Back To School Real Estate Rules - College Towns Primed For 2012 Investors

Realtor.com Releases Second Annual List on Collegiate Investment Markets

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Aug 21, 2012, 06:00 ET

CAMPBELL, Calif., Aug. 21, 2012 /PRNewswire/ -- As parents across the country prepare to send their college-bound students to school this fall, many quickly find housing can be a huge financial undertaking. Some are now considering buying homes for their students to live in with classmates, while other potential investors are looking at college towns for rental properties that'll deliver a steady stream of student tenants and profits.

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"I've had parents of students get frustrated with the huge price tag on some of the rentals here in the Boston area and they found that it made more sense to buy a condo for their child," said Willie Mandrell of At Home Real Estate in Boston. "Most recently I worked with a Boston University student and her parents purchased a two-bedroom condo in South Boston for her to live in while attending school."

Darla Jobkar of Northwood Realty Services adds, "Because we're home to almost 10 colleges and universities within a 10 mile radius of the Pittsburgh city boundaries, there has always been a shortage of housing for students. For this reason, college and university real estate investments in this area over the years have been a huge success to both long term and short term investors."

To help potential investors considering rental investments, Realtor.com today released its second annual round-up of college towns to consider when investing in real estate. Selected from the top 25 schools featured in a recent national report[1], 10 markets were chosen based on today's average monthly rent prices compared to estimated mortgage payments of a median priced home in each city.

The Realtor.com List of Collegiate Investment Markets for 2012 includes:

City	Median List Price	Average rent all bedrooms*	Mortgage Payment Estimate	Second Year on List
Boston, MA	$334,900	$3,084	$1,240	Yes
Princeton, NJ	$265,000	$2,056	$980	No
Chicago, IL	$194,000	$1,630	$720	Yes
Washington, DC	$395,000	$2,637	$1,460	Yes
Houston, TX	$183,000	$1,134	$680	Yes
Philadelphia, PA	$234,900	$1,475	$870	No
Atlanta, GA	$174,900	$1,187	$650	Yes
Pittsburgh, PA	$140,000	$1,122	$520	No
Providence, RI	$259,000	$1,527	$960	No
Los Angeles, CA	$358,000	$2,290	$1,330	No

*Estimated Mortgage Payments calculated at current mortgage rates with a 20% down payment and a 30-year fixed loan

*Median List Prices are based on Market Trend Information from Realtor.com for July 2012. Average Rental Prices are from rentbits.com for July 2012.

*Rental prices for all bedrooms are calculated based on the average prices for one bed, two bed, and 3+ bed rentals combined.

The Freshmen – This year's newcomers made the Realtor.com list for a variety of reasons including low median list prices and high potential for monthly profits based from rental income. While the majority of these markets are on the East Coast, the list of first timers includes one California market.

Princeton, NJ – Home to Ivy League Princeton University, median list prices are up slightly from last year at $265,000. Even so, this prestigious college town can offer great opportunities for the right investor with an average rental price of $2,056 for all bedrooms. Estimated mortgage payments on a median priced home in the area with a 30-year fixed loan and 20% down, come in at approximately $980.
Philadelphia, PA – While list prices have risen in many markets, Philadelphia's median list prices of $234,900 on for sale homes is down slightly from July 2011. This presents a great opportunity for some investors to snap up deals on rental properties while generating profit from student renters. Philadelphia is home to many universities including University of Pennsylvania.

"Parents are investing in Philadelphia real estate, not only for cash flow but for potential appreciation," said agent Timothy Garrity of Philly Urban Living. "Billions of public and private investment dollars over the last 20 years have really changed our downtown scene. This in turn has made student life better for the city, and has brought many outside investors to Philadelphia."
Pittsburgh, PA – Home to Carnegie Mellon University, Pittsburgh's median list price came in at $140,000 in July 2012, the lowest list price on the Realtor.com list of College Investment Towns. Average rental prices of $1,122 for all bedrooms are still much higher than the estimated mortgage payments of $520.
Providence, RI – With a median list price of $259,000, the estimated monthly mortgage payment on a median priced home in Providence is $960, well below the average monthly rental price of $1,527. Ivy League Brown University is located in Providence.
Los Angeles, CA – With the highest median list price of our freshmen towns, Los Angeles still offers the right investor great options as average monthly rental prices are almost $1,000 higher than the estimated mortgage payment on a median priced home. Los Angeles is also home to three of the top 25 school's on US News and World Report's list: #5 California Institute of Technology and cross town rivals, #23 University of Southern California and #25 University of California, Los Angeles.

"I sold a home in February to a family who moved to be closer to their child who attends Loyola Marymount University," said Dorene Slavitz from the Real Estate Group in Culver City. "The house was also being shown to an investor who was bidding against us to use the house as a rental for students."

Top of the Class – From the 2011 list of College Investment Towns, Boston and Washington, DC, offer the largest potential monthly profit for investors despite having the highest median list prices of the group. Both markets are home to universities with students interested in off-campus housing options.

Boston, MA – Home to Harvard and Massachusetts Institute of Technology, the Boston/Cambridge area offers great opportunities for investors looking to rent to college students. The median list price of $334,900 yields an estimated mortgage payment of $1,240 and average rental price for all bedrooms is $3,084.
Washington, DC – Our nation's capital is home to Georgetown University along with other institutions such as American University and George Washington University. Though the median list price of $395,000 saw a year-over-year appreciation of 5.34%, it still offers great opportunities for investors to make sizable profits by renting each month with an estimated mortgage payment of $1,460 and average rental price of $2,637.

"In today's market, many real estate investors aren't necessarily the experienced short term investors of the past. In many cases, they're average consumers interested in planning for their financial futures and they look to real estate as a longer term investment option," said Errol Samuelson, president of Realtor.com. "Rental properties in college towns can be a great option for some investors since schools can present a steady stream of renters that need housing."

Tips for the Parent Landlord
Having a rental property can present challenges in many circumstances, so often investors hire management companies to deal with the day-to-day needs of renters. For parents whose tenants are their own child along with friends as roommates, setting up a business relationship can benefit both the parent and child. Tips include requiring the child and their friends to sign a lease agreement to guarantee a steady income each month while holding them accountable for condition of the property. Make sure the lease covers terms such as a designated day that rent is due, the security deposit and defines who pays utilities. These terms will not only teach the students a valuable lesson, but will also protect the parent-landlord and child from a falling out among friends or other issues that can arise and jeopardize rental income.

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[1] http://colleges.usnews.rankingsandreviews.com/best-colleges/rankings/national-universities/data

SOURCE Realtor.com