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College town investment can pay off, but study up

First of two parts

September 17, 2006|Tom Kelly | Special to The Times

If you dropped off a college student for the fall term recently, it might be worth the time next visit to check out homes for sale near campus. Not only have some red-hot markets slowed considerably, but the housing cycle could be reinvigorated by the time your student graduates.

One of the more consistent and stable markets for traditional second homes and rental properties centers on the residential neighborhoods surrounding established colleges and universities.

Why? The school isn't going anywhere, and visiting faculty, staff and students are always going to need a roof over their heads. Plus, according to the National Assn. of Realtors, not only are many recent retirees "buying down" to smaller college towns with their educational amenities and vibrant social and athletic environments, but a growing number of business owners with relatively small groups of employees also are moving to smaller college towns for the benefits of research and a larger entry-level employee base.

Buying a home in a college town and letting faculty members rent it out -- and thereby subsidizing your mortgage -- is a great way to build an asset.

For parents with college-age children, purchasing a home in a college town makes sense and provides an attractive alternative to dormitory living. When your child graduates and you're free of tuition bills, sell the college rental via an Internal Revenue Code 1031 tax-deferred exchange and buy a rental condo in the sun that you can periodically enjoy.

One of the safest real estate moves is investing in a single-family residence, or a duplex, in close proximity to a college or university. You likely will have a constant pool of renters. If you are considering purchasing in a college town, it's always a good idea to know an adult who lives within a 30-minute drive of your rental property. That way, if the entire Greek Row camps in the backyard for the weekend, you can at least send someone to count the tents.

Some things to consider:

* Ask the school's housing office what percentage of undergraduates live on campus. Are freshmen and sophomores required to do so?

* What is the cost of dormitory living? What portion of that is for food?

* Does the school offer off-campus units? If so, how many and what are the monthly rental fees? Whatever you charge will need to be in line.

* Does the school allow private homes to be rented to its faculty? If so, what is the referral fee?

* At first, advertise the home for rent in faculty and administration circles only. Ask that your flier (make it attractive) be posted in the faculty lounge. Remember, not all faculty members are married with children. Two professors, or more, can share a place.

* Married graduate students often are ideal renters. Usually one spouse is the breadwinner, the other a dedicated student. They are likely to pay the rent on time, are quiet and watch movies at home on the weekends.

* If you begin to get desperate for occupants, expand your tenant search to include undergraduates.

If you are concerned that students won't keep the place up, send a cleaning service once a week and build the charge into the monthly rental amount. Not only will the service curtail damage, but it can also keep you informed about the property's condition.

Some real estate agents suggest that parents think "condo" rather than "single-family dwelling." That's because students rarely prioritize maintenance and upkeep issues that ultimately protect the investment. A condo eliminates chores such as grass cutting and gutter cleaning that need to be handled in a conventional home.

If you are a parent with college-bound kids, consider how many years you expect your child to live in the near-campus rental.

Many accountants advise parents with college kids to estimate what home prices will be when their student's course work is done. And, if he or she should happen to transfer, keep in mind whether you would want to rent to students who are not family members.

Next week: An alternative to renting to students.

Tom Kelly co-authored "Cashing in on a Second Home in Mexico: How to Buy, Rent and Profit From Property South of the Border."

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