How to Earn Money Off Campus
As Rest of Housing Market Cools

The real-estate slowdown has forced some investors to change tactics. Gone are the days when an investor could buy a single-family home or condo, flip it, and walk away with a sizeable profit just weeks or months later without much effort.

But there's one niche that continues to show promise for investors undaunted by the slumping housing market: college-town real estate.

This segment has recently caught the attention of large institutional investors like American Campus Communities, a publicly traded real-estate investment trust that earns 95% of its revenues from ownership of off-campus housing, according to Bill Bayless, chief executive officer of the Austin, Texas-based company. He and real-estate experts like Michael H. Zaransky, co-CEO of Prime Property Investors Ltd., a real-estate investment firm in North Brook, Ill., point to rising university enrollments and increasingly limited on-campus housing as two factors that make buying and renting out college-town housing an attractive investment.

While institutional investors like American Campus Communities -- which builds large, multiple-unit housing projects for students in campus towns -- compete with individual real-estate investors, there is still plenty of room for smaller property owners to profit, Mr. Bayless says.

"I think it is among the top real-estate niches for any real-estate investor to look into," Mr. Zaransky says.  "It is not tied to general economic performance. It is tied solely to growth and enrollment in schools."

U.S. college enrollments are expected to increase by a minimum of 13% to 19.5 million between 2004 and 2015, according to the National Center for Education Statistics.

Meanwhile, tighter budgets at many state schools are likely to limit construction of new on-campus accommodations. "Colleges don't have the capital they need to develop student housing," Mr. Bayless explains.

Already, students are increasingly being forced to find housing elsewhere -- a major advantage for investors looking to get into the rental market, says Mr. Zaransky, author of "Profit by Investing in Student Housing; Cash In on the Campus Housing Shortage" (Kaplan Publishing, 2006).

"A well-located property in a college town is going to be 100% full -- you usually don't see that in traditional rental properties," says Mr. Zaransky. He notes that while college-town investors can bank on some home-price appreciation for their properties, the opportunity that university markets present is mainly from buying homes to hold as rental properties.

For the most part, except for markets where property values are high (such as some West or East Coast locations), college landlords will not experience negative cash flow, he says. And because the demand for off-campus housing is based on enrollments and not general economic trends, college landlords for the most part can charge more for rent each year, he says.

In the book, he provides a look at the on-campus housing situation at the U.S.'s largest public four-year universities, with Boise State University and the University of Alaska Anchorage at the top of the list of schools facing the greatest on-campus housing crunch. The universities on his list are likely to offer the greatest opportunities for future landlords. For example, at Idaho's Boise State University, the university houses about 1,800 out of its approximately 18,000 undergraduate students (about 10% of its student body), per the school's University Housing Office.

Another benefit for landlords: because multiple students usually share a rental (each contributing to the total rent), property owners can typically collect more rent for college-rental properties than they could from a single renter, says Robert Mann, co-founder of Netgainrealestate.com, an informational Web site for income-property investors.

There can be drawbacks to renting to students -- they tend to upset the neighbors and can be rough on your property, says Allen Cymrot, Netgainrealestate.com co-founder. Also, rent collection from students can be difficult and college rentals tend to require higher management time and money, he says.  There are steps that landlords can take to offset these disadvantages, however. (Read tips on managing student rentals.)

Buyers looking to make money by providing off-campus housing should realize that not all college towns offer attractive investments, Mr. Cymrot says. Both on-campus and off-campus factors (such as university housing policies and local zoning restrictions) can affect a locale's investment potential, he says.

If you're thinking about becoming a college landlord, these tips can help you identify towns -- and properties -- that may reap the best returns.

1. Pick public over private. Towns with large state universities offer the best investment opportunities because they typically have larger enrollments and more students living off campus. It is very common for public universities to house only 23% to 25% of their students, Mr. Zaransky says. Whereas, "private universities tend to be very-well funded and have money to build additional dorms," he says. Also, many private colleges require that students live on campus for some, if not all, of their undergraduate years, while "most public universities only require that freshman live in the dorms," he says.

Still, if you can find a small private school that allows juniors and seniors to live off campus, those towns might provide some opportunity for investment as well, says Mr. Bayless.

2. Follow the students. The best locations in which to invest are in high-population-growth states because they have the most students, says Mr. Zaransky, who names California, Texas and Florida as good bets. Investors should also consider New York, Massachusetts, North Carolina, Virginia, Arizona, Illinois and Georgia, Mr. Bayless says. American Campus Communities is active in all these states, with the exception of Massachusetts and Illinois -- where the REIT is looking for opportunities, he says.

3. Check out the dorms. Target colleges where the amount of housing provided falls short of enrollment figures and where there aren't development projects in the works for additional on-campus housing. For example, American Campus Communities is developing a 3,000 to 4,000-bed on-campus housing project at Arizona State University in Tempe, Ariz., Mr. Bayless says. More beds available on campus may translate to fewer students looking to rent off campus. Also, state universities differ significantly in how much housing they have available to students. For example, at the University of Nevada, Las Vegas, approximately 7% of its undergraduate student body lives on campus, whereas at the University of Connecticut, about 69-71% of the school's undergraduates live on campus, according to Pamela Schipani , associate director of housing services at the university. Often, a campus's housing situation (how many rooms are available and whether students are required to live on campus) can be found on a school's Web site.

Some schools will offer an area on their Web site or a service to help students find off-campus apartments. For example, the University of Connecticut has an Off-Campus Housing Board on which landlords and property managers can post their for-rent listings for a fee and directly target the university's students.

4. Narrow the playing field. If you're looking to buy a house or condo in a college town, look for areas that aren't conducive to development by large real-estate companies like American Campus Communities, Mr. Bayless says. For instance, the REIT opened Calloway Villas, a student housing development with 704 beds across the street from Texas A&M University in College Station, Texas, Mr. Bayless says. Large projects like these could seriously hinder the ability of a small-time landlord to secure student renters, he says. Investors "want to buy single-family houses in markets that have strict zoning requirements and substantial neighborhood opposition that keeps companies like ours out of the market," he explains.

A town that is home to a small private school (with 5,000 to 8,000 students total) that allows juniors and seniors to live off-campus might be an attractive market because companies like his aren't likely to pursue such a limited opportunity, he says.

5. Buy close to campus. When purchasing a property to rent out to students, finding a place close to the center of campus is important. A home should be within walking or bicycling distance, Mr. Zaransky says. "They go the quickest and lease for premium prices," he says. Another plus of properties that are near campus -- landlords don't have to provide parking to attract student renters, Mr. Cymrot says.

***

University-Owned-Beds-to-Students Ratio

*Number of beds rounded to the nearest hundred
Source: "Profit by Investing in Student Housing; Cash In on the Campus Housing Shortage" (Kaplan Publishing, 2006).

Ms. Kim is a senior editor at RealEstateJournal.com.

Email your comments to lauren.kim@wsj.com.