Investment property near colleges in a class by itself

BY BETTY DILLARD

March 03, 2008

While the current national housing market is barely making a passing grade, one sector in residential real estate is getting a good report card – property near college and university campuses.

From coast to coast – and Fort Worth in between – homes and condos surrounding campuses are a sound real estate investment in today’s shaky market, according to investors who specialize in buying rental properties in selected college and university towns.

“The real estate market is up and down, up and down. But the college real estate market is a safe haven,” says Stuart Frazier, co-founder and director of client relations at Arlington-based College Real Estate LLC.

Frazier, 23, has helped his entrepreneurial family build their referral network company since its founding in 2003. College Real Estate network targets the niche market of campus real estate, educating parents on the fiscal advantages of purchasing property for their student’s housing versus renting an off-campus apartment or living in a dorm.

Because buying is not an option for all investors, the company connects students and their parents with residential real estate professionals familiar with the campus scene.

To date, the company has grown from a handful of U.S. college and university markets to 35, including Fort Worth, Dallas, Austin, Houston and College Station, as well as Boston, Cincinnati, Gainesville, Fla. and Chapel Hill, N.C.

“These guys are pioneers. That’s half of the excitement about it. It’s a novel idea. That’s why I got involved,” said Chris Faulkner, a Realtor with the Fort Worth-Tanglewood office of Coldwell Banker Residential Brokerage.

College Real Estate is not the only company getting into the college real estate market. Publicly-traded American Campus Communities Inc. of Austin has become one of the largest owners, managers and developers of student housing communities in the country. The company went public in 2004 and posted revenues of $147.1 million last year, up 23.7 percent from 2006.

In December, Faulkner was named a College Real Estate Specialist with the Fraziers’ firm. Faulkner, who has seven years of experience in the Fort Worth market, has an exclusive referral arrangement with CRE to link students and their parents with buying or leasing opportunities near the Texas Christian University campus.

“I think there’s room for growth – a tremendous amount of room for growth,” Faulkner said. “It’s a very steady, solid market. There’s always a demand. It’s a growing demand. There’s always more people going to college, there’s always a lack of on-campus housing.”

Fort Worth is ranked the second most affordable college housing market in the country, according to the Coldwell Banker College Home Price Comparison Index for 2007. And according to the National Center for Education Statistics, university enrollment is expected to increase more than 12 percent from 2006 to 2015.

On average, a student pays about $24,000 for housing while in college, Frazier says, so it makes sense to buy rather than rent. Investing in college real estate, he says, can be a valuable long-term asset.

Frazier’s twin brothers, Erick and Kyle, now 26, spawned the idea for the company in 1998 when freshman economics majors at the University of Texas at Austin. Instead of sinking rent into off-campus housing, the brothers bought an eight-bedroom place near campus to live, rented the extra rooms and made a substantial profit when they later sold the house.

The concept of parents buying a house or condo for their college student to call home instead of paying rent is far from new but it made financial sense to the Fraziers.

“It was a good investment strategy,” said the brothers’ dad, Ed Frazier, a trailblazer in local televised sports and founder of Home Sports Entertainment who helped finance the project and serves as consultant and adviser to the company. “This was also a good idea for them to gain experience.”

Erick and Kyle Frazier bought a five-bedroom rental near the Austin campus when Stuart - a 2006 UT graduate in advertising and also a licensed real estate agent – came along.

Stuart Frazier says his family’s company is based on their own experiences of being student landlords. The brothers have written a workbook, College Real Estate.Com – A Real Life Internship, a primer on what students and parents can expect with a college real estate venture. Chapters include the basics on how to find a mortgage loan to how to fix a garbage disposal.

“We’ve seen how it works,” Stuart says. “We really want to help people out to see if this is the best thing to do – buying versus renting. One of our goals is to help people throughout the process.”

Stuart Frazier says that parents are giving their college kids more than just a place to live as an investment while getting an education.

“You’re giving them real world, real life experiences: how to manage people, how to manage a budget and finances, how to be responsible for repairs and maintenance. You learn a lot about real life,” Frazier says.

Frazier cautions that investing in college real estate does carry some risks, especially if a parent thinks his child might not be responsible enough to handle finances and home repairs. He adds that investors may not see an easy profit for three or four years, depending on the market. As in any real estate investment, Frazier says a buyer must do the proper homework.

“It makes sense for parents to buy a place as a convenience for their college children,” he says. “But the thing that scares most people is, ‘I can’t afford that. I can’t buy a house.’ You just have to sit down with a Realtor to see the possibility. You’re starting them [college children] off great and you’re helping yourself. It’s a solid investment strategy that can work.”