Parent Investors

San Fransisco Bay-area couple Kate and Dale never expected to be landlords. But that’s exactly what happened when they decided to buy a three-bedroom townhouse for their daughter in her sophomore year at University of Washington in Seattle.

“Some of the campus housing we saw was horrible, and it was expensive, too,” says Kate. “We decided we could create a safe, good quality home for her and we thought it would be a good investment on top of it.”

Kate and Dale represent a new trend in the already-popular college town real estate market: they’re called “parent investors,” a savvy group of homebuyers who are opting to purchase a house in their kids’ college town instead of spending money on rent or dorm fees. A new survey from Coldwell Banker found that 64 percent of its real estate agents are seeing a “significant number” of parents investing in homes for their kids to live in while attending university.

“Interest in college towns is always going to be high, especially for people who once went to school there — and people are seeing value in this investment,” says Jim Gillespie, CEO of Coldwell Banker.

The lure of college real estate appears to be recession-proof. Seventy-three percent of those surveyed said they see a significant number of investors buying homes near campus and renting them out despite the economic downturn, with only 21 percent seeing a decrease in this trend over the past five years.

For Kate and Dale, the investment didn’t exactly pay off in spades. The $520,000 townhouse they bought three years ago has dropped in value, so they’ve decided to hold on to the property for a few more years until the market turns around. (Their daughter Sarah has since graduated and moved out.) Still, Kate says the decision to buy a home saved her a lot of unnecessary worry. They installed a security system, it was close to campus and two roommates helped to pay the mortgage.

“The rent in some of these college towns is so high and in my mind, I’d rather pay myself rent,” she says.

Costs are a big factor: Room and board fees for 2010-2011 have seen a 4.6 percent jump at a public four-year state universities and a nearly 4 percent rise for private nonprofit universities, the College Board reports.

But not all college towns are as pricey as Seattle. Coldwell’s college home listing report provides the average home listing price of four-bedroom, two-bathroom properties for sale in markets home to the 120 schools in the Football Bowl Subdivision. The listing finds that nearly two-thirds of the college town markets have an average home listing price of less than $250,000.

Topping the most-affordable list is Muncie, Indiana — home to Ball State University – where the average home listing price is $105, 115. (By contrast, Stanford University’s Palo Alto, California is the most expensive college town market, with an average home listing price of $1,385,652.)

And college towns aren’t just for investors: Fifty-one percent of the survey respondents noted they’re seeing a lot of alumni homebuyers, and 49 percent see a significant number of retirees moving to their college town.

Gillespie is one of them. Last September he bought a 3-bedroom townhouse for $120,000 in Champaigne, Illinois to be near his alma matter, the University of Illinois. He travels from his home in New Jersey to Champaigne about six times a year, often to cheer on the Illinois Fighting Illini. He says the value of his home has already increased, and it will likely serve as his retirement home some day.

Besides the sporting events, college towns have plenty to offer in terms of culture, restaurants, medical facilities and a robust economy, Gillespie says.

“This is quintessential America. People have a special spot in their hearts for these places,” he says. “Some of the best times of their lives were spent in college.”

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