Is it Smart to Invest in Rental Properties in College Towns?

University of Florida

One would speculate that purchasing a single family home in a college town for rental income would be a smart investment due to the high number of students wanting to rent a house off campus right?  Not so fast my friend (#leecorso #collegegameday).  It all depends on the single family home price levels in the college town according to the Vice President of the data firm RealtyTrac, Daren Blomquist.

This topic brings me back to my college days in the early 1990’s in Gainesville, Florida, and I remember a lot of students wanting to leave the dorms after their freshman or sophomore year and rent a single family home off campus.  It became the thing to do, because you could live with three or four of your closest friends in a private home with a yard and virtually zero supervision.  You did have the option of renting an apartment of course, but the size and privacy of the single family home afforded a better place to study…….and to throw parties I understand.

The massive amount of students at the University of Florida (nearly 50k including undergrad and grad students) coupled with the high demand to rent a single family home clearly made the rental prices skyrocket over the years.  This is critical to turn a profit on a rental property, but it’s only part of the equation.  The final piece of the puzzle that makes rental properties a smart investment in Gainesville is the relatively low cost to purchase a home there.

A lot of students living near the campus + A lot of those students want to rent a single family home + The cost to purchase those homes is low = 10% gross annual yield.

I don’t have any hard data on this, but I am willing to bet that purchasing a single family home in Boca Raton with the sole intent to rent it out to Florida Atlantic University (FAU) students would be a losing proposition.  The home sale prices are simply way to high.  You could set the rental price at a level that would provide a yield, but college students won’t be able to afford it.  The good news is that in Boca Raton you could probably find a family to rent the home from you instead.

There are many college towns like Boca Raton where single family home values are too high to make money renting them out to college students.  However, college towns like Gainesville are perfect.  You will start making money on your rental property immediately, and that will continue on for as long as you care to own the home and rent it out.  UF isn’t going anywhere, and students will always want a better place to study….or party I hear.

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