- Long term goals – Although appreciation rates may be favorable, it is important to determine how long you should intend to keep the property. Within a few years your son or daughter will be finished with their education, and you will be left with a property to manage.Some individuals would rather keep the home as an investment and continue to rent the property to new students. Additionally, this may be a place you will plan to use for future visits or football games long after your child has completed their college years.There is a problem with relying on strong appreciation rates… you may not be able to command the price you desire a few years from now. So unless you are prepared to hold onto the property for a longer time period to make the investment worthwhile, this may be something worth reconsidering.
- Maintenance & management – Next, purchasing a rental property is a big investment, so you want to ensure that your property is kept in good condition. Although your son or daughter may be extremely reliable, you may need to consider other friends or roommates that may share in the rent.Are you comfortable with trusting 2 or more college students to watch after your property? Also, you may be required to pay a property manager (especially once your child graduates) to help manage the home if you live at a distance.Finally, it will be important that you can find reliable contractors to take care of any maintenance hassles and ensure that the property remains in tip top shape.
- Cash flow & taxes – After carefully reviewing the first 2 points, you may still feel that a rental property for your student is well worth the investment. If this is the case, then there are a few things you must know about finances.First of all, be sure that you are buying smart. Work with a qualified agent who knows the area and can help direct you to the best deals. They will be able to help you figure out projected rental income and appreciation rates as well.After factoring in taxes, insurance, maintenance, associate fees, your mortgage, etc. you will want to make sure that you have some cash flow for extra profit and to cover unexpected problems that may arise down the road.This will also make your investment pay off more in the long run and can free you up to invest in future properties as well. For those who are married, you must be aware that there is a limit to how many itemized deductions you can write off if your gross income exceeds approximately $240K. Therefore, though it is possible that you can include the taxes and mortgage interest as deductions on your second property, this is something you will still need to review with a tax professional. Finally, be aware that the property can also be susceptible to capital gains tax once you are ready to sell. Either way, you will still be eligible for some depreciation on your home and to write off a portion of your maintenance and utilities, so there are always good reasons to buy.
Have you considered investing in housing for your college student? Living off campus by buying a rental property or condo may be an option worth considering. With high dorm costs and the opportunity to create a tax shelter for your hard earned money, this is a strategy many parents have found to be beneficial. An investment property is an excellent opportunity to put your money to work for you, and may even help offset some of the income invested into your child’s education. However, there are various factors you should consider before making any final decisions.