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October 28, 2010


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I think by graduate school a child should be independent--ie capable of supporting themselves. A person in their late 20s - 30s needs to learn to be self-supporting and to make decisions based on that, including whether grad school is really a good idea in the long run or not.

If they haven't done this as undergrads, they really need to do this by the time they are in grad school. Parents need to back off and let them do it, whether or not something is a good idea for the parents' investments.

Having been an active rental home investor I plan to try this approach for my kids when they go off to college. If I can rent 2 bedrooms in a 3 bedroom unit, I can provide kids a stable clean place to rent, while offsetting my cost and I have to assume that parents who are paying for college will provide a reasonably reliable rent payment.

By allowing my kids to be involved in a limited fashion this will also be a good way to help continue their education on finances, property ownership, and gaining responsibility.

Of course, this idea only works if (a) you are prepared to become a landlord and manage the responsibility for maintenance and renters (b) you feel your child can handle some limited responsibility like this. If you don't even trust them to take care of their portion of the rental and set the tone for others then it probably isn't a good idea.

I know this isn't directly related, but the college housing market is considered to be one of the few stable housing markets around. And, it is considered to be one of the best rental markets.

In Charlotte, NC there is a couple that bought up multiple properties, set them up to rent by the bedroom with a shared common space. They screen tenants, manage each bedroom rental independently and run this as a full time business.

They have designed incentives for referrals and their units never sit empty. They supposedly make enough to cover their RE cost and pay themselves.

We considered this when our daughter went off to college, but she ended up joining a sorority and loving it. Didn't care to live anywhere else, and it really wasn't all that expensive for her room and board there. Just a state university, not the ivy league, and she had plenty of scholarship money and a few student loans. One thing to consider is that real estate opportunities like that may be scarce and pricey in college towns, or areas convenient to the college in larger towns. If it isn't nearby, you're going to spend a lot of time "on the road" with a real estate agent finding the right place, and going through the purchase and financing process. Banks have more stringent requirements for loans on rentals than on primary residences, and usually a bigger down resulting in a lower LTV ratio is required.

My aunt and uncle bought a house for my cousin to live in when she went to college. They rented out rooms to my cousins friends during the college years. Afterward, my cousin found a job and stayed there, and bought the house from my aunt and uncle and they still live there almost twenty years later. I'd say it worked out pretty darn good.

After what I saw the kids do to the houses where I went to school, I don't think I could rent a house out to students. Seems like too much risk to me.

Everyday Tips is right, maintenance becomes expensive. You must be prepared to rip out the carpet and paint at least every two years. Security deposits don't cover paint and didn't cover carpet when I was in school (5 years ago).

The pro is that you always have a constant stream of tenants. The con is that you always have a constant stream of tenants.

I met a guy who owns 40 rental houses in a big college town, and he is doing EXTREMELY well. He started with a couple and built a huge portfolio.

The biggest concern you need to look out for is, as with all real estate, location. Close proximity to campus, bars, and sports facilities will lower your vacancy risks each year.

I know a number of people who did this when I was in school. It worked out great for the kids, and the roommates parents were (in most cases) willing to pay slightly more because they knew the owners and felt like their kids were in a safe place that was taken care of.

One big thing to consider besides your child's maturity level, is general personality. My parents considered doing this for me, but I hated living with people, so I ended up being better off in a cheap studio.

Why wait to have kids to buy property near a college campus? I work full-time on a small, private university and students love to live "off-campus," but still have accessbility to the resources that campus offers. This university is also my alma mater. Depending on my length of stay in my current position here, (I myself am planning to go off to grad school in the near future), I am seriously considering this investment option. I think it should help investing in property near a school where I've spent four years and know the ins and outs fairly well. It does seem riskier investing in property near a college campus for your child, especially if no one in the family has attended the school or if you are not familiar with the area. I also like and agree with MC's comment, that attending higher education should be a personal decision--a personal investment--not a financial loss or gain. If parents decide to pursue this, I hope they decide to include their children's perspectives before taking action. Really, it would be a risk to invest in a property on a college campus only to discover that their child doesn't have an interest in attending that school, or decides to transfer schools (which happens fairly frequently--myself included!), or that their child wants to wait before attending grad school (also, such as myself). Fun to entertain, care to undertake.

This could work OK. I would only do it if I was really interested in buying investment real estate and wanting to be a landlord. I'd plan on the parent running the operation. I honestly wouldn't trust most 18 year olds to do a good job as a landlord. I wouldn't have trusted myself at that age.

Also depends on the real estate market in question. Not every college is in a 'college town' and many are in expensive urban cities. The university I went to has very expensive real estate and houses near the campus start well over $400k level. That doesn't make buying very practical IMHO. Another city in the same state you can buy a 4 bed house for $120k.

Also, I think a key here is that you wait till the kid decides what college they're going to and THEN you buy a house in that city. Otherwise your'e locking yourself / kid into a certain city and they may not want to go to that university.

"Or perhaps their daughter will even become employed by the college and buy it herself."

With the exception of post-docs in the sciences, grad students rarely get hired by the university they went to grad school. Maybe after 5 or 10 years working elsewhere they will, but schools usually want their students to go elsewhere for a while.

I know a gentleman who had 8 children to send to college. He bought a house near the campus they all wanted to attend. He rented out the extra rooms and kept the house through the first 4 (boys). When it came time for his next 3 daughters (triplets)to go to the same school, he sold the house and bought a 3 br trailer with the proceeds. The 4th girl used it also. It saved them a bundle. The college town was about 60 miles from their home, the town was about 60k, and had a state university.

I also asked another rental owner why the homes for rent to college students asked for such large deposits. He said it was because of the damage some students could cause. He had had 7 rental houses at one time and was now down to 1.

I asked him how he was able to keep the damage down. It was easy - he only rented to students in the School of Osteopathy in the same town. He said med students studied and worked vast hours in the hospital and did not have time to spend a lot of time partying, etc. It saved him a lot.

In college I lived in a condo my friend's dad purchased for this same purpose. He made her work with the realtor to scout out the place, which forced her to learn the home-buying process. She didn't pay rent, but the other two roommates and I did, covering the cost of the mortgage. When we graduated, he rented it to some of our friends for 2 more years, and then my friend moved back in to attend grad school. He later sold it for a profit. All around it was win-win.

We have two campus rental properties we’ve owned for the past 8 years. I can tell you from personal experience that it’s one of the most rewarding experiences we’ve had and hope to retire on the income one day. All of our tenants sign our rental agreement, along with each of their parents, as one entity. They all know up front that regardless of who caused the damage everyone is responsible to cover the cost. We’ve never had a problem.

We purchased our first home with our oldest daughter with the stipulation that once the renovations were completed, we would refinance and remover her from the loan. It took us three years to finish fixing it up but we had a blast doing it.

Three years later we did a HELOC for a down payment on a second fixer in the university area. We sold that one in 4 months to 1031 into another home that had 1 bedroom and 1 bath. Normally a 1/1 is financial suicide in the campus area considering we rent by the room but our plan was to add 3 more bedrooms and another bath. We spent $45,000 (short term loan from my mother) this added a $300.00 to our payment but….we were able to make $1200.00 per month on additional rent. This was a no brainer if you ask me.

This past summer we enclosed the garage and added another bath at the first house for $20,000. If you’re doing the math, that’s less than $100.00 in added P&I but we make $475.00 per room. Not a bad little investment is it.

University property desirability has remained strong even though were in a declining market. Our property value has dropped a little but I have raised the rent $10.00 per room since we’ve owned them and we’ve never had less than 75 applicants wanting to rent our houses. We keep them very nice.

I’ve done most of the work myself with the exception of construction of the additions and, believe it or not, we’ve used very little of our own money to fund the projects. Lots of time and sweat equity but little money.

I can’t say enough good things about campus housing. Take your time and don’t expect to get rich quick and you can to it too. Its helps if you love home improvement……and BLW I’m the mom.

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