Professor Leonard Baron on should you buy a rental property for your college studentMany issues come along with owning a student rental and you should really think them through before you get a tough and expense college lesson of your own

Many parents who are interested in real estate investing might consider buying a property for their child to live in during college. After all, your student can take care of your property, and you can even earn some equity from your ownership, right?
Not so fast. Many issues come along with owning a student rental, and you should really think them through before you get yourself a “tough and expensive” college lesson of your own.

Short-term ownership of rentals

Professor Leonard Baron on whether you should buy a rental for your college student from

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Rule No. 1 of prudent real estate investing: Focus on long-term ownership. The longer the property has to accrue in value, the higher the chances it will be a wealth-building investment for you. How long will your child be in school?

Likely only 4-5 years, and then he or she will move on. Are you then going to hold onto the property and rent it to other students each year going forward? Probably not.

You’ll end up selling the property after only a few years. At a minimum, you won’t earn a dime and most likely you’ll lose money.

Lack of good deals

It’s actually very hard to find a good student rental real estate deal. A “good deal” means it will be cash-flow positive and provide a fair rate of return on your invested capital. Because many people think student rentals are a good money-making venture, and they like to brag about owning one, they drive up the prices and drive down investment returns.

If it isn’t a good deal from day one, it will probably never be a good investment for you. So pencil out your deal first with conservative estimates of rents and expenses, and if you can’t get a fair cash-on-cash return investment, keep your money in other assets or find a rental property elsewhere — preferably in your city — that pays the bills.

Hassles of management

What’s more important: for your child to get good grades and secure a good job coming out of college, or for your child to get a lesson in property management? All real estate has hassles and issues. Do you want your son or daughter worrying about broken pipes, collecting rent and dealing with neighbors instead of studying? What about when the A/C or heat breaks during finals and the tenants/roommates aren’t happy? Let students be students. They have enough other stressful issues on their minds to deal with than an overflowing toilet.

Summers and insurance

Many student rentals are vacant over the summer, and most insurance expires if your property is vacant longer than 30 or 60 days. So you will need to buy some extra insurance in addition to not collecting any rental income during that period. Most people don’t do this and go without procuring the right insurance. You’d better hope nothing happens!
The bottom line: Let local property ownership companies deal with the student rentals. It’s a lot less expensive and much less hassle for your child to rent someone else’s property than for you to handle one on your own.

This article courtesy of Zillow.

Visit Professor Baron’s website here.

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