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.”

"Serve with Integrity"

Friday was the George Washington’s Birthday that many of us grew up celebrating, and last Monday was the new federal holiday honoring George and our other Presidents. That got me thinking about George, and the first thing that came to mind was the old cherry tree legend – the one about “I cannot tell a lie.” Of course there’s “Honest Abe” also.

What a legacy to be remembered as being honest, as someone who told the truth. I don’t think we’re talking about tactless truth where you tell people that their shirt is ugly or that they should get a haircut or that their joke wasn’t funny. I think we’re talking about an admirable character trait that serves a person in life as well as beyond that.

Look at how many years have passed since Washington or Lincoln served in the Presidency, yet honesty is still ascribed to both. It is not limited to them. It’s just that when we think of them we also think of their character.

The trait of being honest is part of a larger set of character traits called integrity. This is what you stand for. It’s also what you won’t stand or put up with – how you won’t go against your own core beliefs.

My senior year in high school, I was a member of the Key Club, the high school organization of Kiwanis International. That year, the theme of the annual oratorical contest (which I incidentally won for my district) was “Serve with Integrity.”

At that time, integrity wasn’t a concept that was being taught in school. I’m not sure it is today either. Needless to say, I had to do some research before I could prepare my address.

That was a great experience and one I still remember. I think “Serve with Integrity” is a great life motto.

It means regardless of what we’re doing – building homes, selling them, advertising them, designing them, decorating them, inspecting them, appraising them, lending money on them – that we are known as a person of integrity. That we are not more interested in the sale or the paycheck than we are the customer. That we truly believe in what we are doing and consider it to be an admirable calling. That we approach our work with a wholeness and completeness that allows us to give our all in the pursuit of it. That it requires and receives our honest effort and our honest dealings with our customers. No shortcuts. No hedging.

This is what I mean by “Serve with Integrity” and I think our customers will admire us for it and want to work with us.

The Meaning of Location, Location, Location

I've seen buyers get so excited over the updates in a home that they forget about the first rule of real estate: location, location, location.

Generally, buyers will get the best return for their money if they buy the worst house in the best neighborhood. If a cosmetic fixer needs carpeting or the floors refinished, buyers might receive a discount on price. Plus, then buyers can choose carpeting or floor finishes that match their own tastes and not that of the seller. On the other hand, buyers will most certainly face a harder time selling down the road if they buy the best house in the worst neighborhood.

Yet, many buyers gravitate toward the right homes in the wrong locations. After looking at a few dozen homes, it's easy to get swept up in the excitement of finding that perfect home. That perfect home might have the right configuration and plenty of amenities but if it's in a bad location, you might want to consider passing it by. Regardless of its price . . . read more about Location, Location, Location.

My Real Estate Website Doesn't Produce Leads

This seems to be the number-one concern among real estate agents these days ... a website that doesn't produce any viable real estate leads. Or one that doesn't produce any leads at all.

Sometimes the answer is obvious. Other times, it calls for some speculation. For example, some websites have such obvious problems that you can spot them at a glance. Maybe there are no lead generation systems in place at all, or perhaps the website doesn't function properly.

In other cases, however, the website may appear to be well-designed from a lead generation standpoint, but it still does not produce any real estate leads. This is a tougher scenario to evaluate.

In the latter case, the lack of real estate leads could just be because of the market. After all, if there's not a lot of real estate activity in your area, you can't expect a steady stream of leads to pour through your real estate website. In many cities -- from Nashville to Tucson and elsewhere -- this is what we are seeing right now. And in this case, you simply have to look at your traffic stats. Are you even getting any traffic on a daily basis? If not, you have no hope of producing real estate leads from the website.

If your stats reveal a steady stream of website traffic day in and day out, but you are not getting any leads from the website, then there is something lacking from a lead generation standpoint. In such cases, these are the things I usually troubleshoot first:

Does the website offer any reason why people should contact the agent, or fill out the form, or whatever the conversion goal is? If not, this needs to be addressed first and foremost.

Are the conversion points easy to find, or is the real estate website in such a messy state that visitors can't find their way around? This is a usability issue, and one of the ways you can spot it is through high percentages of people who hit the home page only to leave right away (without clicking further into the website).

These are the things I would start with when troubleshooting a real estate website with good traffic levels but poor lead generation. Often, it's just a matter of cleaning things up and presenting something of value that people would want.

I also see a lot of those "Free Reports" offered on real estate websites, presumably for lead generation purposes. Many of the so-called reports I encounter are poorly positioned in several ways. First of all, they will consist of information the web visitor can easily find elsewhere online. For example, "Top 10 Tips for Buying a Home" is so worn out and overused that it's sad really. Without much effort, I could probably Google that phrase and find it plastered all across the Web.

So who is going to offer their email address in exchange for a generic article they can find on thousands of other websites? Consumers are web-savvy these days, and they know how to ignore useless info and find the good stuff.

So let's say you took the "free report" concept and injected it with steroids and other performance-enhancing substances ... metaphorically speaking of course. Let's say you created an actual e-booklet, in PDF format. And let's say that it was all about the local real estate scene in your area. Suddenly, the booklet becomes something that people cannot find anywhere else, thus the perceived value of the item increases.

Now let's take this further and hire a graphic designer to create a "virtual cover" for the booklet -- one that you can use to promote it on your website. People believe in what they see, so sometimes a little visual entice is all it takes to get people to starting filling out those web forms.

But we're not done yet. Let's create a press release and distribute it online to announce this insightful new guide to the real estate scene in [your town] ... jam-packed with recent sales statistics, development news, residential reports and more. A must-read for anyone planning to buy a home in [your town].

I've shared enough. You get the idea. But suffice to say these are only steps 1 through 7 of about 15 steps I would take ... if I were serious about generating leads through my real estate website. I offer these kinds of ideas and strategies all the time, but very few people implement them. And do you want to know why?

Because nobody ever said lead generation was easy!

Those who put in the extra effort will reap the extra rewards. And those who keep peddling their "Top Ten Tips for Buying a Home" will probably find another line of work at some point.

Mortgage Meltdown Has More to do with Fraud than Anything Else

Recently, I was discussing the mortgage meltdown with a reporter who made the mistake of asking me who or what I believed was primarily responsible for the mortgage meltdown and housing crash of 2007. My reply consisted of a single word: “fraud.” My conservative estimates target fraud as being responsible for at least 80% of the problem, and most of this fraud was perpetrated by industry insiders (both in the Real Estate and mortgage loan industries) on the consumers.

Of course, there is plenty of blame to go around. If consumers were not so greedy, using their homes like ATM machines whenever they needed an equity fix, perhaps the problem would not be so widespread and so deep. If fiscal conservatives were in charge of running the government at federal, state, and local levels, maybe we would not have a culture built around deficit spending. If politicians hadn’t agreed to ship manufacturing jobs overseas and open our markets to free foreign competition, maybe Americans would have more money to make house payments. If we had universal healthcare coverage, people wouldn’t end up in bankruptcy whenever they needed surgery.

I could go on, but from what I have witnessed in the Real Estate and mortgage loan industry comprises a concerted effort on the part of industry professionals and insiders to fleece the consumer. Cash back at closing schemes caused a huge part of the problem. When homeowners purchased their homes, many of them would borrow in excess of the property’s true market value–sometimes hundreds of thousands or even millions of dollars more than the home was worth. They were then stuffing the proceeds in their pockets as if they had earned it.

Some might say that in this case, consumers are clearly at fault. After all, they were the ones who benefited most from the scam. However, in a huge majority of cases, professionals were advising these homeowners, telling them that this was a perfectly acceptable practice, that “everyone was doing it,” and that you were almost stupid for not doing it. The professionals would even conspire to defraud the banks, lining up appraisers who were known to appraise houses at whatever target value the buyer, seller, and agent decided. In return, the appraiser won more business, and the loan officer and real estate agent “earned” higher commissions. Everybody wins!

Another tactic that mortgage lenders used to suck in clueless buyers consisted of selling consumers on adjustable rate mortgages (ARMs) that had teaser rates. When housing prices were spiraling into the stratosphere, fewer and fewer people were able to afford to take out a conventional mortgage to purchase a home. They simply didn’t have the income and savings required to obtain loan approval at the current interest rates. Instead of denying these high-risk lenders loans, the industry simply lowered the initial interest rate, so more people could qualify. Loan officers downplayed the fact that the interest rates would probably rise significantly months or years down the road. They told the buyers that they could simply refinance if the rate was too high. Unfortunately, when credit tightened, homeowners could no longer refinance with a conventional mortgage. Foreclosure became imminent.

During the big party when housing prices were on the rise and interest rates were dropping, mortgage brokers and the loan officers who worked for them, turned away few if any applicants. If you didn’t make enough money, they would encourage you to fudge the numbers on your loan application. To boost your credit score, you could simply piggyback on someone else’s credit card (this little loophole has been fixed). In some cases, the loan officer would simply have the applicant sign a blank loan application, so the loan officer could fill in the required information later–information that would be sure to win the applicant loan approval.

And this is just the day-to-day fraud. Professional con artists are also responsible for boldfaced scams that have ripped off homeowners and lenders alike. Armed with the Internet, technology, and know-how, these fraudsters could produce forged paperwork to score millions of dollars in mortgage loans for homes they never even bought.

What we are seeing now is fraud fallout. The system has been bruised and battered for too long. The very professionals who rely on the industry to feed them and their families have caused the problem, and many of them are now nowhere to be found. They scammed the system and left hard-working Americans to pick up the tab.