College Rental Set Up

3 Replies

I am planning on partnering with my sister who has asked about buying a college rental property for her son. How would you recommend structuring something like that? He would be house hacking it for us so we could do 3.5% down (though it destroys our cash flow so I'm not convinced it's the best option) I assume I would co-sign on the loan since he has no credit yet. Or would I just put the title in my name? Do we split the down payment? Split the cash flow or structure it more like a partner that I could buy out in a few years and pay them off with interest? Do we offer him reduced rent? free rent? Anyone have experience in something like this? If this did work, and we co-signed, would that mean I couldn't co-sign on another FHA loan if we wanted to do it again with another student?

Thank you!!

@Meghan Billings I'm going to give you an answer you probably didn't want to hear - you should call a local bank/lender who may have experience with these loans. Best to hear these answers straight from the source.

One thing I can comment on is that in order to use the FHA 203K like you mentioned, it would have to be owner occupied probably by all of the names on the title. I could be wrong there, but a lot of people would abuse the loan if that wasn't enforced.

Yea, I would find a lender and an accountant/lawyer to speak to about this. You will likely have to purchase it in your name or jointly with your sister and then rent it out to her son and the other students (to do it the correct way). Then you would likely have to claim all of the rents as income and be taxed on that. 

There may be a way for your sister to purchase it and you just structure yourself as an investor with her (possibly allowing her to rent to her son for no rent which may cut back on taxes).

Ha ha @Marshall Leipprandt You are right, I didn’t want to hear that, but you are completely right.  I will talk to my lender. 

If I took out the FHA portion of my question, what would you say to structuring a partnership like that? A college rental that my nephew will use for 4 years.