<p>My DS has come to me with a proposition - rather than live in the dorms, he wants to buy a house (meaning I buy a house) and then rent out two of the rooms to other students. </p>
<p>On paper the math seems to work well - housing market has taken a major hit near both of the colleges he is considering - and college housing costs have gone up. It looks to me like it is a break even proposition with his college housing cost + one roommates rent equaling the cost of PITI as well as utilities. The second roommates rent would be a bonus to cover the unexpected.</p>
<p>Has anyone done this - and what is it I am missing?</p>
<p>Not living in the dorms, especially during freshman year, in a college where most of the students live on campus can be extremely socially taxing...</p>
<p>Finding roommates that can be trusted without knowing anyone can prove tricky. Students can be pretty hard on their living quarters. It is one thing to share a rented apartment, it is a whole different story to be the one to arrange and pay for the repairs.</p>
<p>My husband's cousin had two kids at the same college in an area with an inexpensive housing market and bought a two-bedroom condo for them. (The older started out in a dorm.) When the older one graduated they rented out a bedroom to a friend of the younger. I think a condo is a less stressful purchase than a house. Less worry about a yard, a driveway, heating/air conditioning. Are you close enough to go help if there are problems with the house? Also, how many kids would your kid want to rent rooms to in a house? How would rent collection be handled? Bounced checks or people who just don't pay?</p>
<p>I think on-campus living is best for a freshman. Let the freshman get used to college without having to deal with grocery shopping, cooking, and housekeeping. imho</p>
<p>I agree with nngmm and NJres -- too many negatives to try this freshman year. But if he's still (in school and) excited about doing this next year, well that could be a really educational experience for your S in addition to being financially rewarding for you.</p>
<p>My neighbor with many kids did precisely what you did and turned a tidy profit. However, it was not painfree. You do get losers in the process and if you or your kid don't deal well with that situation and are not on top of the process, it can get ugly. Make sure you know ALL of the work and possibilities. Also know your kid. I could not trust my boys with such responsibilities, but there are folks who can.</p>
<p>Have you ever invested in real estate before? If you have and you know the pitfalls- then at least it's worth thinking about. If you have not, it is a very bad idea.</p>
<p>First time investors always underestimate maintenance costs. The first broken dishwasher or cracked toilet bowl or frozen pipe puts you in the red- unless you live nearby and can handle basic plumbing and repairs yourself. So it is unlikely in my mind that roommate number two's contribution is a bonus- roommate number two's contributions will likely go to cover all the things you didn't think you'd have to pay for which you will have to.</p>
<p>You also need to consider how much time your son will need to spend being landlord- bugging roommates for the rent, calling the city when the trash didn't get picked up, heading over to the locksmith to get another key made for the mailbox when roommate loses original key at a frat party, etc. For a Freshman this could be the equivalent of working on the school newspaper, running a successful Habitat for Humanity program, or getting the lead in an opera performance. Seems like a high opportunity cost to me-- assuming that taking all of these advantages of campus life were the primary reason you wanted him on a residential campus in the first place.</p>
<p>Also-- remember that your mortgage is due every month; the kids will only want a 9 month lease. You've got the summer cash flow to deal with, plus what happens if you can't sell the house when your S graduates? How long can you afford to carry it???</p>
<p>Great feedback - exactly what I was looking for...</p>
<p>The social aspects are something I need to think more about. My son is currently attending a local JuCo while recovering from a knee injury. He still lives at home so this will be his first time completely away from home - but he will not be a freshman.</p>
<p>I also need to think more about the amount of time he should spend being the landlord - a major opportunity cost. It would might make more sense to perhaps have an property manager in the area take care of that but of course that comes with a cost.</p>
<p>I am not really to worried about the financial side of this. Housing costs in the area are low enough - and on campus high enough that cash flow works on one 9 month lease plus my son's housing costs. I need to do some more work on the modeling of the maintenance costs but I do have a plug put in there for repair work. While I have not owned rentals myself, I did run my parents nine rental houses while they were overseas for three years so I am reasonably aware of the pains. </p>
<p>I am also not worried about collections. I would envision collecting each semester in advance just like the college.</p>
<p>Second the idea of a condo instead. Much less maintainence without a yard/sidewalk/fence/etc. Many ground floor or townhouse style condos have a little patio-yard for a barbeque without having to mow grass and pull weeds. Plus if the roof needs replacing, they handle it.</p>
<p>At some colleges there are condos next to campus built just for this purpose. One advantage to them is there isn't one huge master suite and two tiny other bedrooms like in a complex designed for a family.</p>
<p>I knew a family that did this. They had 5 or 6 kids and they all went to the same college (parents were alums too). They cycled all the kids through house with usually about two of them living there at any given time. Houses were appreciating a lot in those days, so after the last kid graduated they sold the house for a handsome profit that paid for a good chunk of those 5 or 6 college educations.</p>
<p>My uncle did this with each of his kids. The roommates in essence covered the mortgage. They all split utilities. He let them share in the appreciation for managing the property and doing improvements. He made a nice profit on each of them and the kids had a nice nest egg to start out after they graduated. He was a HS math teacher and understood the numbers well, and studied the market in each town before he bought. .</p>
<p>I know people who have done this. It can work. But, what is your kid like and it really matters who the people he rents to for it to work. The idea is great and can work very well, but it can go south quickly.</p>
<p>Even though your son will be entering the college as a transfer student rather than a freshman, I don't think this is a good idea for his first year.</p>
<p>Some colleges reserve dorm space for transfers and make a special effort to orient them to the campus and provide them with opportunities to meet each other and to get to know continuing students as well. If your son's college provides housing for transfers, I think he would be well advised to live there, at least at first. Dorms provide lots of opportunities to meet new people, which is something that a new transfer student needs to do. Off-campus housing usually does not provide such opportunities.</p>
<p>If your son cannot live on-campus, I think he would be better off living off-campus as a tenant rather than a landlord (or landlord's representative), at least during the first year. It is less time-consuming and involves less responsibility. Adjusting to a new college as a transfer is demanding. Adding the extra demands of caring for property and dealing with tenants to a new transfer student's burdens seems to me to be asking too much.</p>
<p>There's a group of parents at a condo near campus where my son goes. It's a bunch of townhouses around a courtyard. They've cycled their kids through and usually look for a few other students. No parties, no drinking, no drugs, etc. The courtyard style means that neighbors see each other often. If someone holds a party, the neighbors will know about it and tell the parents and the kid that held it will be out.</p>
<p>This seems less attractive if your child will only be there a couple of years. Good chance the market isn't at bottom so you should plan to keep anything you buy for at least 5 years. That said, if you're cash flow positive with just one renter it sound like a great rental market. Are you factoring in taxes, liability umbrella I'd want if renting to college kids and maintenance?</p>
<p>You also need to understand that you may be opening up a liability issue here. When someone throws a party at the house and something bad happens (slip and fall or worse), guess who gets sued? I think it may be worse if your son acts as agent to you (as opposed to the private company where you can share responsibility for any defect with the company that is supposed to fix or at least notify you of it). College students are the 2nd worst type of tenants next to being a slumlord.</p>
<p>I did include taxes in the equation - as well as insurance... what I did not think about was if my umbrella liability policy covers me as a landlord - I'd have to check on my existing policy to see how that impacts it.</p>
<p>Also be sure to check any neighborhood association regs. Many condo/ townhome developments have rules governing rental situations, sub-leasing priveleges, or even noise complaints. We used to own a townhome that had a restriction limiting the maximum number of units in the development which could be rented out at any given time.</p>
<p>This is so popular for Penn students that it's had a significant impact on housing prices within about a 1.5 mile radius of campus. I agree that it's not as simple as it sounds, and that it really depends on how responsible your kid is. And if your kid had just graduated, or was graduating in December, you would be stone panicked about whether you could sell the thing at all right now. But you would probably sell it to some new sophomore's parents.</p>
<p>A friend bought a condo for her D after the D spent freshman year in the dorm. They found a roommate to help with the rent and seemed very satisfied with the whole thing. The D graduated last spring and they sold the condo because they were not sure the D would get a job in the area. The D plans to work for a year and then attend grad. sch. Interestingly, the D is working in her college town now and shares a large apt. with five others just blocks from her old condo. .</p>