Rental property near college campus--In's and out's advice (incentive, 2013, negotiating)

[iowa4430]

Originally Posted by ACWhite

What are the prospects for the property's increasing or declining in value over the next few years (it is very rare that people break even or do better, given transaction costs, within the 4-5 years students take to get bachelor's degrees)?

I don't expect the property to increase in value a great deal as properties in this areas don't appreciate much. But that isn't our biggest concern either. I don't think it will go down though as the area is decent. The rents project (with 4 of the rooms) about double what the expenses are.

if we can get her through 4 years with no cost for housing and turn around and sell it for little or even no profit, it's a win in my book.


What are the costs of renting vs. owning in that community?

right now, the monthly cost of living in the dorms over the course of the school year...basically August to end of May will be very similar to what th e payment on the mortgage will be. Not including taxes and insurance. Again the rents on 4 rooms (5 total BR's) will be double what the payment for the mortgage, taxes and insurance are.



(There are easier and less risky ways to build credit scores).

We realize that but this seems to make sense and I really don't see a huge downside here. Trust me, I'm very risk averse and have turned down many chances to get into the rental business. This just seems to fit very well.


What is the condition of the property and how much will you likely need to invest in it on top of the mortgage, property taxes, insurance, etc.?

From what I have seen so far, it doesn't appear to need any $ invested in it and has all wood floors and has been well maintained. The roof is dated but appears to be adequate but we intend to negotiate a new roof in the purchase price. It is a simple roof to replace so I am not concerned here.


Can your daughter handle any repairs and if not, who will perform them?

Repairs? Not really. Obviously that is a concern but I've got some connections.

College students can be VERY hard on properties, and even tenants you would expect would be respectful and cautious can do tremendous damage in a short time.

agreed 100%. This is the reason I've never had the stomach for rentals. This just seems a better all around situation than any others I've ran into.

In addition to the financial risks of this, will your daughter find it hard to confront friends and/or demand money from them, if they turn out to be inconsiderate or worse, or leave mid-semester without paying rent?

She will have no problems with this. Rental agreements will be signed and as of now, I intend to have parents co-sign the rental agreements. Obviously there is always risk.

In many communities, the rent does not cover the full costs of owning and maintaining the property, even under the best of circumstances (to say nothing of potential landlord headaches).

See above. Obviously, having to pony up for a new furnace or water heater etc unexpectedly is always a bad situation but we intend to set aside the first years net income for such emergencies.


And what are the landlord-tenant laws and/or university rules that you have to follow?

good question, I'm not sure what the local rules/laws are.. university wise, it's not an issue. small college and this would be off campus.

So I really think you are making a mistake to look at this as a nice cash cow without looking at all of the angles to make sure you understand realistically all of the potential and likely pros/cons.

I appreciate your concern. With all due respect, I've looked VERY closely at this. I don't make rash decisions when it comes to $ or investments. hence one of the reasons I'm asking questions on a message board!

You asked about leases. If you decide to go through with this, you can find sample leases online and then revise these to suit your needs. You should be sure to get damage deposits that are large enough to be taken seriously and to specify who will pay for what, e.g., water, cable, etc. I would try to get the parents of the roommates to co-sign.

thanks

[dallasdoughnuts]

This sounds like an excellent idea to me. She can handle it.

[ocngypz]

No parental co-signers. Make them the sole financial responsible parties............and pull their credit reports. And have them send checks directly to you.. not their kids.

Kids are kids. I don't care how good their grades are.........I've had renter kids much smarter than I..."oops, sorry about that" way too often. Undergrad or graduate.......they all "oops" too often.

Set the term of the lease for the school year only, with 3 gratis days upfront for move-in before the semester starts. Highlight move-out by date.

Prepare move in inspection check list complete with pictures. You will compare this list and pictures with the move-out inspection report and pictures. Deduct equally per student damages. That way there's no "well... he/she did it".

Also determine if the local town/city requires student rental property to be registered. Some do.

I would not have my daughter as co-owner.

Lessons learned...........over 27 years.

[Okey Dokie]

What are your expectations about the summer months. If the leases are school year only, you've got 3 months or so with no income. Have you figured in cost of lawn care?

I like the idea above that all damage will be prorated between all tenants. Just make sure everybody is fully aware of this up front and it will be their responsibility to work it out among themselves when Susie spills that bottle of India ink on the carpet and they each get dinged $100 for the $400 repair.

[dblackga]

A couple of things: She may be gung-ho to be the landlord, but it takes a very special personality to be BFF's AND a landlord. It's very tough. My daughter ran into two of these situations, where the parents of her roommate owned the house. It was hard for her, because whereas she and a friend could have rented a house and have an equal vote in arranging furniture, colors, etc., both of these girls would pull the "Well, it's MY house . . ." routine. Plus, parents/landlords are always in and out vs. a regular landlord. My daughter got a note from the mother one time that said to "please keep the dishes cleaned up, it's getting a bit messy" -- and this was after she had been gone for four days to a symposium and hadn't even been in the house for almost a week. The mother had stopped by, been horrified at her daughter's untidy ways, and when daughter threw up her hands and said, "Not MY fault!", the mother decided to take matters into her own hands.

Five people in a house is VERY tough. My son was in a multiple-tenant situation for a year, and his roommates were PIGS. It got to the point where he would have to lock his bathroom door because his was the only one that was clean, and he got tired of cleaning up vomit after parties. Carpets were wrecked, and hardwood floors were not cared for properly. And the yard? Forget it. That would require a lawnmower.

Do NOT allow pets. At all. Not even a sweet kitty. Just sayin'

If you do this, it would be helpful if your daughter was NOT the landlord. It already sounds like she's got a lot on her plate being a student-athlete, grades to get into med school, etc., etc. Does she really want to add "landlord" to the mix? The landlord is expected to keep up on repairs, they are the person everyone complains to at all hours of the night, and it's really hard to switch "friend" hat and "landlord" hat when the rent or utility payments are due and "friend" is a little short right now, but will get it to you soon . . . She will turn into everyone's "mom", sighing when the kitchen is trashed, berating roommates who have no idea how to scrub a bathroom sink, those who have no idea how to clean a carpet when the red wine spills or someone comes home and doesn't quite make it to the bathroom before they throw up, the people who don't bother to take the trash out for weeks, etc., etc. I don't care HOW carefully you vet your potential roommates -- good friends often do NOT make good roommates. And when two people want to have a few friends over but one needs to study -- who gets to judge? Your daughter?

I can't imagine whatever small boost she might get to her credit would be worth the headaches.

[lonewahya]

Just a quick note. Your daughter will find it is not easy to tell "friends" or "roommates" no when it comes to issues concerning issues with the building. If there is an "unknown" landlord, it is much easier to be the "heavy". "Sorry, the landlord says that we can't..." is much easier to say than "Sorry, I don't allow....".
Renting in a college town can be quite lucrative, but caution should be used when finding, retaining, and presiding over a property used by students.

[james777]

Originally Posted by ocngypz

No parental co-signers. Make them the sole financial responsible parties............and pull their credit reports. And have them send checks directly to you.. not their kids.

Kids are kids. I don't care how good their grades are.........I've had renter kids much smarter than I..."oops, sorry about that" way too often. Undergrad or graduate.......they all "oops" too often.

Set the term of the lease for the school year only, with 3 gratis days upfront for move-in before the semester starts. Highlight move-out by date.

Prepare move in inspection check list complete with pictures. You will compare this list and pictures with the move-out inspection report and pictures. Deduct equally per student damages. That way there's no "well... he/she did it".

Also determine if the local town/city requires student rental property to be registered. Some do.

I would not have my daughter as co-owner.

Lessons learned...........over 27 years.

I quoted the above post because it is excellent; it really hits the nail on the head. I also would not have your daughter as a co-owner of the property or on the mortgage. No way.

You say you are buying this house for a couple of reasons, and one is to build your daughter's credit. That is not a valid reason for buying a property; it never was, and certainly not in this day and age. One does not purchase a property to build or improve their credit and they would be quite foolish for doing so. You now have one less reason for buying this property.

If you do buy the property, you should get the best landlord's policy available and good liability insurance coverage.

You daughter is in undergrad trying to get good grades so she can get into med school, carrying a full course load, and participating in athletics, and you and her are worried about her credit?????!!!! You both need a reality check and some counseling. The last thing she needs is credit, and the people who have complimented you for trying to build her credit have also bought into the credit myth which is nothing more than a moneymaking con game for the credit reporting companies and banks.

You didn't say how far you are from this college, but it should be a consideration because you will surely be needed at one time or another for emergencies, taking non-paying tenants to court, etc. If you are several states away, or have a busy work schedule, you might want to rethink the whole idea.

You say you don't know what the local rules/laws are concerning rentals and rooming houses. Before you go any further, I suggest you find out what all of the rules are, for the town and for the college. Many college towns have placed numerous restrictions on the use of property because of "animal houses" full of college students. Some have gone as far as to limit the number of unrelated people who are allowed to occupy a single residence. A suburb of a major US city that I lived in did just that. Guess who the local authorities decided to crack down on? A group of four nuns living together in a house off campus because they were unrelated by blood or marriage. Do not depend on the real estate agent telling you it's ok, the town rules will allow this; go look it up for yourself. The real estate agents will say anything to make a sale; don't ask me how I know. If the town is unincorporated, check with the county zoning office.

You say you have had many chances to get into rentals, but you can't stomach it; so now you decide to rent an animal house to undergrad college students. You were afraid to wade into the kiddie pool, but now you decide to dive into the ocean with the sharks. I wish you all the luck in the world.

The above advice comes from more years than I care to admit in the mortgage business, as a landlord, and as a credit manager.

[rrah]

I live in a college town although each is different. I've even helped people do what you are considering. It can be a a good financial decision, but it will depend upon location. There are a few things you should research.

Our town requires a rental permit. In order to acquire the permit the property must be inspected every 3-5 years and pass that inspection. Does the town require any kind of permit or inspection? Are you prepared to maintain or improve the property for any permit and in general? What other requirements does the town have for rentals?

Who will be responsible for simple things such as lawn mowing or snow removal? Many places have codes which require these things be done. In my town one can be fined if sidewalks are not shoveled within 24 hours of a snow fall. Is your daughter prepared to drop everything and do those things or will you pay for them? That will impact your bottom line.

Are there any state laws regarding rentals? My state requires out of state landlords to have an in-state representative. When your daughter graduates who will represent you in the state or town? (if you are out of state).

Will you be able to sell at a break even point in 3-4 years? Do you want to be a long distance landlord while you wait to do so?

One thing to consider in the lease is a guarantee agreement. Many rentals in my town allow the students to sign the lease, but also require a guarantee agreement from the parents since students don't have enough income usually.

If you go in with full knowledge, this can be a good experience. If you are just doing it without full knowledge to save some money and build your daughter's credit, think again.

BTW--My own D graduated from college about two years ago without any real credit history. She had been responsible for utilities, but that was it. She was able to rent an apartment on her own after graduation by proving she was employed and her income. Over a year she was able to pick up a gas station credit card on her own and my husband co-signed for a bank card. He is no longer on the card. She used them and paid them off monthly. Last year her credit was established and good enough that she was able to purchase a new car on her own. Less than two years after graduation her credit score is in the mid 700s with no more help from us than husband co-signing a card for a year. DD is pretty proud that she's been able to do this on her own, and it gives her confidence in her abilities to function as an adult. Something to consider.

[Hollytree]

Most of the situations I've seen of houses run like this do not have a student at the helm. I would be afraid that your daughter would not have the time or energy or authority- as others have pointed out- to effectively run the whole property.

You might consider offering free rent to an onsite manager who can enforce the house rules which should be distributed, posted, and consistently enforced. Things like subletting, bringing boyfriends in for over nights, hours for parties, drinking, drugs, etc. all need to have written rules. Maybe there's an older single woman who might be interested in a house mother situation.

Other than that, I might be more inclined to go with a small condo for my daughter- something that she would totally responsible for and also have the peace and quiet needed for study. It might not be as great of an investment, but if you pick the right one, it could be resalable at a later date.

[BirdieBelle]

OP, does your daughter have siblings?