Not only are the going monthly rents in these communities likely higher than you imagined, but real estate prices have come off bottom and are rising in most of them. So you have the prospect of solid rental income, depreciation write-offs on your rental business, plus at least modest capital gains on the house or condo, assuming a continuation of current value trends.
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You can rack up significant gross rents in some of these markets, especially in Boston ($37,008 a year), Princeton ($24,672), Washington D.C. ($31,644) and Los Angeles ($27,480). Loan costs at today’s low rates – assuming a 20 percent down payment and excellent credit – will eat up a chunk of that gross, as will local property taxes and management fees if you’re not managing the units directly yourself.
Of course, in higher rent-roll urban locations, prices for houses and condos suitable for rental to students don’t come cheaply, witness D.C.’s $395,000 median list price, LA’s $358,000 and Boston’s nearly $335,000. But in all these markets – D.C. in particular – median sale prices are on the increase, giving you a capital asset that is growing in value.
In some college towns, you can be a landlord for a lot less. Pittsburgh’s $140,000 median price and Atlanta’s $175,000 median are attractive, and Pittsburgh’s annual gross rent-to-price ratio is just as good as Boston’s, and better than both Providence and D.C.
Chicago is worth serious consideration as well, with an average annual gross rent roll of $19,560 on a median list priced rental unit costing $194,000. Houston ($13,608 annual gross rents, $183,000 unit price) and Philadelphia ($17,700 gross rents, $234,900 unit price) are also interesting options, though Philadelphia area housing prices have been flat or slightly negative recently, according to Realtor.com’s monthly national survey, and local inventories of unsold units have been increasing, counter to the national trend. At least for the short term, housing price appreciation in the Philadelphia market is a question mark.
Keep in mind that rent and price data alone do not convey several key investment considerations for anyone seriously thinking about college rental real estate. Property taxes can vary sharply from city to city, with some of the highest costs – and thus drains on your net returns – in the northeast. Also, student housing rentals are not for the faint of heart, even if your own son or daughter is serving as on-site manager.
Think back to the parties you attended or hosted back in college or grad school and ask yourself: Am I willing to handle the higher maintenance and repair bills that are virtually guaranteed with this type of rental investment?
There are substantial profits available from college rental units, but you need good management arrangements – including tenant screening, rent collection and maintenance contracts – to really pull it off well.
By Ken Harney
Ken Harney writes a nationally syndicated column on housing and mortgage issues, the Nation’s Housing, and has won numerous “Best Column – All Media” awards from the National Association of Real Estate Editors, along with the Consumer Federation of America’s prestigious “Media Service Award,” for lifetime contributions to consumer interests in housing. He served a three year term on the Federal Reserve Board’s Consumer Advisory Council and is the author of two books on real estate and mortgage finance.
Taken from: http://www.forbes.com/sites/realtorcom/2012/08/30/collegetownrealestateinvestments/