Best College Towns: 10 Ideal Markets for Short-Term Rentals

As August draws to a close, two things are predictable: the start of the football season and the anticipation among short-term rental (STR) hosts in college towns for a busy period. While long-term rental markets in college towns have historically been profitable for investors, identifying an STR that yields substantial returns requires careful consideration.

Investing in short-term rentals in college towns may not always be the optimal strategy. Several factors, such as local regulations, alternative rental options, and construction expenses, can significantly influence investment decisions.

According to REINation:

"In cities like Tuscaloosa and Birmingham, construction costs for short-term rentals can exceed those for long-term rentals by 25-35%. Although short-term rentals can generate 20-30% more income per night when occupied, the downside is the revenue lost during vacancy periods. However, during peak events such as football game weekends, graduation ceremonies, and other significant occasions, nightly rates can surge by up to 100%."

The prospect of strong cash flow is particularly enticing when associated with a successful sports team. Let's explore strategies for maximizing STR success using data from BiggerPockets Market Finder and AirDNA. A winning strategy could be as crucial as picking the right mascot for victory.

Criteria for Evaluation:

Revenue potential

Long-term city growth

Occupancy rates (during and outside the football season)

Median home price and appreciation

Relevance of the local sports team (apologies to Durham, NC)

The analysis categorizes these factors into revenue and area growth, ranking each city and determining a winner based on performance.

Revenue Analysis:

By examining occupancy rates and average daily rates (ADR) for each city, we can estimate the annual revenue potential for each market. These figures vary depending on the size and type of property. The Market Finder tool provides the median home price for each area.

To assess potential revenue, the median annual mortgage payment (principal and interest) was calculated using a 7.5% interest rate with 20% down, excluding taxes and insurance. Partnering with an investor-friendly real estate agent and lender can offer more detailed insights when refining investment choices.

Additionally, monthly demand fluctuations and ADR percentage changes during the football season versus the off-season were considered. On average, the U.S. experiences an 11.5% decline in monthly demand and a 6.4% decrease in ADR during the football season.

Area Growth Analysis:

The Market Finder tool also provides data on annual appreciation rates, median long-term rental income, and population growth rates. These metrics help identify investments that could remain viable over the years, regardless of the chosen strategy. Combining appreciation and cash flow is essential for successful short-term rental investments.

Tiebreaker:

The tiebreaker is straightforward: which team performed better during the 2000s? Although not a conventional investment metric, a strong sports team tends to attract more visitors.

Top 10 College Towns for STR Investment:

A few honorable mentions narrowly missed the list, but they remain viable options, especially if they are your alma mater.

Boise, Idaho

Corvallis, Oregon

Tucson, Arizona

Provo, Utah

Eugene, Oregon

Knoxville, Tennessee

Now, let's review the top contenders:

10. Pullman, Washington (Washington State University)

Occupancy Rate: 52%

ADR: $279

Median Home Price: $406,000

Potential Revenue After P&I: $25,740

Monthly Demand Change During Season: 53.9%

ADR Change During Season: 11%

Appreciation Rate: 1.08%

Population Growth: 1.38%

Median Long-Term Rental: $1,511

Pullman offers solid cash flow potential, though its overall performance in football records, appreciation rate, and revenue growth places it just within the top 10. Nonetheless, it's a win for the Cougars.

9. Iowa City, Iowa (University of Iowa)

Occupancy Rate: 48%

ADR: $227

Median Home Price: $279,000

Potential Revenue After P&I: $21,050.4

Monthly Demand Change During Season: 26.3%

ADR Change During Season: 37.5%

Appreciation Rate: 4.02%

Population Growth: 0.88%

Median Long-Term Rental: $1,187

Iowa City is one of the fastest-growing markets on the list, with above-average metrics in nearly every category. However, it remains average in all areas, and there is room for improvement in both occupancy and football performance.

8. Ann Arbor, Michigan (University of Michigan)

Occupancy Rate: 53%

ADR: $303.6

Median Home Price: $394,000

Potential Revenue After P&I: $32,295.42

Monthly Demand Change During Season: 42.6%

ADR Change During Season: 34.4%

Appreciation Rate: 4.56%

Population Growth: 0.59%

Median Long-Term Rental: $1,839

After securing the 2023 National Championship, Michigan has risen on the list. With solid appreciation rates and STR metrics, the Wolverines earn a spot in the top 10. However, with Harbaugh's departure, guest numbers may decline, potentially impacting revenue.

7. Auburn, Alabama (Auburn University)

Occupancy Rate: 40.1%

ADR: $314

Median Home Price: $308,000

Potential Revenue After P&I: $25,294

Monthly Demand Change During Season: 46.6%

ADR Change During Season: 59.5%

Appreciation Rate: 5.3%

Population Growth: 1.69%

Median Long-Term Rental: $1,450

Though the Cam Newton era has ended, Auburn remains a strong market with high appreciation and revenue potential. However, occupancy rates, regulations, and seasonality might hinder a return to STR prominence.

6. Columbia, South Carolina (University of South Carolina)

Occupancy Rate: 51.6%

ADR: $179

Median Home Price: $246,000

Potential Revenue After P&I: $17,313.5

Monthly Demand Change During Season: 30.5%

ADR Change During Season: 15.8%

Appreciation Rate: 4.42%

Population Growth: 0.74%

Median Long-Term Rental: $1,494

Despite limited wins, Columbia shows strong occupancy and appreciation rates, suggesting a promising future. It is hoped that the ADR will grow as significantly as a frequent flyer's miles from Houston to Columbia.

5. Waco, Texas (Baylor University)

Occupancy Rate: 50.8%

ADR: $242

Median Home Price: $253,000

Potential Revenue After P&I: $27,891

Monthly Demand Change During Season: 6.7%

ADR Change During Season: 8.2%

Appreciation Rate: 1.11%

Population Growth: 1.09%

Median Long-Term Rental: $1,449

Waco may lack national titles, but it offers remarkable revenue potential. Despite concerns about the appreciation rate, its location between major Texas cities ensures steady guest traffic for years to come.

4. Madison, Wisconsin (University of Wisconsin)

Occupancy Rate: 66.4%

ADR: $257.42

Median Home Price: $399,000

Potential Revenue After P&I: $35,522

Monthly Demand Change During Season: 29%

ADR Change During Season: 15.5%

Appreciation Rate: 6.32%

Population Growth: 0.67%

Median Long-Term Rental: $1,589

Madison's high revenue potential is balanced by its seasonality and relatively high median home prices, which may deter some investors. Despite its lack of football fame, Madison ranks high in STR potential.

3. Athens, Georgia (University of Georgia)

Occupancy Rate: 44%

ADR: $285

Median Home Price: $342,000

Potential Revenue After P&I: $22,815

Monthly Demand Change During Season: 40%

ADR Change During Season: 41.9%

Appreciation Rate: 7.24%

Population Growth: 1.08%

Median Long-Term Rental: $1,796

Home to the back-to-back National Champion Bulldogs, Athens boasts strong appreciation and revenue potential. However, high rental demand and a saturated STR market prevent it from taking the top spot.

2. Columbus, Ohio (Ohio State University)

Occupancy Rate: 52.5%

ADR: $192

Median Home Price: $310,000

Potential Revenue After P&I: $15,962

Monthly Demand Change During Season: 20.1%

ADR Change During Season: 12.6%

Appreciation Rate: 6.48%

Population Growth: 0.69%

Median Long-Term Rental: $1,491

The Buckeyes’ strong revenue growth and impressive appreciation rates keep Columbus near the top. While the ADR is currently average, it could improve rapidly, much like Urban Meyer's departure from Jacksonville.

1. Tuscaloosa, Alabama (University of Alabama)

Occupancy Rate: 33%

ADR: $441

Median Home Price: $214,000

Potential Revenue After P&I: $25,294

Monthly Demand Change During Season: 99.4%

ADR Change During Season: 44.6%

Appreciation Rate: 1.04%

Population Growth: 2.66%

Median Long-Term Rental: $1,549

If this ranking were solely based on football prowess, the Crimson Tide would easily take the top spot. With the highest ADR and the lowest median home price, Tuscaloosa leads the list. However, concerns about occupancy and regulations loom as significantly as Saban's retirement.

Final Thoughts:

Despite efforts to diversify, the SEC and Big 10 continue to dominate even in STR metrics. Your investment objectives are crucial when deciding whether a college football-based STR is right for you. Keep in mind that investing in a market where you plan to attend games may not be the most financially sound decision, as you'll occupy your property during peak revenue weekends.

For long-term financial stability, consider enjoying your favorite team—and your bank account—from the comfort of home. And don't forget to invite me to the tailgate; I'll bring the coffee.

In previous post: "What Does Off-Market Commercial Real Estate Mean?"