Earn an ‘A’ in investing

by Tina Sewell ([email protected]) 383 views 

Forget buyer’s remorse. It’s about this time every fall when parents of college students are often more remorseful about paying for dorm fees or rent rather than an equity-growing investment property.

College towns are ideal places for parents or other investors to take advantage of stable housing markets and the potential for steady rental income. In the University of Arkansas’ backyard, that should certainly be the case. Fayetteville is in the midst of a housing boom, with Zillow predicting those home values to increase by an average of 11.2% over the next year. This comes after a stellar year in which values jumped by 7.7%.

A 20% return on investment after two years would probably appeal to a parent who’s just paid a $7,090 dorm bill — the average cost for housing at the UA. Over four years of college, that $28,360 price tag could have made a suitable down payment on a home that may generate income for many years in the future.

For families of college students, an income property offers many more benefits than just the potential long-term home equity. First, choosing to buy a house for your student offers a level of safety and reliability that won’t likely be matched if he or she rented an apartment or stayed on campus. As homeowners, families can always ensure the property is well-maintained, comfortable and safe for students who may be living on their own for the very first time.

The experience for the student alone may be worth the investment. Having young adults accompany parents for real estate transactions and making sure they participate in all the responsibilities of home ownership will prepare them for the real world and their futures as homeowners unlike any class ever could.

In addition, families could earn revenue even while a student is living in the residence by renting out rooms to other students. In some instances, the rental income from roommates alone might offset the monthly mortgage payment.

For investors, the benefits almost always relate to the quality of life and stability that living in a place like Fayetteville often provides. Wallethub.com puts Fayetteville in its top 30 best college towns. The region’s relatively low cost of living and its growing, thriving economy keep Fayetteville and Northwest Arkansas on those types of lists year after year.

Any real estate agent knows cultural opportunities, restaurants and other amenities help drive sales. College towns have those in droves, decreasing the chances of an upside-down investment.

Likewise, rental units are often in high demand in college towns. Last year, the U.S. Department of Housing and Urban Development identified the regional rental market as “slightly tight.” A year earlier, in Fayetteville specifically, rental occupancy was at 98.5%. A thriving rental market means rents remain stable, or most often, grow with demand. That demand should always remain consistent as new prospective tenants like students or faculty come to town every fall.

The same turnover that could be beneficial in one respect is also one of the risks. Students and faculty both are often only short-term residents of their college communities. They may refuse to sign long-term leases, and there may be times, especially during the summer months, where tenants are hard to find.

Investors must be cognizant of the realities of college living, and the fact that young adults may not treat their living space with as much care as others would.

And, as with real estate anywhere, buyers also must carefully consider the tax and insurance implications of their purchase and recognize that all investments carry some risk.

Overall, this can be a smart investment once all the options are weighed.

Editor’s note: Tina Sewell is branch manager at Rock Mortgage in Fayetteville. Rock Mortgage is a division of Bank of Little Rock Mortgage. The opinions expressed are those of the author.