A college town can be a good place to own rental property. Students are continually rotating through, and even faculty can be a transient group in need of temporary places to live. With dorm costs rising and space at a premium in certain college towns, some parents are investing in off-campus property as a way to manage costs and ensure their student has reliable housing.
Buying property can cost less than dorm living or renting, but the math varies by market. A 2017 study by Redfin calculated that monthly mortgage payments were less expensive than renting a dorm room at 47 of 195 public colleges studied.
Homeownership can be a great way to build wealth, and many college towns offer attractive investment opportunities. What’s more, owning a property ensures your student has an established, safe place to live from year to year. Before you invest, consider these factors:
Run the numbers. Investors who plan to sell in just four to five years may have a harder time recouping closing costs compared to buyers who are in it for the longer haul.
Check your school’s housing rules. Many schools require students to live on campus for a year or more and some scholarship packages may come with an on-campus requirement.
Hire a property manager or maintenance person. Unless your student is comfortable with these tasks, it’s best to hire someone to handle them. Recognize that college kids can put a lot of wear on a place, and even if your child isn’t a partier some damages occur simply due to youth and inexperience.
Work with a local lawyer. Hire an attorney to ensure your plans are in line with local zoning laws, such as renter limits or prohibitions against short-term rentals. Talk to an advisor about tools to manage liability and risk, including purchase structure, lease agreements, tenant screening and insurance.
Have frank conversations about the possible downsides. Your student may have to navigate some tricky interpersonal challenges as a landlord, roommate, and friend. Plus, leaky faucets, icy sidewalks and broken appliances can all create added stress and complications for a young person with homework due.
Document financial agreements. Decide who will reap the financial risks and rewards of property management. Is this an investment opportunity for you or your child? Who will keep any cash flow after expenses are paid? If planning the property as a gift or loan, talk to a lawyer to avoid future legal issues and gift/estate tax implications.
Of course, it goes without saying that you’ll need to take your child’s personality and track record into account. Property management can be a great way for a young person to gain life experience, but parent-child relationships may be strained over the expectations and responsibilities that come with such an investment.
Updated 7/2/2019 to include link to Redfin Study.