Why College Kids Are Bypassing Dorms And Living In Investment Properties—Courtesy Of Mom And Dad

Source: Realtor.com, Julie Taylor
Photo: Shoji Mori

Klew Yeh Mori was sick of throwing away money on her son Shoji‘s college housing with so little to show for it.

His freshman dorm at the University of Portland had not been cheap, and the expensive condo she rented for him sophomore year had a lot of maintenance issues that the landlord simply chose to ignore.

That’s when Mori, a real estate agent and resident of Salt Lake City, decided to try a different approach: When it came time to renew her son’s lease, she purchased an investment property in Portland, OR, where he could live instead.

“I don’t have to waste money on rent anymore, and now we are collecting rental income from his roommates to help with household expenses,” Mori explains. “It’s a win-win for me.”

Mori isn’t the only parent who’s figured out that buying a property where their college-age kids can live is a smart idea that can pay off now and down the road.

“Purchasing homes for college-age children can be an intriguing investment strategy among parents,” says Realtor.com® economist Ralph McLaughlin. “By buying a property near their child’s university, parents can provide a stable and convenient living arrangement for their child but also capitalize on the potential for financial gains when compared to their child renting a home or living in a dormitory.”

“Parents investing in housing in college towns where their kids go to school is actually incredibly common,” says Jameson Tyler Drew, developer and president of Anubis Properties in Whittier, CA. “For instance, in Muncie, IN, a large, well-kept house within walking distance of the Ball State University can be purchased for under $150,000. After taxes and fees, this comes out to about a $860 payment with 20% down. Or you could rent the home next door for $850 a month. For those who can afford it, it’s a no-brainer.”

How the deal came together

Mori knew she wanted a newer property, since it rains a lot in Portland, which can lead to a lot of mold issues. The home, priced at $820,000, sparked a bidding war, which she won in 2022 by paying $970,000 in cash.

From there, she put both her name and her son’s on the deed. The fact that it’s an owner-occupied property, which is Shoji’s primary residence, will allow them both to reap tax benefits later.

“When we sell it, Shoji and I can each pocket up to $250,000 profit without paying Uncle Sam,” Mori says.

They collect $2,900 a month from three renters.

“When you factor in the rental income plus the money I’m saving on his college rental, I’m getting a much bigger return on my money than if I had just kept my cash in a savings account,” Mori explains.

And since real estate in college towns tends to be robust and rise over time, the odds of Mori’s investment losing value is unlikely.

“It’s almost certain that the demand will be there for rental properties in a college town,” says Samantha Sousa, a real estate broker in Visalia, CA. “With college towns, property values historically rise, so if parents do decide to sell after a few years, they will likely benefit from the equity built.”

Drew agrees that having an investment property for college kids comes with a variety of benefits.

“The pros are obvious,” he says. “When including your son or daughter on the title and paying on time, it dramatically improves their credit history. Of course, they can also share in any profits that might come from the sale of the house in the future. There are also multiple tax write-offs that aren’t usually available to renting college students. Lastly, you don’t have to worry about losing your security deposit.”

But as is the case with any investment, there are possible downsides and risks.

“The cons are that your college-aged kid is now in charge of household maintenance and paying bills on time,” Drew says. “For some kids not used to that responsibility, it can end badly. These houses can turn into nonstop parties if the person isn’t mature enough, or worse. Ownership also means that there’s no landlord to call when things break—and they will.”

Avoiding family drama

Yet despite the risks, Atlanta real estate agent and attorney Bruce Ailion purchased homes for all his kids when they were in college, and highly recommends it to others.

“Dorms and apartments are more densely populated, the space provided is small, and the distractions are high,” he says. “We have five children, three with doctorates, two with undergraduate degrees, no student loans, and all have jobs. Given our children’s success in school, I have to wonder if being in an owned property contributed to that success.”

But to avoid drama or resentment among siblings, Ailion recommends keeping things fair and square when you have multiple kids.

“When purchasing, it is essential to be consistent between the children,” he advises. “I consider that to mean allocating the same resources to each. In some markets, that may result in a nicer place but with an equal contribution.”

As for Shoji and his mom, owning a property together has strengthened their relationship and brought them closer.

“We get along better and argue less,” Shoji says. “I now see what it takes to own a home behind the scenes, and I have a much bigger appreciation for everything my mom has done for me.”

Not only has this been a smart move financially, it’s also taught him some important life lessons that money can’t buy.

“I run the household, collect the rent, and pay all the house bills out of a designated account, which made me become much more responsible,” 22-year-old Shoji says. “I’m doing things like changing the garbage disposal, staining the deck, and fixing the dishwasher. This situation forced me to put on my big-boy pants and figure stuff out.”

Mori expects that this investment will pay off not only during her child’s college years, but beyond that if she keeps the property as a rental property for future students.

“Such properties can serve as a primary residence for the student during their college years and later be rented out to other students or sold after the child graduates,” McLaughlin says. “This dual-purpose investment can help offset the costs of higher education and offer a steady stream of rental income, making it an attractive option for families looking to invest in real estate while also providing some use-value to their college-age children.”

But perhaps the biggest benefit in Mori’s mind is that her son may be at college, but still feels like he’s home.

“It gives him more of a home-away-from-home environment while he is away at school,” she explains.

https://www.realtor.com/advice/buy/buying-investment-properties-for-college-kids