Rentals at College Towns

Many colleges and universities are already reporting record high applications and enrollments at their campuses. Unless a school is purposely trying to downsize (going for quality rather than quantity) the simple statistics of an ever-increasing number of people high school age (15-to-19 years old) assures a steady, rising stream of potential college students in the near future. The conversion rate from high school to college enrollment is no doubt rising, not because of better scholastic achievements but because of social pressure to attend college and from easier access to student loans and grants.

That means buying a rental property in college towns or in college areas of a large city may provide a good return on investment for those who are patient. The past demography data of the number of people in the 15-to-19 years old age group suggest an investment in college student rentals from about 1985 onward was likely to be difficult because of far fewer people in that age group. But investment from about 1995 onward should have provided good rental income.

Regarding the future, there may be a slight stalling in occupancy rate for the next 3 to 5 years. But after that, expect a huge growth in college enrollment. Students will pay the rent because of easy access to student loan programs. How the student loan is repaid after graduation is a separate question, particularly given that tuition has risen by over 600 percent in the past 30-years. Let’s hope student loans do not go the way of subprime mortgages (easy access but eventual default). These graduates are the future first-time homebuyers.

Lawrence Yun, PhD., Chief Economist and Senior Vice President

Lawrence Yun is Chief Economist and Senior Vice President of Research at NAR. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1 million REALTOR® members.

More Posts

No Responses