ORANGE, CA-It’s not surprising that some investors would be attracted to the idea of buying income investment housing in college communities. The demand for housing tends to be strong both in college towns and in communities within walking distance of colleges. Dan Wildish, managing partner at Wildish & Nialis, tells GlobeSt.com that he knows about property investment in college towns “only too well.” Many of his clients frequently scout for good deals in income property. And very often, such purchases can turn out to be both attractive and lucrative investments. Yet there are also downsides to pursuing this type of purchase. 

GlobeSt.com: What are some of the factors that make such an investment an appealing one?

Wildish: For starters, only a limited amount of housing can be provided by the university, or subsidized by the institution, if housing is not available on campus. The type of housing seems to be in demand year-round. With real estate market prices declining so rapidly, investors could conceivably choose this time to buy housing cheaply. These units can also provide a steady stream of income. And in these troubled times, income to an investor, even a successful one, is as attractive as a cold beer on a hot day.

GlobeSt.com: What are some of the more risky aspects associated with becoming the landlord of such a property—what are some of the downsides?

Wildish: An investor must recognize that he/she is entering into a transient marketplace where long-time tenants are the exception. (Exceptions include the tenant who is a “career student”  who chooses to settle down in that community because of a job or a love interest.)  When buying in a particular geographical area, the investor should consider crime statistics and information about the neighborhood culture. The investor must also consider the possibility, or even likelihood, that the our tenant, the student, may become a member of a sorority or fraternity with the attendant late-night party bashes and the often unruly behavior that accompanies these kinds of gatherings. In fact, some cities, including Orange, CA,  where I have practiced real estate law for over 30 years, have new municipal codes in place that put the onus on the landlord/owner if renters in their property create a nuisance or disturbance. The frequency of these events in college towns often require a regular patrol by police officers to enforce nuisance laws or noise abatement. Some cities actually cite property owners by imposing fines and penalties in the wake of unruly behavior, especially in communities in which officials are made to spend precious resources to address the behavior problems of local students. As a precaution, an investor should always review the history of the area. That review should include a phone call to the local building & planning department to see whether there are laws in your market area pertaining to nuisance issues that landlords must be aware of.

GlobeSt.com:  What other factors should the investor consider when contemplating such a property purchase?

Wildish: Real estate investors should also take heed that eviction is an extremely difficult process, especially when multiple tenants are involved. While some tenants may be the violators of a noise or nuisance ordinance, there are often others who reside in the same unit who may be unoffending students. Then again, many tenants are at the age when partying and rowdy behavior are at their peak. Should a landlord drop in to check on the property, he or she may suddenly find themselves in the midst of a scene right out of “Animal House.”

GlobeSt.com: Are there precautions a potential investor can take—ones that are obvious but often overlooked:

Wildish: It may be frustrating to find yourself playing the role of a mayor in a situation that suddenly presents itself as an “Occupy Wall Street” confrontation! Another suggestion is that a potential investor be mindful enough to seek the services of a local real estate agent. Consulting with him or her, in regard to choice of an investment property, and the type of lease agreement that is appropriate, can be a big help. The real estate agent might also be happy to share information on important details, such as the going rate for a security deposit or a damage deposit. Investors should also consider requiring personal guarantees from tenants. Those guarantees are best to get from the tenant’s parents. And take heed: This request for a personal guarantee should take place only after obtaining their consent to run a credit report. 

GlobeS.com: Are there important questions a potential buyer-investor should ask about the city, or questions about the prior history of the property?

Wildish: Yes, always ask the following: First, does the city or institution offer any subsidies or programs that are designed to assist in providing housing for students? Second, does the building and/or planning department currently have knowledge of existing or future plans to either change the zoning of a property, or whether property in the immediate area is being contemplated by a public agency for eminent domain. Third, the investor must ask whether the property has any history of unlawful detainer filings.

GlobeSt.com: Would you consider such an investment a short-term or long-term one and how does an investor take care of the property?

Wildish: If carefully researched and managed, real estate residential investments in college towns can be an excellent long-term investment. A key to keeping your investment intact over a long period of time is to hire a local property management company, one that receives payment based upon a percentage of the collected rents. Experienced investors opt for reputable property managers. You want a manager who is skilled in tenant issues, including the supervision of repairs, maintenance and limited parking, all of which can require constant attention in neighborhoods surrounding college or university campuses.