College Student - Real Estate Advice

10 Replies

Throughout high school from working long hours on various jobs and then investing that money into ETFs, I managed to save up (some say I sacrificed my social life through not spending any of it) around $40k.

I’ve been thinking of buying a house as an investment and rental property on a mortgage (credit score is ~780). In terms of employment, I think that I should have no problem securing a $80k+/year job after graduation.

My parents (credit score 800+) have been generally supportive of this and would probably be willing to cosign. I’m heading off to college in an east coast college town (rural and not in my state). In terms of college tuition/student loans, I’ve been fortunate enough to receive a merit scholarship that should be able to cover most of it.

I understand that there is a massive ton of work in maintaining and managing a rental property. I've also been researching legal, insurance, liability, etc. options. I've thought of doing a LLC.

In terms of budget, I think anything under $180k is do-able. A problem is that there aren't a lot of single family homes for that price, but I guess it's not a bad start (townhome/twinhome). I think I'd go for a foreclosure auction or something like that, but I know that most of the other people have had decades of experience on me.

The housing in this college town isn't exactly cheap. A 2 bed 2 bath condo in 5 mins walking distance to the college costs $300k~. Something 20-30 (walking) mins away costs the same, but is a much larger single family. Single family houses (3-5 bed 3-4 bath) are 1-3 million. The college is the main driver behind the economy in this location and real estate value. 

I think I have two options:

  • Buy a house in my home city (suburb of Minneapolis) and use a property manager.
  • Buy a house in the college town (East Coast) and live there instead of living in a dorm (college dorm costs around $9-10k/year, so that'd be a major expense "saved"). AirBnB/rent it out.

Any thoughts? Advice?

I would run the numbers and figure out which option works best, but I think buying something near your college will probably be the best option. You can buy the single family house with 3-5 bedrooms(20 min away) and rent out each of the bedrooms. That way your mortgage will most likely be completely covered and you can live there for free.  You can save that 9-10k a year for the next property, while you do the management of the property yourself and learn. I think this will be a great learning experience as opposed to paying a property manager to take care of a house near your home town.

Best of luck!

I think that you can buy a house in your school area and live in it. You can have roommates and what not. The rent should suffice the bills. Perhaps, even put some money in your pocket... You wouldn't need any PM. You can download the lease template from BP. You'll have 24/7 access to the house (you'll be lining in it) and you can see how others are treating your property.
*living

Andrew, I am a senior now taking my classes online to focus on my businesses but I have some firsthand experience that I hope helps you out. Just before my freshman year of college I got a waiver to not live in the dorms because I was buying a house. I bought a brick 1,300 sq. ft 3 bed 2 bath house that was just under 2 years old for $129,900 that was about 8 miles from campus, on the edge of town. 20% down = $26,000. My total bills for the house averaged about $1,050/month. I had 2 other college students move into the other 2 rooms @ $500/month each. I was paying only $50/month to have this house! My yearly bills were $600 compared to $16,000+ if I had stayed in the dorms. One of my businesses saw exponential growth last year and I moved about 350 miles to give it my full attention, so I sold the house for $135,900. After closing costs I didn't make much money on that house, but I saved at least $48,000 by being out of the dorms. 

Important things to consider:

1. Are you old enough to not live in dorms or can you get a waiver? Most colleges require on campus living for the first 2 years, until you are 21 or until a number of other qualifications are met. If you aren't required, go talk to the director of Residential Living because they will likely be impressed by your ability to purchase a home and give you a waiver. Also, most colleges make you purchase a meal plan if you live in the dorms, so you might have another $3,000+ a year in savings when you leave the dorms. 

2. Choose your roommates wisely. It is a college town and partying is very common. The wrong kind of roommate can negate any savings/earnings due to repairs. 

3. If I had it to do over again, I wouldn't buy the 2 year old brick house with crown moulding and granite throughout, more expensive flooring and higher-end appliances. After all, we are college students, we could live a little more like college students for significantly less. Granted the market I bought in is much cheaper than yours, but I could've bought a house of the same size, same distance from campus but a different direction, but older and with less upgrades inside for about $60,000. If I had done this, I would've charged roommates a little less but would have had a positive cash flow instead of paying $50/month and still been living better than all those who pay thousands to stay in the dorms. 

I think your plan is a great one assuming you can find the right deal on a property in the college town you plan to live in, but I definitely would go that route rather than buying in your hometown unless you can buy super cheap and have a significant positive cash flow that will do better per year than your savings from not living in the dorms. 

Best of Luck!

@Andrew Yang I think you should house hack like what other people are saying, if you find a good deal you might be able to live for free with positive cash flow, or even live for very little (which is still good opposed to payed so much to live in the dorms). Just make sure you don't get a fancy house, your just in college you don't need anything fancy. And get good roommates as well.

@Andrew Yang I would house hack if you can.

Others have brought up good points to look into before you attempt it while in your freshman year. College housing has become incredibly expensive and you’ll save a lot of money if you can pull this off.

If you do decide to buy in Minneapolis I would consider whether or not you plan on coming back here? A single family wouldn’t require management if you have family in town willing to help and neither would a small multi family. If you’re going to move back after college a small multi would be great because you could move into one side and house hack it.

Either way you’re off to a great start man! Time is your friend and the best time to start is always now so we don’t waste too much of it.

Jordan Moorhead, Real Estate Agent in MN (#40542303)

I have shown endless parents to local universities looking at the homes thinking children will live in while attending colleges. I tell parents that they really have to bid ferociously to become the highest bidder.  Most think offering below the market price will do. Most experienced realtors also advised that each of these homes has over 20 wishful thinking groups eyeing them. Some are investors wanting to lease just a notch lower than dorm or apt rent. Do not waste anytime as you have a life.  Have your parents and you buy together an rental property in Twin City.

BTW: Most insurance companies do NOT issue home insurance  policy with students inside anymore. Drug factory, wild parties........

I would wait until you graduate and then house hack. The next few years of your life will be life changing. You may end up needing some of your money saved for college expenses. Or you may end up either wanting to transfer to a different college if the college you select is not a good fit or you decide to pursue a different major and your school does not offer the new major. If you own a house near college you will feel stuck there or you will become a long distance landlord when you are a busy college student.

Also once you finish college you may end up living in a completely different part of the country for graduate school, your first professional job, or some other adventure. Once you graduate and settle into your first job, then I would house hack.

Great advice here. Some have mentioned renting out bedrooms, but I’m surprised no one’s mentioned a duplex, three-decker, or other Small Multifamily. You can live in one unit, get another responsible student (maybe a grad student) to live in the other. Whether you or your parents own it on paper, your fees and expenses can be tax deductible as business expenses, and if yo’re in the paper, you can often still get approved “residential” rates and down payments if owner-occupied.

Don’t dump all of your money into the down payment. Be sure to keep a healthy amount aside for reserve, emergencies, and repairs that need immediate attention. Ask your parents: There’s not a month that goes by without someone repairing or maintaining somethings a home— even basic lawn/snow care takes valuable time and resources.

Finally, always remember to steer clear of BIAS and discrimination when leasing to others— this is critical and can ruin you quickly. Many rookies simply say the wrong thing and don’t understand that even some innocent, “seemingly beneficial” statements are actually very illegal. Know the “protected classes” in your area inside and out. In your case, just as an example, You can NOT discriminate based on age.... but in most states ”student status” is not a protected class. If worded properly, you can look for non-smoking, graduate students, for example, but you can’t advertise for “responsible students over the age of 24”. Then, if you find a perfect undergrad who’s 26 and was maybe a soldier, sailor or airman at 18, and you were initially advertising for graduates only, you can reopen that discrimination door against you, based on choosing the 26 year old undergrad! Be smart and firm in your advertising and tenant selection decisions.

Good luck! You’re on the right path.

@Andrew Yang Just asking the questions at your age tell me your a cut above. Keep up the ambition you are on to something big!!! Most people think rental house when buying their first rental property. Skip that step!!! Think duplex if they exist in your college town. Too many advantages of owning a duplex over a SFH.

Check out my profile and see why I like duplexes.  Perfect make up for college town is a 2 bedroom 2 bath or 1 bath units.  Easy to keep two students together, 3 students in one unit often spell troubles.  You should cash flow positive day one.  Since you will live on one side you could get in with about 10% down.  If you rent out one room on your side and rent the other unit out you should be living free, meaning ALL of your expenses are covered. 

Good Luck.

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