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Investment real estate in college towns

 

This article is by move.com

The back to school season is often characterized by parents and students making last-minute mad dashes to purchase school supplies, uniforms, bus passes or books. This year, parents with college-bound students or investors interested in college towns may be considering an unusual back to school purchase—a rental property.

“I had a client who was an alumnus of the University of Maryland and he was interested in purchasing his first property. He was insistent on finding a home within 10 to 15 miles of campus so that he could rent the basement out to college students. We closed on the property, and literally within five days he had a renter for his basement,” says Bowie, Maryland real estate consultant, Natalie Dean.

In the next two years, real estate investors are expected to outnumber traditional home buyers in their local markets by three to one, and 56.5 percent plan to put their investments to work as rental properties, according to a national survey conducted by Move, Inc., (NASDAQ: MOVE), a leader in online real estate.

“Local markets with universities or colleges can be an attractive option for many local real estate investors,” says Move, Inc., Chief Executive Officer, Steve Berkowitz. “Housing demand in college towns is generally high and vacancy rates are usually low. Combine the supply and demand ratio with rising admissions and the five percent rise in rental rates expected by the end of the year, and rental property in college towns can be a smart option for the right investor.”

To help real estate investors considering university towns, Move, Inc., has released a list of ten college towns that might just make the grade. College towns were selected based on the leading universities featured in the US News Rankings and Reviews list of best colleges in 2011. A list of all ten top college towns included on Move’s list is available here.

The top five college towns featured by Move, Inc. in this 2011 / 2012 back to school investors review include:

Boston, MA: “In Cambridge and some of the Boston-proper neighborhoods we’ve been seeing rents rising with demand and projections of further increases of up to 25%,” says Boston-area broker/owner Paul Turcotte.

With a median list price of $335,000 in June 2011, the Boston/Cambridge market has one of the higher median list prices of the bunch, but also has high renter demand from students at more than 50 colleges including Harvard and MIT, ranked two and four respectively. The median list price in Boston has dropped by 2.62% since last June. Average rental rates in Boston in June 2011 ranged from $3,122 for a two bedroom to $3,913 for a three or more bedroom unit, both higher than a mortgage payment of around $1,370 for a median-priced home with a 20% down payment at current mortgage rates for a 30-year fixed loan. Boston was also named one of the top 10 turnaround towns by CNN Money in May 2011.

Nashville, TN: “Nashville has been, is and will continue to be a strong investor’s market for those looking to target the college and graduate student renters,” says local broker Terry McAlister. “Nashville has 16 diverse colleges and universities, and all are at freshman capacity, so where do the upperclassmen and graduate students go? They rent.”

Nashville is home to country music and Vanderbilt University, the 11th ranked best college in the nation. In June 2011, Nashville had a median list price of $189,900, down slightly from the same time last year and on par with the national median list price in June 2011. Nashville’s average rental rates for a two bedroom were $949, and $1,020 for a three or more bedroom unit in June 2011. These rent prices are both higher than a mortgage payment of around $770 for a median-priced home with a 20% down payment at current mortgage rates for a 30-year fixed loan.

Chicago, IL: Chicago was the number one most searched metro in the country on Realtor.com® in June 2011 and home to the 12th best college, University of Chicago. Chicago had a median list price of $199,900 in June 2011, down by 16.36% since last June. Chicago average rental rates in June 2011 were $1,780 for a two bedroom and $2,074 for a three or more bedroom unit. A mortgage payment on a home at the Chicago median list price would be around $820 with a 20% down payment of $40,000 at current mortgage rates for a 30-year fixed loan.

Washington, D.C.: “I had one client who bought an investment condo in Arlington, VA. She wanted an investment property and she also wanted a nice place at a reasonable cost for her daughter who was attending Georgetown University,” says Nancy Alert, a local agent. “Her daughter got a roommate and the roommate paid half of the mortgage. After her daughter graduated from Georgetown University the property was sold at a substantial gain.”

The nation’s capital ranked 16th on the list of most searched metros on Realtor.com in June 2011, and had a median list price of $375,000. The D.C. metro area was also named one of the top 10 turnaround towns by CNN Money in May 2011. Washington, D.C.’s average rental rates for a two bedroom unit were $3,086 and $3,214 for a three or more bedroom unit in June 2011. These rent prices are both higher than a mortgage payment of around $1,530 for a median-priced home with a 20% down payment and current mortgage rates for a 30-year fixed loan.

Houston, TX: Houston is another market with low-priced inventory. The median list price was $174,900 in June 2011, down slightly from the same time last year and lower than the national median list price of $189,900. Houston is home to Rice University, ranked 16th on the list of best US colleges. Houston’s average rental rates for a two bedroom unit were $1,218 and $1,478 for a three or more bedroom unit in June 2011. These rent prices are both higher than a mortgage payment of around $710 for a median-priced home with a 20% down payment at current mortgage rates for a 30-year fixed loan.

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