Benefits of and what to consider when investing in college town real estate
Investors and parents alike have developed an interest in purchasing real estate in college towns. Some benefits are present with an investment of this nature in addition to some risk associated with the decision to purchase real estate in neighborhoods and cities near an educational institution.
Stability in demand for rentable real estate present near colleges. Regions with a college situated nearby provide an opportunity for investors to gain profits. Students and faculty will raise the demand for housing options in the area.
RealtyTrac, an online real estate company, ranked the top 10 college towns for flipping properties. The towns included on its list solidified top spots due to 2012 enrollment indicated by the National Center for Education Statistics and an unemployment rate below 6.2%. RealtyTrac gathered the unemployment rate from June 2014. Zillow, another online real estate company, determined top college towns to invest in properties and homes based on the number of students compared to the total population - preferably over 24%. Investors should consider similar factors when deciding to purchase a property.
Some of the top college towns to invest in include:
- Tempe, Arizona
- Berkeley, California
- Champaign, Illinois
The demand for rental options and housing has steadily continued to rise. This heightened market drives up prices while the values of homes continue to recover from the start of the housing downturn in 2008. Freddie Mac, a government-backed enterprise, showcased the continually decreasing and historically low interest rates associated with U.S. home mortgages. If executed properly, an investment in property located near a college or university may accrue wealth.
Purchasing real estate for your college-aged child gains popularity. Research from Zillow indicated in some cases, buying college homes may be a better investment than the expenses associated with renting or paying for a room in a residence hall.
Many parents are also purchasing homes with the intention of moving after their sons or daughters have graduated, according to Ed Feijo, a Coldwell Banker sales associate, reported Forbes.
This is a particularly appealing option if a parent is interested in long-term ownership. If a parent is considering a real estate purchase of this type as a long-term investment, this may be a valid option due to higher rental costs and lower mortgage rates and monthly bills.
Additional issues arise when owning property in a college town. While students are eager to sign leases during the months when school is in session, vacancy may present an issue during summer, according to Zillow. An investor may have to purchase additional insurance for an unoccupied building, and this can create an issue if income ceases over the academic break.
Forbes also noted the importance of budgeting for repairs. Rental units in college towns may experience a bit more wear and tear than a typical residential space.
In addition, a property manager is likely necessary if the investor does not reside in the area.
Academy Mortgage is one of the top independent purchase lenders in the country as ranked in the 2013 CoreLogic Marketrac Report. Visit www.academymortgage.com to find a loan, get a rate, or calculate your payment today.
Home Purchase Affordability Increases
Purchasing a home might become more affordable than renting real estate in the next three years, according to a report released by Capital Economics, an economic research consultancy headquartered in London.
Rent is predicted to rise. As the U.S. economy improves, renting real estate becomes pricier and less attainable for first-time homebuyers and individuals with a lower income. Capital Economics predicts that the annual average rate will rise 5% or more over the next few years.
The improving employment rate among Americans has also contributed to the rising cost of rent. In addition, millennials have had a tendency to rent, which increases the demand for leased property. In a survey taken by Rent.com, 41% of property owners saw more millennials renting over the past year. The student loans that this generation has accumulated has made applying for a conventional mortgage more difficult.
U.S. News and World Report also conveyed that many millennials are taking advantage of the amenities and accessibility to the city offered by apartments. These factors have driven more millennials to rent, consequently increasing demand and giving an opportunity for rental rates to steadily increase.
Home affordability has improved. The down payment necessary to purchase a home keeps many potential homebuyers from moving forward with the process. Some lenders require as much as a 20 percent down payment to qualify for a U.S. home mortgage. Government-affiliated mortgage lenders like Freddie Mac have announced a new program that offers potential borrowers the opportunity to qualify for a mortgage with a down payment as low as 3% of the total value of a home. This opportunity is specifically designed to encourage the purchase of real estate by first-time homebuyers.
Home affordability improves with the increased accessibility to mortgages and increased employment rate. Potential homebuyers are more confident moving forward with the purchase of a home when they have more job security. In addition, interest rates for mortgages are at historical lows, making homebuying more appealing than ever. However, the annual percentage rates affixed to mortgages are predicted to rise according to the source.
While rent is forecasted to rise 5%, house price inflation is expected to fall to 4% over the next few years according to Capital Economics' findings.
Academy Mortgage is one of the top independent purchase lenders in the country as ranked in the 2013 CoreLogic Marketrac Report. Visit www.academymortgage.com/LisaGonzalez to find a loan, get a rate, or calculate your payment today.
Boomerang buyers may boost the housing market
Boomerang buyers, or individuals who owned a home and went through foreclosure, may soon return to the housing market. A wave of these previous homeowners could bolster the market immensely. The number of potential homebuyers, partnered with more first-time homebuyers entering the market, suggests good news for the future of real estate.
Volume of boomerang buyers could boost the market. According to 24/7 Wall Street, approximately 7.3 million people who were impacted by the housing market crisis in 2008 are now eligible for homeownership again. With this large demographic of potential homebuyers factored into the equation, demand for housing options may increase dramatically.
Economists estimate that between 2015 and 2022, a majority of boomerang buyers may enter the real estate market. RealtyTrac, a real estate analysis company, noted that these individuals are now passing the seven-year time span that it typically takes to both repair their credit and improve their ability to qualify for a U.S. home mortgage.
"The housing crisis certainly hit home the fact that homeownership is not for everyone, but those burned by the housing crisis should not immediately throw the baby out with the bathwater when it comes to their second chance at homeownership," Chris Pollinger, senior vice president of sales at First Team Real Estate, told RealtyTrac. "Homeownership done responsibly is still one of the best disciplined wealth-building strategies, and there is much more data available for homebuyers than there was five years ago to help them make an informed decision about a home purchase."
Some regions have higher numbers of potential boomerang buyers. Over the next eight years, waves of individuals recovering from the housing crisis are anticipated to hit the market. Some cities have higher volumes of potential boomerang buyers that could bolster their local housing markets between 2015 and 2022. Those top five metro areas include:
- Phoenix-Mesa-Scottsdale, Arizona (348,329 potential buyers)
- Miami-Fort Lauderdale-Pompano Beach, Florida (322,131 potential buyers)
- Detroit-Warren-Livonia, Michigan (304,501 potential buyers)
- Chicago-Naperville-Joliet, Illinois (300,147 potential buyers)
- Atlanta-Sandy Springs-Marietta, Georgia (280,019 potential buyers)
These cities have the highest potential for home sales among boomerang buyers due to feeling the most substantial initial impact.
Affordability and age among top factors for determining boomerang buyer participation in market. RealtyTrac indicated affordable housing options are crucial in encouraging individuals who previously owned homes to enter the real estate market and make purchases. Affordability is determined based on whether current home prices are attainable for median incomes within the region.
In addition, a population with a higher percentage of baby boomers and members of Generation X indicates a higher likelihood of those demographics raising the demand for housing, according to RealtyTrac. Regions with more members of these generations are favored in the potential boom.
"Right now the housing recovery has been fueled by baby boomers with good credit and lots of equity," David Cobb, regional director in the Naples-Fort Myers, Florida, area for Houston-based housing data provider Metrostudy, told Newspress.
Academy Mortgage is one of the top independent purchase lenders in the country as ranked in the 2014 CoreLogic Marketrac Report. Visit www.academymortgage.com to find a loan, get a rate, or calculate your payment today.