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So my daughter is a freshman in college and we are interested in buying a rental property near her campus.
A couple reasons.
One is to help build credit for her
The other is that she wants to get out of college with as little debt as possible. She has full tuition taken care of already and wants to move off campus (expensive room and board on campus...it's nearly $10k per year) in order to live basically rent free the next 3 1/2 years.
The idea being that her roommates will pay the rent and also maybe provide a little extra cash flow.
The house is 5 bedrooms and 2 baths and she already has 4 room mates lined up.
Financing is already taken care of.
I was wondering if others can provide guidance on advice on do's and don'ts as well as a resource for a rental agreement as well as things to have in it.
Any other advice or input is appreciated.
Note that as of now, the plan is to co-own it with her. when she graduates and moves on, I will just take over ownership/management of the rental through quit claim deed (or sell it).
It's kind of a neat little situation as it's a small college and it sure seems like we will have a pipeline of good renters through the athletic programs.....
We plan for her to basically manage it, collect rent, keep the rooms filled and general upkeep etc.
As a parent, my primary concern is that you're handing everything to her.
Normally, and with many kids, I would agree with you. However, this child could have lived on her own since 6th grade. She is one I do not worry about whatsoever. She is extremely responsible and a real "go getter".
Besides, she would have skin in the game here as well as the loan and ownership is in her name and she is 100% responsible for nearly all of her college costs and is very conscious of trying to get out of college with as little debt as possible. She intends to go to medical school and wants to start life on a good foot.
Again, this was all her idea and she has researched potential homes, found a realtor and has done the dealing with the realtor in touring homes etc.
I am not a landlord, but I have worked with my fair share of renters, many of which are college students. College students, by nature, tend to job hop and be less financially responsible (not saying that all are). I would require the applicants to be screened just like any other prospective tenants (which reviews rental history, credit, job history, income, etc.). Also have them sign a standard lease agreement, so that you have a remedy if a disagreement between the roommates goes down, and two decide to just move out.
As long as she's not secretly plotting to set up an enterprise like Tom Cruise in Risky Business, it sounds like she'll be fine.
I do think you should check with your tax preparer, though.
Ha. Yeah, she has a very active mind that way....she has already called me twice on pyramid schemes that people have approached her with! I showed her how to handle those!
One of the first things I did was to contact my accountant.
At first, I was thinking we would just let her do it all alone 100%. My bank already said they would give her the loan all by herself (even thought she doesn't work much in college due to being an athlete and has very little free time in season)
After talking to the acct, he suggested that tax wise, it makes more sense for us to co-own it with her as I can greatly benefit from it and she would get very little if any tax benefit. We would likely be able to show a loss.
Then after graduation, she quit claims it over to me and I either sell it or continue to rent it. Like I said in my OP, I think it could be a nice little cash cow for me as the pipeline for good GIRLS (my intention) through the ahtletic department. I know the coaches and they would help screen for me.
Besides, I was thinking that after my daughter graduates, I would find a responsible kid that I could give a good discount on her rent to "manage" it like my daughter is/will. Obviously that is a ways off.
I am not a landlord, but I have worked with my fair share of renters, many of which are college students. College students, by nature, tend to job hop and be less financially responsible (not saying that all are). I would require the applicants to be screened just like any other prospective tenants (which reviews rental history, credit, job history, income, etc.). Also have them sign a standard lease agreement, so that you have a remedy if a disagreement between the roommates goes down, and two decide to just move out.
Thanks for the response. We fully intend to have a lease agreement. hopefully, we are able to somewhat control up front the quality of renter since they will likely be a friend or team mate of hers..
Watch a few Judge Judy shows about roommate disputes, co-signing loans, etc., just to be forewarned. :-)
Whether this plan is likely to be good depends on a lot of factors aside from the quality of screening that others very correctly point out is very important. For example: are you near the university town? 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)? What are the costs of renting vs. owning in that community? (There are easier and less risky ways to build credit scores). 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.? Can your daughter handle any repairs and if not, who will perform them? 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. 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?
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). And what are the landlord-tenant laws and/or university rules that you have to follow?
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.
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.
Last edited by ACWhite; 01-26-2014 at 07:53 PM..
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