonville office specialize in student housing properties. Please contact either at 904-281-1990 for more information.