Buying a Condo for Your Son or Daughter
Buying a property for your child to live in now while they are attending college can be a worthwhile investment financially, as well as an excellent learning experience.
Owning the property your student lives in while they attend college can be beneficial in several ways.
1. The student will have a greater sense of stability in that they won’t need to look for a different apartment to live in each year. In addition, you can pick the lifestyle that will help your student succeed in school by choosing the location and the quality of housing that best fits their needs.
2. In the past, apartment rents in Kansas City have typically increased on an annual basis. By purchasing a property with a fixed rate mortgage your student’s housing expense will be fixed. In addition, you won’t have to deal with paying security deposits or going through the hassle of getting the deposit back.
3. Having a single place to live in that you own means your student will not have to worry about storing furniture over the summer break.
4. By purchasing a home for your student you will be providing him/her an excellent learning experience. Your student will learn not only about the process of investing in real estate, but will also learn about the responsibilities that go along with property ownership.
I have had some clients buy a piece of real estate in which they have had all two, three or more of their children live in while attending college, in some cases this spanned a 10-year time frame. Rather than throwing money down the “rent drain”, they have built equity in a real estate investment over this period of time.
Helping your Child Establish Credit
If you decide to have your child on the mortgage and deed, you can help your child establish credit prior to making a mortgage loan application by obtaining a credit card in the student’s name, preferably a year prior to your purchase. In addition, if the student has a car it is a good idea to have a small loan on the car in the student’s name which can also help their credit rating.
Method of Ownership for the “Student Property”
It is necessary for you to talk to your accountant and attorney to determine the ownership method that works best for you. Some parents will buy as owner occupied property; others will treat it 100% as a rental property for additional tax benefits. There are many ways of holding title, including creating a Family Limited Liability Company (LLC)
Rental Roommate Income
One option is to buy a 1 bedroom condo for your student to live in by themselves. However, a 2 bedroom unit will allow for a roommate and the rent from the roommate can supplement the mortgage payment. If a 3 bedroom unit or home can be found, the rental income from 2 roommates can help the monthly cash flow even more. Be aware that there are occupancy limits imposed in some communities. In other words, check the local ordinances before deciding if it is okay to have 5 students living in one property.
Roommate Lease or Rental Agreement
Even though the potential roommates are typically close friends, it is a good idea to have a written rental agreement with roommates. The roommate rental agreement should cover all the items typically found in a residential lease such as:
Term Utility payment agreement
Rental rate and due date Maximum occupancy
Security Deposit Parking
- Notice to Vacate Pets