Ellen Berry: Baltimore area looks good for 'college town' rental investors
Today, guest blogger Ellen Berry shares information about a very specific sort of real estate investing -- buying rentals with an eye toward the college-student market.
As a member of the BrainTrack.com team, she writes about a wide variety of topics related to the college scene.
Take it away, Ellen:
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Good news for investors seeking profitable rental properties -- Baltimore ranked in the top 10 for college town real estate markets in the U.S. in a recent MarketWatch story. Key investor-friendly variables come together in cities like Baltimore, including:
● A high rate of housing demand that is consistent over time, primarily due to a continuous influx of students and professors seeking off-campus housing. Also, college towns are desirable retirement spots thanks to the nearby restaurants and steady stream of cultural and athletic events. Landlords can be more confident that they will be able to choose from a sizable pool of tenants and avoid long-term vacancies.
● Significant increases in tuition costs and campus living throughout the country are motivating students to choose affordable nearby housing over student housing. This allows landlords to charge more for rental properties -- often enough to cover the entire cost of the mortgages on their properties.
● To increase their employability and take advantage of educational incentives, many professionals are returning to school. Non-traditional-age students often prefer off-campus housing and rental homes over apartments, and they tend to be reliable, long-term tenants.
● Community growth is expected to continue in college towns at a faster rate than other towns. "The U.S. population is expected to grow about 1 percent a year between now and 2050, but towns and cities with large universities will grow at three times that rate," Rich Karlgaard wrote in his Forbes article "Live Rich in College Towns."
According to the MarketWatch report, in June 2011 the average rental price for a Baltimore two-bedroom was $1,443, while a three-bedroom or larger rented for around $1,663. The median home price had dropped 8 percent, to $242,700, within a year. For a home at that price, a typical mortgage payment in Baltimore is around $990 (if a 20 percent down payment is made on a 30-year fixed-rate loan). Note that these statistics are for the Baltimore metro area -- the median home sale price in the city itself was about $98,000 in June.
Other towns that made the list were Boston-Cambridge; Nashville; Chicago; Washington, D.C.; Houston; South Bend, Ind.; Atlanta; St. Louis; and Syracuse, N.Y.
Potential investors should keep the following in mind:
● Do some research into the rate of growth at different universities before investing in a specific college location. Check into recent tuition increases and plans for campus improvements.
● Before purchasing property near a campus, be sure you know to what degree you will be competing with the school regarding housing. Consider that some campuses do not offer on-campus housing, so students are required to live off-campus. Other universities may require full-time students to live on campus for their first year.
● Research universities often attract companies in medical and technological fields. Both of these employers tend to hire diverse, well-paid employees who are likely to seek quality housing.
● Residential investors may wish to consider building rentable storage space or purchasing storage facilities as an additional, complementary source of income.
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Thanks, Ellen!
Thoughts, questions, arguments? Comment away.
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Comments
Landlords who purposefully set out to rent to students are inevitably the enemies of all that is good and noble in the human spirit.
Posted by: Cheap Jim | November 14, 2011 8:27 AM
"This allows landlords to charge more for rental properties -- often enough to cover the entire cost of the mortgages on their properties."
Well, you better be able to cover your mortgage if you are renting it out as an investment. In fact, if you aren't covering your mortgage, what kind of investment is that? The truth is that most "investment properties" are still over inflated. You should be cash flow positive on EVERY investment property. This is precisely why values need to drop further. Add the taxes to a city property and you wonder why investors won't pay top dollar.
Posted by: Frank Rizzo | November 14, 2011 10:02 AM
While it's a nice thought to try to jump-start real estate investment in Baltimore, there is so much else to consider when being a landlord in the City that you don't find out until you're already an owner.
EVERY time there is turnover, you must get a new lead inspection and certificate. The behaviors of your tenants can cost YOU lots of money (unpaid water bills; interior unit damage the deposit isn't sufficient to cover; $50 environmental fines imposed by inspectors for trash cans placed out on trash day without a lid; etc). There is no proven way to really know in advance the total costs you will incur as a landlord. Due diligence is hard to do, especially in this financial climate.
I agree with the other poster that if your income is not taking care of your costs, then what you have is not an investment... it's a noose around your neck (one that has hung many investors). Investing in Baltimore City... NOT for the timid.
Posted by: MJ | November 14, 2011 12:41 PM
Remember when you rent out to college students make sure the deposit is higher because they cause more damage! Also, here in Nebraska like Lincoln and Omaha they are HUGE college towns!
Posted by: http://www.scholarshipsforwomenguide.org/ | November 14, 2011 5:35 PM
@MJ
"Remember when you rent out to minorities make sure the deposit is higher because they cause more damage!"
That sounds unbelievably discriminatory right? What makes it OK to say that about college students?
ANY tenant can cause damage to a property- the secret is to make sure that potential renters are a good fit for your property and understand your expectations of them in terms of your investment.
Posted by: RentalU | November 15, 2011 12:39 PM