Should I Buy an Off-campus Rental House at my Kid’s College?

06 Nov Should I Buy an Off-campus Rental House at my Kid’s College?

The first house I bought was an all-brick duplex within walking distance of a university. The sellers had purchased it so their son – a student there – had a guaranteed place to live. They rented the other unit to college students so it more than paid for itself. They sold the house once their son graduated. When I bought the duplex, the neighbor was a college student. His parents had bought the three-unit next door, and they put him in charge of managing the property. This young landlord told me that college students simply want to move in with no hassle and turn on their computers. He told me that I should provide WiFi, Cable TV, abundant automatic outdoor lighting, and an alarm system. He said that I should have the parents co-sign the lease. So I did! I owned that duplex for 17 years. The rental income carried me through some tough economic times. Not once – ever – did I have a tenant there fail to pay rent.

Rents are higher at homes close to a university. Imagine if you have to pay $1,000 a month for your college kid’s share of an off-campus apartment. Over their sophomore, junior, and senior years, that could be $36,000 just in rent. When you throw in utilities and other expenses, that number could be well over $40,000.

What if you were prescient enough to spend that $40,000+ on a down payment for a 3-bedroom house or condo? Then your college-age son or daughter could live there, while you rent out the other two bedrooms (maybe at $1,000 each?). Perhaps you could even have him or her manage the place so they learn valuable property management skills. After they graduate, you could either sell the rental property or keep it!

Some criteria to evaluate are:

• The on-campus housing situation at the university. Do students generally prefer to stay on campus? Is there abundant housing there?
• The perception of crime just outside the university limits. Do students feel safe walking or biking to off-campus neighborhoods?
• The exact off-campus neighborhoods that students desire. Some neighborhoods may be more walkable than others. What particular blocks do students prefer?
• The market rents for off-campus housing. What is the premium that a student (and their parents) will pay for monthly rent? You don’t want to overpay for a house or condo and then find yourself in a negative cash-flow situation every month.
• Are you fine with a condo? Condo communities are common outside many major universities. Even though there may be a monthly condo fee, there are benefits to having the condo association provide exterior maintenance and amenities.
• The cost of providing Internet, Cable TV, an alarm system, and utilities. I chose to have my college renters pay their own utilities. I paid for everything else. I found that students, especially females, liked having an alarm system. And I set up dusk-till-dawn and motion-sensor lights outside, which tenants and neighbors appreciated. I made sure that the Cable TV service was the top-of-the-line subscription with sports channels and movie channels included.
• The current rental situation of the house you’re evaluating. For many college student leases, the lease runs from June 1st through May 31st of the following year. To attract college renters, the current tenant has to be out around the same time that college students are starting their leases. You might not want to have a tenancy end on January 31st and then wait until June 1st to start a lease to college students.
• The current condition of the house you’re evaluating. Some landlords have lower standards for their properties. Are you buying a major fixer-upper?
• Is the property you’re buying likely to be used as a party house? A big house may be perfect for a huge party. Peer pressure from other students may cause your son or daughter to relent, and the next thing you know there are holes in the walls and cigarette burns on the carpet from a raucous night.
• A network of handymen and contractors. Do you or someone you know have contacts with repairmen should something need work? Usually your Realtor can help with connections. Or you can check out online reviews to evaluate potential contractors. You want to build up your network ahead of time so when a leak happens, you can have your designated plumber get out there that day instead of scrambling to find someone who will answer the phone.

Should my kids want to go to college, my plan is to buy a house or condo near the university. Until then, I’m buying other houses to rent out so I can afford college for my kids!

Tai DeSa is a graduate of The Wharton School of the University of Pennsylvania.  He became a full-time real estate investor in 2004 after serving in the U.S. Navy.  Tai has made colossal mistakes in investing (and learned some things along the way).  He has helped hundreds of homeowners avoid foreclosure through successful short sales. Check out Tai’s books on Amazon.com. Tai may be available for coaching and speaking engagements on a variety of real estate topics.  Send an email to tai@investandtransform.com.