What rental property is good to invest to fund a child’s college, which is easy to share/rent to other students and may sell after child’s college graduation, a single-family home, townhome or condo? Thanks for sharing.
FWIW, I lived in a condo where my neighbors were college students that attended the local college nearby. Their parents had bought the condo and basically housed their children there for four years of college. The kids stayed a couple of extra years, and when they finally moved on from the town, the parents sold the condo. This seems like a pretty reasonable strategy depending on where the kid goes to school considering that a lot of places near colleges are in demand.
I think this is incredibly location dependent. Some schools are in hot real estate markets, some aren’t. Some are in locations that restrict numbers of renters in one dwelling and make being a landlord difficult. There would need to be a lot of due diligence to make sure this makes financial sense.
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My kids have lived in 10 off campus properties. Some have been pretty sad, some are nicer than anywhere I’ve ever lived. Dd21 has had her own full bathroom for the past 2 years, pool, gym, clubhouse, coffee bar (even goat yoga and free kayaks). All they cared about was living with certain friends, and they found housing based on the size of the group. I don’t think they would’ve appreciated having to live at their parents place and be responsible for filling it, plus feeling responsible for caring for it (especially if roommates want to host parties). All 5 of my kids ended up at different colleges, I used to joke about buying something near #1’s school (state flagship) and making them all go there.
We had friends who bought a condo and their kid lived in it for four years, and had friends as roommates who basically paid the mortgage costs. They planned to sell when the kid graduated. They were not able to do so for a few years, and ended up being long distance landlords which they didn’t want to be. They hired a local firm to help with rentals which gobbled up much of what they were earning.
They did sell…but didn’t make a dime.
We looked into this for professional school for our kid, but we knew we didnt want to live there ever, and also that the kid didn’t want to stay there either. So that kid rented.
I think you need to think long and hard about the responsibilities of being a landlord. I was one for about 6 years and I rented to responsible friends. Even with that, when something broke, it was my responsibility to at least pay the cost to get it fixed.
At the end…I was very happy to sell and get out of the landlord business.
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I’ve thought about it but worried about if either kid decided to transfer, and then I’m stuck with a rental property in a random town/city that I no longer frequent. I sometimes wish I had pulled the trigger because the off campus rental market in both kids’ college towns was (is) robust (and neither kid transferred).
My older D went to a university with a fair share of wealth in the student body. She had several friends whose parents purchased pricey condos right near campus so they had a place to stay when they came to visit their student. The students still paid to live where they wanted to live during their four years there, and only used the condos as a quick getaway when they needed peace & quiet.
My younger D is at a more blue-collar U but I still notice a number of parents purchasing homes in the area specifically for student rentals (some have multiple kids going through the university so they hang onto them for more than the four years. Others use them as airbnb’s for football & grad weekends). Some even try to pass them down (via a real estate sale) to another university family who is also looking to make a student rental purchase. It’s a nice little town and home sales in general seem to do well there.
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If this is for undergrad school…keep in mind that your rental income is…income. And your equity in the rental property is an asset.
I would not count on a rental property helping to pay for college costs.
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Did this for my brother when he was at Michigan for med school. Worked because the condo was convenient to UM and real estate prices reasonable enough that with 20% equity, I was cash flowing slightly positive. His roommate was a fellow med school kid so I wasn’t worried about a “bad tenant”. The apartment was easy to sell after graduation because it was in a desirable location. I pocketed a decent cap gain at the end of the day.
Looked into this for D in grad school in Cali. Dynamics very different in that real estate prices are so high that I would have been cashflow negative unless I put in a ton of equity. So this meant that I would be gambling that the market would continue to rise at a level to cover the cash deficit plus make a return on equity, and it would have been a lot of money to put out, so I passed.
I definitely would stick to a condo because of maintenance issues. Unless you live in the area and don’t mind dealing with maintenance/upkeep, I would not go with a house. I would also go with something newer and in existing good condition. Less hassles when you are the LL and likely easier to sell with minimal work and money (clean, paint and new carpet).
When I was in college, my dad wanted to do this. The area around the school was a bit run down, houses weren’t expensive, and students were always scrambling to find housing. He didn’t do it. In the two decades after I graduated, the area really took off as the city sprawled and this became a more, then highly desired neighborhood.
Of course, hindsight is 20/20. But that would have been a great investment!
I think for an experienced real estate investor it’s worth considering if you can spare the cash and can model out the risks (what happens if you can’t sell when you want to/need to; building in maintenance costs, etc.)
I think it’s a bad idea for most people, even in a “hot” real estate market. Markets go up and down (read this week’s analysis of “what happened in Austin”- the hottest real estate market in the country which is now experiencing a downturn). Maintaining a property from a distance is either a major hassle or expensive (and sometimes both). Property taxes are usually stable except when they aren’t; insurance costs are stable except when they aren’t.
I know people who invested in “can’t lose” Boston real estate who lost REAL money (not paper losses) after 2008/2009. They did not anticipate that the costs of insuring their property skyrocketed (non-owner occupied apartments and condos can be a capricious thing to insure); maintenance costs can be hard to predict sometimes (yes, you can shop around when your primary home need a new frig or dishwasher. When someone bashes in a window or door over a long weekend in your rental property, you are paying top dollar for the glass guy and the locksmith).
If you are adding to a portfolio of other rental properties than you know what you are doing- in which case, worth exploring. If this is a “it’s my first time but who loses money in Medford or Cambridge or Palo Alto or Madison or Chicago or Ann Arbor” the answer is- a LOT of people. They just don’t talk about it…
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Having been the owner of a rental property at a distance, I’m not recommending it.
Past performance isn’t future performance. But in my case above, it would have been more than worth any hassles.
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You really need to scope the market to see - what’s available, what’s affordable, area occupancy rates, home conditions.
Not sure there is a generic answer to this question.
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Do you have property management experience or real estate investment experience?
I only lead with this because renting to college students is really Rental Real Estate 3.0, not 1.0. 4 years is also a short time horizon to invest in real estate of any kind, particularly given the current mortgage market. You may want to do a more research and consider the property itself as an asset.
Renting to friends and family is also next level awful. Renting to strangers is no picnic, but at least when things go south (as they almost always do with tenants in one way or another), it’s easier to manage the situation when it’s purely a transaction-based relationship and not a personal one.
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If you are doing this for one kid, the timeline is short. My grandfather always said that he wished that he had done it. But he had a grandchild at the state flagship for nearly 20 years. You also have to understand how the decline in college age population is going to affect the school that you would buy near.
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I agree that it is location dependent. At the end of ShawD’s first year of a 5 year BSN/MSN program, she wanted to rent an apartment. No one really wanted to rent to a sophomore – too worried about partying kids destroying a place. A real estate friend of ours helped us buy a place in walking distance (25 mins) of her school and of a couple of the local teaching hospitals. Also a block and a half from the subway. We bought a 2 BR condo with one very large BR and one smaller. She rented the large BR to two of her friends and the cost to us of owning the unit was probably about the same as the cost of her dorm the year before. So, if there had been just a little appreciation, we would have broken even and felt satisfied. We instead rented it out for a few more years as it is in a highly desirable location. The value of the property increased by close to four years tuition (ignoring cap gains tax). The timing was good and the neighborhood is really good. Wouldn’t always work.
Downsides: college kids, even those related to you, don’t know how to take care of a place. Being a landlord is generally annoying.
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No, we are already paying for college. We also don’t want to be landlords and deal with all the hassle. Also, I don’t feel that this is really necessary for the college experience. Maybe if we were wealthy we’d feel differently. My kids are very responsible, but I still wouldn’t want to rent to college kids…our focus has been getting our kids out of college with not debt and saving for retirement (and making sure we aren’t a financial burden for our kids).
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