State college apartments: buy a condo and become a small business owner

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A condo property investment can be a clever move, especially if you buy in the right location at the right time. College real estate has been a profitable sector of the condo market in recent years, with state college apartments and private buildings in college towns continuing to provide valuable opportunities to forward-thinking investors.

Let's take a look at the pros and cons associated with college condo investments, and see how you can turn your investment into a business.  

The state college real estate market

A state college is a name given to the many public tertiary education institutions dotted across the United States. These colleges and universities are funded by the state government and accredited by different regional accreditation agencies. In many states, there is a single "flagship" campus joined by a number of satellite campuses.

When someone finishes high school, they can either stay in their hometown or move across the country to take advantage of better educational opportunities. Moving away to college is a popular choice for many young Americans, with this option presenting a number of challenges when it comes to housing. When someone enrolls in college, there are lots of student accommodation options available to them, including residential halls, college apartments, and private rentals.

According to Axiometrics data, college enrollment growth has increased by 6.4 million students across the United States in the last 20 years. 

If you want to take advantage of this lucrative market segment as a property investor, there are a few options available to you. While residential college halls are normally owned by or closely affiliated with the college in question, college apartments and private rentals can both be purchased outright and rented out for a profit. Investing in college towns is not without its challenges, however, so it's important to do your homework before diving in.

College apartments

A college apartment or condo is a self-contained accommodation option that allows students to live independently while they attend college. Unlike residential halls, which are normally just a single room, college apartments feature layouts that are very similar to standard condos. Some of these apartments are on campus and owned by institutions, and others are privately owned by investors like yourself. Investment opportunities exist for both on-campus and off-campus apartments.    

  • From a student's perspective - A college apartment offers high-quality accommodation that is both stable and independent. There is more privacy than in a dorm room, more space to study and entertain, and building amenities such as parking and gyms. In many ways, a college apartment offers the best of both worlds, with the condo building designed specifically to house students without the restrictions of a residential hall.

  • From an investor's perspective - College towns are always in demand, with campus condos and nearby neighborhoods practically selling themselves. While tenant turnover can be an issue with students, this is more than offset by the large pool of potential candidates. Demand is the cornerstone of every good business, with lots of tenants meaning less vacancy time and relatively high rents compared to non-student markets.

Standard condos

Regular condos can also be a great option for clever investors, as long as they're located close to college campuses. In many ways, everything said above about college apartments also applies to private condos. While these buildings have not been specifically designed to house students, when the location is right, they can and often do. 

Depending on the college and town in question, there may be lots of private condos competing with dedicated college apartments.

  • Some students prefer to rent standard apartments rather than those restricted to college students. The rental prices are often slightly lower, the amenities can be better depending on the building, and the overall condo community is more diverse. 

  • Some investors choose to purchase standard condos instead of college apartments in order to diversify their market appeal. While the income generated may be slightly lower, the growth potential can be bigger and there are often less hurdles to overcome.

Pros of investing in college towns

Whether you want to buy a condo restricted to college students, or a standard condo in a student area, college towns provide some great opportunities to clever investors. If you want to invest in property and generate rental income as a small business owner, the student market is a great sector to be involved with. 

Along with solid long-term growth potential, college towns are also likely to provide high rents, stable income, and low vacancy rates.

There are also a number of marketing advantages associated with college properties, with many of these condos practically selling themselves. While location is important with all real estate deals, it is especially critical in the college market. Even though you're likely to pay more for a property in close proximity to a college or university, the demand will be much higher and the vacancy rates will practically be nil.

Relatively high rents

College apartments generally have high rents, with the student-specific nature of the building and associated demand both driving prices. How much you can charge depends greatly on the location, with the specific leasing cycle and regulations at a given school sometimes putting an upper limit on your income. 

While dedicated college condos can be a great source of high rents and stable tenants, standard condos may give you more freedom to move.    

Some larger universities have experienced oversupply issues in recent years, including Texas A&M, Florida State, University of Oklahoma, The University of Illinois, and the University of Arkansas to name a few. In order to generate the best rental income possible, it's important to research the relationship between supply and demand, and the specific regulations regarding rental limits and policies.  

Stable rental income

Success as an investor is much the same as success as a small business owner. Along with the amount of rent you're getting, it's equally important to think about the overall stability of that rent over time. While nothing is guaranteed in the real estate market, student accommodation can be a fantastically stable source of income compared to other investments. 

Vacancy rates are much lower than other property market sectors, and marketing expenses are also likely to be reduced.  

Location drives demand, rents are often guaranteed by parents or the college itself, and many students stay in the same apartment for the entire term of their degree. The stable rental yields associated with student accommodation may be accompanied by higher condo management fees, however, so it's important to weigh up your income and expenses to create an accurate long-term budget.   

Long-term growth potential    

There are many reasons to get involved in the student property market, from short-term income generation through to long-term capital growth. While most people invest in student condos to access a stable source of monthly income, some campuses and towns also offer great growth potential. 

Location is the key factor, with a good building in a great community close to a fantastic school always likely to do well.

Appreciation should be the goal of every property investment, with condo properties in college towns more likely to see steady and significant appreciation over time. While growth is certainly not guaranteed, more often than not, college towns experience strong property demand and positive economic growth compared to neighboring communities. Oversupply is a very real issue in some towns, however, with each property needing to compete and stand out on its own terms.  

Cons of investing in college towns

Investing in college towns is not all good news, however, with specific challenges and complexities associated with this market segment. From the relatively high price of purchase through to tenant turnover and quality issues, this type of investment will not suit everyone. 

Despite the promise of high returns and stable rents, the college condo market is still a young space by real estate standards.

The unknown and changing nature of this market is more than enough to put some people off. Just like everything else in student housing, the opportunities and challenges are specific from market to market, which means you have to do your homework. How strong is enrollment growth? How healthy is the surrounding economy? What are construction numbers like and is oversupply likely to be an issue?  

High tenant turnover

Despite the strong demand and large rental market, turnover can be a real issue in some college towns. While you're likely to experience stable income over time due to low vacancy rates, high turnover rates can be challenging, time-consuming, and highly stressful. Students often change where they live on a yearly or monthly basis, some people drop out or return home, and others split their time between campus and off-campus living. In addition to high turnover rates, student accommodation is also likely to have more vacancies in the off-season.

Low quality tenants

The quality of student tenants varies considerably, with work often needed to screen students, maintain the property, and deal with the condo board. While you may get lucky and attract fantastic people to your condo, generally speaking, college life is tough on property. Parties, excessive alcohol, and immaturity can lead to a lack of concern for your property, with some condo boards also charging higher monthly fees for student accommodation in order to maintain common areas and employ security and other staff.  

Active involvement needed

If a condo building is on campus or closely affiliated with a college campus, there may be lots of hurdles to overcome. Unlike a standard condo arrangement, which can be a fairly passive investment, student condos often take a lot of time and hard work. From screening tenants and dealing with disputes through to maintenance and regulations, investing in a student apartment may only be viable if you live close or employ a property manager in the local area.    

Making your college property investment count

In order to have a property investment that functions as a small business, you need to make a lot of clever investment decisions. Regular and reliable rental income is the key, so think long and hard about the relationship that exists between supply and demand in the local area and how it's likely to change over the coming months and years. 

Talk to other investors, board members, and students, and analyze each property in the context of the school and surrounding town.   

The financial and personal consequences of this decision are immense, so take your time, do your homework, and create a budget based on your projected income and expenses as a homeowner. If you're buying off-campus, location is absolutely key as it will have a huge impact on demand. 

Amenities and lifestyle

Student-specific amenities need to be considered, with the condo lifestyle just as much about the common areas and assets of the building as it is about the apartment itself. Does the building cater to your intended market, are the monthly fees comparable to other buildings, and are the amenities ready for the future? 

Current and future costs

There are lots of financial considerations with condo investments, with college properties associated with a number of up-front and ongoing costs. Along with the deposit and overall purchase price, you need to be aware of interest rates, property taxes, condo fees, insurance, and closing costs. 

Capital growth

While your goal as a student property investor is to generate regular income, it's also important to ensure positive equity growth over time. Look into short-term and long-term growth patterns and see how much room the market has to move. Analyze supply and demand curves, time on market figures, auction clearance rates, and construction numbers related to the school, neighborhood, and town. 

Along with paying attention to the cold hard facts, getting involved in the local community is a great way to learn about specific neighborhoods, buildings, and opportunities. With a little patience and a lot of hard work, investing in a college apartment can be a fantastic business opportunity and a great springboard to financial freedom.