Considering first rental purchase. Good or bad idea

[Matt Guignon]

Hey guys! I'm new to the BiggerPockets forums, and have been interested in real estate investing for quite some time now. I'm currently 23 years old, and am looking to make my first rental property purchase within the next 24 months. The sooner the better! Starting off, my real estate endeavors will be a side hustle, as I currently work a full time job. Here's my question/dilemma. I currently live in St. Louis Missouri. I have lived here my entire life, minus 4 years of college. I attended college in a small rural community in Northeast Missouri, which is about 3 hours from St. Louis. While in college, I worked for and developed a strong relationship with one of the major realtors/ brokers in the city. Furthermore, I'm very familiar with the city and the hot locations having lived there for 4 years. This particular market is also much more affordable when it comes to home prices/insurance/ and property taxes. My question is, do you think it would be a good idea to potentially begin my investing career in that particular city, and rent to the college students (which I anticipate enrollment to steadily increase) or should I continue to look in my current home town of St. Louis for my first property. I would love to hear some feedback, and pros and cons of both situations. The college town seems appealing because I'm confident I could get a great deal on a property through the relationship I have with the broker, and the fact that the property I would purchase would be easy to rent to students with a low expected vacancy rate. Furthermore, it is a far less competitive real estate market than St. Louis. Would love to hear some thoughts, Thanks! - Matt

[Max Householder]

Hey @Matt Guignon, I also live and invest in St. Louis. My wife and I have one 4-family that we've owned about 6 months and we're looking for more. South City St. Louis is a great place to invest. There are a ton of small multifamily as well some larger but still small commercial properties. 

As far as college towns, I would pick your market very carefully. The air is going to come out of the so-called "Student Loan bubble" over the next 5-10 years and IMO higher education will look drastically different in the near future as people realize that the value of the majority of college degrees has been drastically eroded and they finally quit borrowing to the hilt in order to get one. Education will move online and eventually people will start to move back to the trades as a lot of white collar jobs get automated away.

The best universities will survive, but not with the seemingly never-ending growth of the last decade or so that's been largely fueled by cheap money from the government. People focus on students not being able to pay their loans as the bubble "popping" but many college towns have overbuilt dorms, apartments, condos, restaurants, commercial strips, etc. because enrollment has been growth by leaps and bounds every year and every student has a pocket full of low-interest money backed by the government. When the colleges contract, all those ancillary jobs will go with it and some of the smaller liberal arts colleges might go belly-up altogether. One-horse "college towns" could be in trouble when the biggest employer shrinks by 10-20-50% or goes away completely. Make sure the college you invest near is part of a metro area with more than just the one major employer. Look at Mizzou, they have a lot of research facilities, a law school, engineering school, etc. so even if their liberal arts programs contract, you still have an anchor there. Columbia has several hospitals, more than one college, Shelter Insurance HQ, and a number of large medical-related employers. Yet, even at a diversified college like MU, enrollment has plummeted the last 2 years, they had to mothball dorms, cut staff, and you look around town they're still building like crazy. This will not end well for many investors there.

Anyways, long-winded word of caution. I think the "college towns are great places for rentals!" mantra is not as universal as it has been over the last 10-15 years.