College-area properties get good grades |
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Fear factor
As the owner of a campus house, your goals are similar to those of any landlord. You want a property that you can keep fully occupied and that will produce rental income to at least cover your costs (mortgage, taxes, insurance). You also want to be sure you have signed leases and security deposits from every renter.
What scares many parents -- and keeps the dorms full -- are the unknowns. What if I can't rent it? What if my kid drops out? What if the housing market suddenly flatlines? What if? What if? What if?
After all, not only is that campus home often their first rental property, likely located in another town or state, but that four- or five-year time horizon can prove uncomfortably tight for appreciation purposes.
Robert Sheehan, consulting economist for the National Apartment Association, had a good experience. He bought an old four-bedroom Victorian in a reviving neighborhood of Richmond, Va., for his daughter to live in while attending Virginia Commonwealth University. He never had to make a payment for an errant roomie, and after graduation, sold his daughter the house with easy terms. She and her husband now own 14 high-end properties.
But Sheehan didn't repeat the process when his son enrolled in Carnegie Mellon in Pittsburgh. Why? Carnegie Mellon provided better digs less expensively than he could have purchased.
"He lived in a two-bedroom apartment on campus
that was 1,600 square feet," Sheehan says. "Where he was
in Pittsburgh, where you have five universities in a several-block
area, it was tough to find places that you could buy that easily."
Do your homework
Sheehan says the trick is to size up the campus community first before taking the plunge. You want a property you can afford that won't be hard -- or costly -- to sell after graduation.
"You have to find out what the colleges and universities are doing in the area. If they have a big construction program themselves, you have to be careful," he says.
On the plus side, colleges are increasingly getting out of the dorm-building business, content to let private developers build and manage student housing near or on campus. Unfortunately, that same private development can make houses near campus scarce and sky-high in price.
"The question is, how much growth is there in the community?" says Sheehan. "The ideal situation is a relatively new university in a small town where the student population is growing. That's almost a no-brainer to look for a place to buy."
A quick glance at price
appreciation in five major university cities around the country
shows that four-year appreciation through the first quarter of 2006
averaged between a low of 23 percent (Austin, Texas) and a high
of 103 percent (Miami). Actual appreciation in the campus neighborhoods
likely varied due to supply and demand.
Sheehan notes that even in campus locations with little or no appreciation, a house you own and can keep full still beats paying thousands each year for student housing. You also may be able to deduct the mortgage interest, property taxes and a percentage of utilities and maintenance (if you collect rents) on your income tax.
"You don't want to get into a situation that, in the long run, you're going to worry about appreciation," Sheehan says. "If that's your primary goal, then don't invest."
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