investing in a property for your college student

(Article Updated 7/30/2019)

Whether you’re excited to send your child off to college or nervous about becoming an empty nester, one thing is for sure: the growing costs of education are likely something you’ve been thinking about—a lot. But there is good news! One way to alleviate some of these costs is to consider investing in a property for your college student. Not only could such an investment be the perfect solution for reducing room and board costs, it could be a wealth-builder for your retirement portfolio.  

The cost of student housing

Student housing, particularly in areas with high concentrations of major universities, such as New York, Boston and Northern and Southern California also have extremely high housing costs with limited availability. The College Board reports that the average cost of room and board in 2017–2018 ranged from $10,800 at four-year public schools to $12,210 at private schools. Board includes meal plans, which are usually included with on-campus options. Living in a campus-adjacent apartment can save on “board,” but if the school is in a high-rental area, you can expect to see maximum prices. If you opt to purchase a condo, you can build equity, take care of your child’s housing needs and have most of the expenses offset by renting to other students.

Covering the monthly payments

One of the many benefits of owning a property close to campus is that you won’t have to deal with waiting lists or other red tape involved with getting your child into student housing. Not only will you be able to save money on monthly rent that you’d likely pay anyway, but you can help screen your child’s roommates. By bringing in other tenants, your child will have more of an opportunity to make live-in friends as well as help you establish an income flow that can help cover the bills. Another advantage is that your student will not have to move at the end of every school year or summer, as students do now. They can stay and work during the summer, travel or return to your home without having to move all their personal belongings. 

Build wealth by investing equity

If you have equity in your home, you can access that capital for the down payment on the investment property. A home has equity when the market value of the property is higher than the amount you owe. By taking that extra cash out of your home and investing it in another, you can double the equity you are building with minimal monthly expense, while covering most of your child’s living expenses. This is an expense you’d have regardless. Keep in mind, the interest rates and terms will be different, as it won’t be your primary residence but the pros of buying an investment property generally outweigh the cons. This is especially true if you are in a region where the property will be continually leased and the market value will reliably increase, such as areas near major universities.

Be clear with the rules

Part of the college experience is learning to live on one’s own and manage personal responsibilities. Do not hesitate to lay down ground rules and have every tenant sign a lease and/or living agreement. Consult an attorney and study landlord laws in the state where you are purchasing. Hiring a management company to interface with tenants, enforce rules and assist with repairs and rental can help alleviate possible conflict and keep everything on a professional basis. Hopefully, this will abate the potential for family conflicts.

Lasting beyond graduation

Once your child graduates, you have the option of keeping the property as a steady flow of income or selling it to cash out the equity you’ve built. Properties near college or university campuses will almost always be in demand but selling the home in four to five years might not be enough to recoup the costs and still get a decent return. If this is the case, keep the property for a few more years and continue to rent it out each term. Or perhaps there is a second or third child waiting in the wings who is interested in attending the same school. If this is the case, the housing issue will already be solved.

Purchasing a home for your college student may be within closer reach than you think. loanDepot’s licensed loan consultants can help provide guidance for all of your options and potentially transform “dorm life” into an exceptional investment for you—and your family’s—future.



Talking with loanDepot: Millennials and Mortgages
You're never too young to refinance
Hidden Treasures: Summer 2017
Ready to be a homeowner? Here are 7 ways to check