When Klew Yeh Mori’s son entered his junior year at the University of Portland, she made an unconventional decision. Instead of continuing to pay for a dorm room or off-campus apartment, the Salt Lake City real estate agent bought a house. “I don’t have to waste money on rent anymore,” Mori was quoted in a Realtor.com report. “Now we’re collecting rental income from his roommates to help with household expenses. It’s a win-win for me.”
Mori is part of a growing cohort of parents who are purchasing properties for their college-age children to live in, viewing it as an investment strategy that can pay dividends both during and after their offspring’s academic careers. This trend has gained momentum as housing costs in many college towns have surged. Parents see an opportunity to build equity instead of paying for increasingly expensive dorms or rentals. “It’s almost certain that the demand will be there for rental properties in a college town,” Samantha Sousa, a real estate broker, said in the Realtor report. “With college towns, property values historically rise, so if parents decide to sell after a few years, they will likely benefit from the equity built.”
Advantages of the Strategy
The benefits of this strategy are numerous. Parents can potentially save on housing costs, earn rental income, and build equity. Jay Voorhees, founder of JVM Lending in Walnut Creek, California, has seen the strategy pay off. “I have seen investors make hundreds of thousands of dollars buying properties for their college-age kids to both live in and rent out to roommates,” he said. Voorhees noted that parents can access more favorable owner-occupied financing rates if their child is on the loan. “A kid does not need any income to be on the loan, but she does need decent credit,” he said.
Some parents are taking proactive steps to establish their children’s credit early. “Heejin, my wife and co-founder, established her daughter’s credit immediately after high school by getting her credit cards and adding her as an authorized user to several of our cards,” Voorhees said. “By the time she was a sophomore in college, she had sky-high credit scores.”
The long-term benefits can extend beyond the college years. Mori plans to keep the property as a rental after her son graduates. “When we sell it, Shoji and I can each pocket up to $250,000 profit without paying Uncle Sam,” she said, referring to capital gains tax exemptions on primary residences.
Educational Experience for Students
For students like Shoji, managing the property is an educational experience. “I run the household, collect the rent, and pay all the house bills out of a designated account,” he told Realtor.com. “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.”
Risks and Considerations
While this strategy offers many advantages, it’s not without risks. Parents essentially become landlords, responsible for maintenance and potential property issues. The home can also become a party house if students aren’t mature enough to handle the responsibility.
Not all markets are equally suited for this strategy. Jameson Tyler Drew, president of Anubis Properties in Whittier, California, points to Muncie, Indiana, where a house near Ball State University can be purchased for under $150,000. “After taxes and fees, this comes out to about an $860 payment with 20% down. Or you could rent the home next door for $850 a month,” Drew said. “For those who can afford it, it’s a no-brainer.”
However, the calculus is different in more expensive markets like Portland, where Mori bought. In 2022, she paid $970,000 for the property, winning a bidding war for a home initially priced at $820,000.
Conclusion
Investing in real estate for college housing offers a compelling alternative to paying rent for dorms or off-campus apartments. For parents who can afford it, this strategy can provide significant financial benefits and educational experiences for their children. However, it is important to carefully consider the responsibilities and risks involved, as well as the specific market conditions of the college town in question.
