Real estate investors who intend to buy foreclosed properties and turn them into rental units may want to consider a cash flow strategy, which entails renting these foreclosure properties to college students. Long before the shrinking job market pushed more young adults into pursuing a college education, the rate of student enrollment in American colleges and universities has been trending up for the last 50 years.
However, the supply of on-campus housing for students has failed to keep pace with demand. This factor alone makes the strategy of purchasing foreclosed properties for student housing a financially attractive investment alternative.
A statistic revealed by the Government-Sponsored Enterprises (Fannie Mae and Freddie Mac) should make foreclosed homes buyers take notice. The foreclosure rate for its loans to investors with portfolios of student housing is virtually nonexistent- one-half of one-percent.
Purchasing Foreclosure Properties for Student Housing
Fannie and Freddie have identified criteria for determining what makes these projects able to thrive during economic downturns. They are:
- Schools with an enrollment of 20,000 students
- Near public transportation systems
- Properties located within two miles of the campus
Although this strategy applies directly to multi-family student housing developments, it can also provide guidance for other foreclosed properties, such as condominiums, single-family homes or REO properties.
Foreclosed properties investors only need to tailor the above criteria to meet their foreclosure investment plan and circumstances.
Advice From an Expert
Michael Zaransky, the author of “Profit by Investing in Student Housing: Cash In on the Campus Housing Shortage,” recommends focusing your strategy around schools that are in high demand.
Zaransky is also co-CEO of Prime Property Investors, a Northbrook, Illinois based-company that specializes in the student-housing segment. His company has student-housing properties near Purdue University, Florida State (Tallahassee), Notre Dame and the University of Tennessee.
He recommends the following formula for gauging the supply/demand ratio for off-campus student housing in college towns: student enrollment divided by the number of on-campus beds provided by the school.
Today’s real estate market offers an unprecedented opportunity for well-informed investors who purchase foreclosed properties for rental. The student-housing niche provides foreclosure investors a steady flow of tenants, and a reliable source of income, whether investors purchase tax foreclosures properties, short sales, or VA foreclosures properties.