The Cheapest College Real Estate Markets
The Cheapest College Real Estate Markets
Our business model targets traditional college towns where the city’s economy is stabilized by a large university. Our view is that the most interesting housing markets are located in cities that have a high student population, but also have other major employers—not too big, but not too small.
According to the National Center for Education Statistics, there are over 3,000 4-year colleges and universities. Since we’re looking for traditional college towns, we have to find a way to narrow down the options.
To eliminate the “commuter schools” early, we’re setting our maximum enrollment at 40,000 students. That might cut off a few great college towns, but we already have a lot to choose from. To make sure the universities are large enough to have an impact on the city, we’re setting the minimum at 20,000. This should give us a smaller list to work with.
According to the data from collegestats.org, there are exactly 262 4-year college and university campuses that have between 20,000 and 40,000 students. That’s a much easier list to manage, but it’s still too many to examine each one individually.
We’re looking for traditional college towns, so the next logical step is to eliminate cities that are clearly not college towns. To do this, we need to set limits on the size of the city. The spirit of a college town is one that is not too big, so we’re removing every city that has more than 300,000 residents. And because we’re looking for a city that has the potential for other major employers, we set a rough minimum of 45,000-50,000 residents. To make these cutoffs, we’re using the latest data from suburbanstats.org.
We’re also adding a few qualifiers for what makes up a college town. The goal is to find true college towns, so we’re keeping everything that has a reasonable ratio of students to residents of more than 10%. We’re also taking out the obvious large metro areas, such as Los Angeles suburbs.
With all of that, it’s still a long list of about 100 potential college towns.
It’s an acceptable starting point, but we need to take it a little farther. We’re not potential college students looking for a potential college town. We’re potential real estate investors looking for a potential college town real estate investment. What this means is that we’re looking for cheap, stable, and predictable housing markets. Stable and predictable usually come hand-in-hand with a major university, so the next step is to find something reasonably priced. We can do this using the price-to-rent ratio.
The price-to-rent ratio is a measure of how housing prices compare to rent. It basically captures how expensive or cheap a potential real estate investment will be. The simplest way to think about it is to consider a price-to-rent ratio of 20—assuming there are no expenses, the full price of the property would be repaid in 20 years. The lower the number, the faster the investor makes their money back.
For the price-to-rent ratio, anything below 15 is considered very attractive. To be extremely selective, we’re setting our limit at a price-to-rent ratio of less than 12. Pulling the latest price-to-rent ratio data from Zillow, our metrics leave us with 15 suitable candidates.
City Large University Campus 4-Year College Student Population1 City Population2 Percentage as 4-Year College Students Price-to-Rent Ratio3 Muncie, IN Ball State University 23,275 70,085 33% 7.13 Lubbock, TX Texas Tech University 36,668 229,573 16% 8.57 Greenville, NC East Carolina University 30,441 84,554 36% 9.27 Normal, IL Illinois State University 22,599 52,497 43% 9.30 Tuscaloosa, AL The University of Alabama 38,918 90,468 43% 10.03 Lowell, MA University of Massachusetts 20,784 106,519 20% 10.60 Stillwater, OK Oklahoma State University 29,174 45,688 64% 10.68 Ames, IA Iowa State University 36,563 58,965 62% 10.81 Athens, GA University of Georgia 38,473 115,452 33% 11.06 Iowa City, IA University of Iowa 34,176 67,862 50% 11.12 Lawrence, KS University of Kansas 30,450 87,643 35% 11.18 Columbia, MO Columbia College; University of Missouri 67,339 108,500 62% 11.19 Manhattan, KS Kansas State University 27,870 52,281 53% 11.20 Fayetteville, AR University of Arkansas 28,005 73,580 38% 11.35 Bowling Green, KY Western Kentucky University 24,302 58,067 42% 11.87 1 Student enrollment data from collegestats.org. Data only includes enrollment for the campus listed in this table.2 Population data from suburbanstats.org
3 Housing data from Zillow
Our final list includes some extremely well-known football schools (at the time of this writing, Georgia and Alabama are ranked #1 and #2), and some unexpected geography. None of the cities west of the Rocky Mountains fell within our parameters; most were too large, while the remaining were just above our price range. Our map is dominated by the Midwest and the South, which makes sense because those parts of the country don’t have as many large urban areas as the West Coast or the Northeast, and real estate in those areas tends to be cheaper than the rest of the country.
Our evaluation continues with a review of the housing market in each of the college towns on our list. In our profile of these potential cities for real estate investment, we’ll examine the recent housing market trends, important features of the city and the university within the city, and look towards the future of the city’s housing market.
For housing market trends, we’re following the median home listing price, the price-to-rent ratio, and a smoothed measure of housing inventory, all over the past five years. For prices, we’re looking for a relatively stable line. For housing inventory, we want to see a falling trend, because that indicates a market where housing prices are more likely to rise in the future. If we are unable to find reliable housing inventory data, we’ll use the median days on the market, which has a similar expectation.
The important features of the city and university that we’re considering are:
- The percentage of students who live off campus. This gives us an idea of how big the potential student rental market can be. We’re pulling this data from usnews.com.
- The percentage of residents with a college degree. This answers the question of how many college graduates are staying in town, and provides evidence for how much the city relies on the university for its economy. The more stable and attractive markets will generally have a higher percentage of residents with a college degree than the city’s proportion of students to residents. This data is coming from statisticalatlas.com.
- The city’s influential industries. We’re checking to see if there is also a significant industry presence in the area. For college towns, the top two employers are almost always the university and the hospital. The influential industries are not always the largest employers, but can indicate a source of economic stability. The data we’re using for this is found primarily on citytowninfo.com.
- Nearby cities. If there is another city within a reasonable range that has a significant population, it can add stability to the market.
- We are not looking at the median income of the city. Our analysis is based on the student housing market, and students are expected to pay rent using student loans if they don’t have the income.
For the potential future of these housing markets, the best we can do, without physically visiting every city, is to look through the news for important developments.
So here’s our profile of each college town’s market, sorted by price-to-rent ratio, starting with the cheapest.
Muncie, IN: Ball State University
Median Home Listing Price 5 Years Ago: $74,500
Median Home Listing Price Today: $74,400
Housing Market Features University Population: 23,275Students living off campus: 57%
Influential Industries Education & Healthcare Accommodation and Food ServicesMetal and Metal Products
Social Assistance
Financial Services
City Population: 70,085 Residents with college degree: 29% Students/Residents: 33% Nearby City: NoneFuture Outlook
Muncie was originally developed as a manufacturing town, which has led to decades of struggling for a new identity and poor economic prospects. The town has an unusually high percentage of population without a high school diploma; that’s 16.5% for the population as a whole and 19% when only the male population is considered. Students who graduate from Ball State are likely looking elsewhere to find good jobs.
A recent report by the Indiana Business Review was cautiously optimistic about Muncie’s business prospects, but even this potential modest growth will likely be delayed by the town’s efforts to recover from a recent tornado.
For real estate investors, Muncie is an extremely cheap market that may offer some stability, and the damage from severe weather could provide an easier opportunity to buy in to the area. However, there is unlikely to be significant growth in real estate values over the long term, and it would be difficult to exit the market.
Lubbock, TX: Texas Tech University
Median Home Listing Price 5 Years Ago: $120,000
Median Home Listing Price Today: $201,100
Housing Market Features University Population: 36,668Students living off campus: 76%
Influential Industries Education & Healthcare Medical DevicesFood Processing & Manufacturing
Clean Energy Equipment
Bioscience Products
City Population: 229,573 Residents with college degree: 35% Students/Residents: 16% Nearby City: NoneFuture Outlook
Lubbock, TX is the largest city to make our list. It still operates like a college town with a huge influence from the university, but it also has a robust backing of industry and economic activity. The city is known as the “Hub of the Plains” or “Hub City” for its attractiveness as a distribution and manufacturing center in the Southwest.
Whether measured by economic or real estate terms, Lubbock is extremely healthy, and has had years of steady and stable growth that is projected to continue—and perhaps accelerate—over the next five years. It even has the lowest unemployment rate in all of Texas, at just 3.2%.
For real estate investors, Lubbock offers an excellent opportunity to be part of a market that has few downsides. We found no evidence of major new residential construction projects, but the market would continue to be attractive even if significant extra supply was built over the next few years.
Greenville, NC: East Carolina University
Median Home Listing Price 5 Years Ago: $118,990
Median Home Listing Price Today: $153,900
Housing Market Features University Population: 30,441Students living off campus: N/A
Influential Industries Retail & Distribution Diversified ManufacturingEducation & Healthcare
Accommodation and Food Services
Construction
City Population: 84,554 Residents with college degree: 39% Students/Residents: 36% Nearby City: NoneFuture Outlook
Greenville is the major manufacturing and distribution base for the eastern part of North Carolina. Listed as the 29 best small place for business and careers by Forbes, the city has gradually lowered its unemployment rate while dramatically increasing its workforce over the past two decades.
Future economic growth for the Greenville is expected to be slow compared to the rest of the country despite steady and consistent industrial investments.
There are currently a few developments in the planning stages, and the City’s government has been accused of favoritism by “voting for winners and losers in the student housing market.” Falling inventory might make Greenville an interesting potential real estate market, but the city’s hostility to new investors is too big of a negative to overlook. We would avoid this real estate market.
Normal, IL: Illinois State University
Median Home Listing Price 5 Years Ago: $139,900
Median Home Listing Price Today: $159,400
Housing Market Features University Population: 22,599Students living off campus: 68%
Influential Industries Finance & Insurance Education & HealthcareAgriculture & Livestock
Manufacturing
Construction
City Population: 52,497 Residents with college degree: 55% Students/Residents: 43% Nearby City: Bloomington, Pop: 76,610Future Outlook
Normal, IL is better known as Bloomington-Normal because it’s an urban area made up of two cities mashed together with a university in the center. The Bloomington-Normal economic growth has been stagnant since 2009, while jobs have been declining since 2000. Almost every sector of the area’s economy has suffered, with manufacturing, finance, and government all getting hit especially hard. Mitsubishi and State Farm have both cut more than 1,000 workers.
The city’s future growth, in both jobs and population, is expected to be low or negative, and is highly uncertain. There is no false hope for a better economic tomorrow.
The economy’s pain has led to a soft housing market that is preventing developers and investors from getting interested in the market. However, the student rental market is still going strong and may offer opportunities for stable investment, even if real estate price growth remains unlikely.
Tuscaloosa, AL: University of Alabama
Median Home Listing Price 5 Years Ago: $144,900
Median Home Listing Price Today: $189,500
Housing Market Features University Population: 38,918Students living off campus: 74%
Influential Industries Education & Healthcare Government AgenciesDiversified Manufacturing
Arts & Entertainment
Retail & Wholesale
City Population: 90,468 Residents with college degree: 39% Students/Residents: 43% Nearby City: NoneFuture Outlook
Tuscaloosa has a stable economy that is buffered by a massive Mercedes-Benz manufacturing plant and the university’s really, really good football team. But even with promising economic stability, the region, and the state of Alabama as a whole, is still struggling to recover from the recession.
The long-term outlook for Tuscaloosa is promising. Mercedes-Benz recently announced a $1 billion investment to expand it electric vehicle production in Tuscaloosa; this is on top of $1.3 billion expansion that is already under construction. This move, combined with the university’s planned addition of another 400 faculty, is expected to boost economic growth throughout the rest of the region.
There are several new housing developments popping up around the city, and housing inventory is rising, but the impact of the city’s economic expansion should be enough to absorb any potential downward pressure on housing prices. It is still a cheap market.
Lowell, MA: University of Massachusetts—Lowell
Median Home Listing Price 5 Years Ago: $149,900
Median Home Listing Price Today: $259,900
Housing Market Features University Population: 20,784Students living off campus: 63%
Influential Industries Diversified Manufacturing Trade & TransportationEducation & Healthcare
Tourism
Electronics
City Population: 106,519 Residents with college degree: 30% Students/Residents: 20% Nearby City: BostonFuture Outlook
Lowell is relatively close to Boston, so it’s more urban than our other candidates, but it’s far enough away to still have its own identity. Historically, the city has been dominated by manufacturing, but it has shifted into a more service-oriented economy and is a popular location for residents who commute into Boston. It is also a popular tourist destination.
The city’s economic growth is expected to be in line with the rest of the country, and we didn’t find any evidence of new housing developments targeted at the student population. With a steadily falling housing inventory and normal economic growth, Lowell represents an interesting opportunity for real estate investors looking for properties in the Northeast.
Stillwater, OK: Oklahoma State University
Median Home Listing Price 5 Years Ago: $145,385
Median Home Listing Price Today: $205,000
Housing Market Features University Population: 29,174Students living off campus: 55%
Influential Industries Education & Healthcare RetailGovernment
Manufacturing
Finance
City Population: 45,688 Residents with college degree: 55% Students/Residents: 64% Nearby City: NoneFuture Outlook
Stillwater, much like the rest of Oklahoma, was hit hard by the dramatic fall in oil prices three years ago, and economic growth continues to suffer. Numerous retailers, manufacturers, and construction companies have all shed jobs. Economic growth, population growth, and wage growth has all been consistently negative or tepid.
The city’s economic forecasts are in line with the rest of the country, but this growth will not materialize until the oil & gas industry recovers. The uncertainty that currently affects the industry has led to cautious housing development.
As the oil industry recovers, the city will become more popular for real estate investment. With inventories falling, this may be an attractive time to invest in Stillwater—it may be possible to get in before everyone else see things getting better.
Ames, IA: Iowa State University
Median Home Listing Price 5 Years Ago: $159,900
Median Home Listing Price Today: $269,925
Housing Market Features University Population: 36,563Students living off campus: 51%
Influential Industries Education & Healthcare Government ResearchTechnology
Diversified Manufacturing
Accommodation and Food Services
City Population: 58,965 Residents with college degree: 70% Students/Residents: 62% Nearby City: Des MoinesFuture Outlook
Ames, IA has an incredibly well-educated population, with 70% of residents holding a college degree. The city is supported by its high tech research institutions and the nearby capital city, Des Moines, which is only 30 minutes away.
The city is absolutely booming, with the fastest private sector job in the state of Iowa over the past six years. This type of healthy growth is projected to continue over the next ten years. Ames is definitely worth watching.
We found no evidence of significant housing developments, but the city government is currently in the process of reviewing new rules for increasing the density in neighborhoods surrounding the university. While housing inventory is rising, the growth that Ames is experiencing will be more than enough to continue driving up real estate prices.
Athens, GA: University of Georgia
Median Home Listing Price 5 Years Ago: $139,900
Median Home Listing Price Today: $189,000
Housing Market Features University Population: 38,473Students living off campus: 68%
Influential Industries Tourism Education & HealthcarePoultry Processing
Timber
Manufacturing & Electronics
City Population: 115,452 Residents with college degree: 44% Students/Residents: 33% Nearby City: NoneFuture Outlook
Athens is known as a reliably stable economy that depends on the university, the government, and a large retiree population. It doesn’t get caught up in housing bubbles and doesn’t get crushed when the rest of the country falters.
The future growth in the city is projected to match up with the rest of the country, and continue on a slow but steady path, while its housing market is expected to follow.
The city is currently in the process of creating a new 10-year economic development plan, and it would be wise to wait until this is completed before making any real estate investment decision on the Athens market.
Iowa City, IA: University of Iowa
Median Home Listing Price 5 Years Ago: $171,950
Median Home Listing Price Today: $289,900
Housing Market Features University Population: 34,176Students living off campus: 74%
Influential Industries Education & Healthcare Accommodation and Food ServiceFinance & Insurance
Scientific Research
Technology
City Population: 67,862 Residents with college degree: 65% Students/Residents: 50% Nearby City: NoneFuture Outlook
Iowa City has an exceptionally robust economy, with an unemployment rate of just 3.3%. The city consistently ranks in the top 5 for jobs, livability, and business-friendly economic environment. It has no trouble attracting jobs or job-seekers.
Future job growth is projected to roughly match the rest of the country over the next ten years, and should be supported by the area’s high desirability.
Iowa City is currently experiencing a minor housing crisis among its student population, with students unable to find adequate on-campus housing. There are a few small housing developments in progress, but the city’s continually falling inventory and enviable economic conditions make Iowa City a very attractive real estate market.
Lawrence, KS: University of Kansas
Median Home Listing Price 5 Years Ago: $164,700
Median Home Listing Price Today: $239,900
Housing Market Features University Population: 30,450Students living off campus: 75%
Influential Industries Education & Healthcare Accommodation and Food ServicesProfessional and Scientific Services
Government
Finance & Insurance
City Population: 87,643 Residents with college degree: 60% Students/Residents: 35% Nearby City: Kansas CityFuture Outlook
Lawrence doesn’t have a huge industry presence, but it sits just outside of the sprawling Kansas City suburbs, providing the city with an extra source of economic stability while also insulating it from dramatic swings in real estate prices.
For years, the Lawrence housing market was flat. Inventory fell while homebuilding stayed low, and prices barely moved. Eventually, inventory became low enough that prices started rising.
The Lawrence economy is expected to grow slightly faster than the rest of the country. However, homebuilding remains low (projected to fall by 5% next year), and the real estate market in the area is expected to shoot even higher. This market is heating up and definitely worth a closer look.
Columbia, MO: Columbia College; University of Missouri
Median Home Listing Price 5 Years Ago: $154,900
Median Home Listing Price Today: $226,250
Housing Market Features University Population: 67,339Students living off campus: 76%
Influential Industries Education & Healthcare Finance & InsuranceAccommodation and Food Services
Retail
Construction
City Population: 108,500 Residents with college degree: 60% Students/Residents: 62% Nearby City: NoneFuture Outlook
Columbia is unique in our list by having both a large university and a large college. It comes in at 10 on the Forbes Best Small Places for Business and Careers, and insurance makes up a significant segment of the local economy.
Columbia is booming, boasting the fastest population growth in Missouri over the past seven years. This extraordinary population growth is pulling in new industry, and the economy is projected to grow much faster than the rest of the country over the next ten years.
Columbia has a lot of new housing construction ongoing or planned, but the city’s economic and population growth should more than offset any downward pressure on real estate prices. Columbia is still an attractive market.
Manhattan, KS: Kansas State University
Median Home Listing Price 5 Years Ago: $197,900
Median Home Listing Price Today: $229,500
Housing Market Features University Population: 27,870Students living off campus: 77%
Influential Industries Education & Healthcare Agriculture & BioscienceMilitary
Accommodation and Food Services
Retail
City Population: 52,281 Residents with college degree: 58% Students/Residents: 53% Nearby City: Fort Riley Army BaseFuture Outlook
Manhattan, KS is unique on our list because of its connection to a military base. The Army base and the university provide the city with a double layer of protection against economic recessions.
Because the government and university are such a large influence on the area, most of the private industry in the area exists to support the needs of these two organizations. However, this keeps unemployment extremely low, at 3.8% (the lowest in the state), and the city is projected to grow much faster than the rest of the country.
The housing market prices in Manhattan have been erratic and slowly growing in the past, and are forecasted to continue rising modestly with low levels of new construction. While extreme growth in housing prices is unlikely, the exceptional stability of this market makes it worth considering.
Fayetteville, AR: University of Arkansas
Median Home Listing Price 5 Years Ago: $179,900
Median Home Listing Price Today: $279,000
Housing Market Features University Population: 28,005Students living off campus: 74%
Influential Industries Telecommunications BiotechEducation & Healthcare
Manufacturing
Transportation and Logistics
City Population: 73,580 Residents with college degree: 50% Students/Residents: 38% Nearby City: Bentonville, Wal-Mart HQFuture Outlook
Fayetteville, AR has a major source of economic growth and stability in the form of Wal-Mart’s headquarters in nearby Bentonville. In addition to Wal-Mart, about 1,500 Wal-Mart suppliers have corporate offices somewhere in the region. Fayetteville is a college town with a large city’s economic support.
The economic support from the surrounding area has led to an extremely low unemployment rate of 3.3%, and the city is expected to grow much faster than the rest of the country.
With housing inventory falling precipitously over the past five years, Fayetteville should continue to see rising real estate prices as the surrounding area brings in more growth. This market doesn’t appear to be slowing down any time soon.
Bowling Green, KY: Western Kentucky University
Median Home Listing Price 5 Years Ago: $158,000
Median Home Listing Price Today: $212,200
Housing Market Features University Population: 24,302Students living off campus: 67%
Influential Industries Education & Healthcare TechnologyAccommodation and Food Services
Construction
Manufacturing
City Population: 58,067 Residents with college degree: 35% Students/Residents: 42% Nearby City: NoneFuture Outlook
Bowling Green has more promise than most of Kentucky, but it still does not have a highly educated population, and the students who graduate from the university are looking elsewhere for jobs. More than 45% of the city’s population lives below the poverty line.
Job growth for the city has been flat or significantly negative, and is expected to grow much slower than the rest of the country.
We found no evidence of significant housing development. And even though the real estate prices have been rising swiftly, there are likely to be more stable cities to invest in.
Conclusion
Now that we’ve profiled each of our 15 college town housing markets, let’s bring them all back together in a master list. This way, we can quickly compare the markets and summarize which ones are currently the most suitable for real estate investments.
This time, we’ve separated the cities into categories of “Not Good,” “Good,” or “Great” based on our analysis of their future markets, and sorted within those categories by the amount of the student population.
City City Population Residents With College Degree Students-to-Residents Price-to-Rent Ratio Outlook Ames, IA 58,965 70% 62% 10.81 Great Columbia, MO 108,500 60% 62% 11.19 Great Iowa City, IA 67,862 65% 50% 11.12 Great Fayetteville, AR 73,580 50% 38% 11.35 Great Manhattan, KS 52,281 58% 53% 11.20 Good Tuscaloosa, AL 90,468 39% 43% 10.03 Good Lawrence, KS 87,643 60% 35% 11.18 Good Athens, GA 115,452 44% 33% 11.06 Good Lowell, MA 106,519 30% 20% 10.60 Good Lubbock, TX 229,573 35% 16% 8.57 Good Stillwater, OK 45,688 55% 64% 10.68 Not Good Normal, IL 52,497 55% 43% 9.30 Not Good Bowling Green, KY 58,067 35% 42% 11.87 Not Good Greenville, NC 84,554 39% 36% 9.27 Not Good Muncie, IN 70,085 29% 33% 7.13 Not Good
What we have is 5 cities rated as “Not Good” for a real estate investment right now, 6 cities rated as “Good,” and 4 cities rated as “Great.” Surprisingly (or maybe unsurprisingly), the cities with the cheapest price-to-rent ratios are not the most suitable—it seems that there is a reason they are cheaper.
Overall, the most attractive options are concentrated in the Midwest. They are Ames, IA; Columbia, MO; Iowa City, IA; and Fayetteville, AR. This doesn’t mean that those are absolutely the best places to invest—more research is needed—but it’s a good starting point.
Comments