Market Madness: 10 College Markets That Are Great for Cash Flow

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With the college sports season’s thrilling climax, this is also an exciting time for real estate investors who own rentals in college towns that are being given a high profile. These landlords have likely long known that student rentals are one of the most lucrative places to make ongoing high yields. 

Having the national spotlight focus on a college town where you invest is like having huge ads placed outside your property to attract future tenants. Colleges in the South and Midwest generally mirror real estate in those areas, which have provided some of the strongest cap rates for investors in recent years. 

Here’s a closer look at the towns and cities where great sports teams pair with great investments. We ranked the college towns based on their rent-to-price (RTP) ratio. An RTP is calculated by dividing the gross monthly rent by the purchase price (or, in subsequent years, by the market value). A standard RTP that investors use is around 1%, often called the 1% rule, although an RTP above 0.6% is also considered good. Thus, if a property rents for $2,000/month and has a market value of $2,000, the RTP would be $2,000/$200,000, which is 1%.

It’s important to note that every market will have its fair share of ZIP codes with high and low RTPs. There’s cash flow to be made in every market—you just need to find it.

The Rent-to-Price Ratio of Each College Market

1. The University of Alabama (Tuscaloosa, Alabama): 0.76%

2. University of Dayton (Dayton, Ohio): 0.67%

3. Texas Tech (Lubbock, Texas): 0.66%

4. Northwestern (Chicago): 0.64%

5. University of South Carolina (Columbia, South Carolina): 0.64% 

6. Indiana State (Terre Haute, Indiana): 0.63%

7. Texas A&M (College Station, Texas): 0.63%

8. Mississippi State (Starkville, Mississippi): 0.62%

9. University of Illinois (Champaign, Illinois): 0.62%

10. High Point University (Greensboro, North Carolina): 0.60%

A Closer Look at the Top College Towns

Tuscaloosa, Alabama

The University of Alabama is a big draw for real estate investors. However, the Alabama Crimson Tide isn’t the only reason to invest here.

Like other more northerly Alabama cities of Birmingham and Huntsville, Tuscaloosa County ticks the boxes for good investment criteria. It has low unemployment (2%), a population growing by 2% each year, a decent median income of $58,620, and a generally affordable median rent of $1,549 with a robust rental growth of 7%, which means investors can increase their cash flow each year. With a median home price of $205,030 and year-over-year price growth of 2%, Tuscaloosa is affordable, stable, and profitable.

According to the Tuscaloosa County Economic Development Authority, the main employers in the small city of 266,638 are the University of Alabama (6,839), Mercedes-Benz (4,500), and the DCH Regional Medical Center (3,444). Each long-established company is a stable source of employment. 

Dayton, Ohio

Known as the birthplace of aviation, Dayton, Ohio’s real estate business takes flight thanks to its affordable median home price of $185,000, its 3% annual appreciation, reasonably affordable rent of $1,234, and main employer, the Wright-Patterson Air Force Base, with its workforce of 30,000 people. Other big employers in the area are Premier Health Partners (14,135) and Kettering Health Network (5,029). However, it ranks just below Tuscaloosa due to its 3% unemployment and stagnant population growth.

Lubbock, Texas

The 11th largest city in Texas, Lubbock enjoyed a stellar ranking in a 2023 survey of 500 college towns for Best Real Estate Investment Potential. That survey was echoed in BiggerPockets data, with a low 3% unemployment rate, a modest population increase (1%), a healthy median income of $59,228, an affordable median rent of $1,342, and an annual rent growth of 1%. Homes are also affordable, with a median price of $202,763, though price growth is stagnant. 

Texas Tech is the biggest employer in the city. Various other employers contribute to diverse business infrastructure in manufacturing, agriculture, wholesale retail, and healthcare, including Covenant Health, United Supermarkets, Convergys, and Tyco Fire Protection Products.

However, Lubbock is more than a place to invest in real estate, which could be part of its charm. It was ranked No. 8 in 2022 for U.S. cities with the best work-life balance, No. 1 in 2023 for the best cities overall for recent college graduates, No. 6 (2022) for the best mid-size city business climate, and No. 10 (2022) for the best city for raising families.

Chicago, Illinois

Located 40 minutes outside Chicago in Evanston, Northwestern both benefits and suffers from being located in the metro area of a major city. Unemployment is at 4%. However, home appreciation is at 6%.

For investors, it’s interesting to note that the median income is $82,914, yet the median cost of a home is around $300,000—generally affordable by today’s standards. However, as major corporations move out of big Northeast cities to warmer states and remote work takes hold, Chicago has felt the hit with a few big defectors. 

The Windy City has as experienced a small (-1%) population loss over the past year. Still, with established universities, hospitals, finance sectors, new tech businesses, and other attractions and businesses of a major city, along with relatively modest real estate prices compared to other major cities, Chicago remains a worthwhile real estate investment.

Final Thoughts

Successful college sports teams often come from successful universities, well embedded into the economic fabric of the vibrant city in which they reside, so it should come as no surprise that many of these cities also make for good real estate investments. It’s unsurprising to learn that many successful real estate investors started their journey as students, renting out rooms in a home they owned and building their empires from there. Whether you are an investor or want to kick-start your kids’ investing career, looking at cities with a successful college sports team will steer you in the right direction.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.