LL#1 attends college in a very small town. Knowing the college students are a captive audience, the off campus rental market is mostly overpriced properties that have had the bare minimum done to them to keep them functional. She was supposed to be in a dorm this year, but the university waived that requirement in July due to covid so after some last minute scrambling, she lucked out and ended up in a decent house -- it's had the bare minimum maintenance for sure, but it is large and cheap and each of them have their own bathroom which is a rarity. Sadly, the landlord is booting them out to move his own kid in this fall. So after some househunting mostly done by me from afar because they are all STEM majors and have no time, she and her roomies signed a lease for a very cute house for next year. Again, owned by a private landlord who had been using it for her kids (who just graduated) and said she would be flexible about summer stay/storage - most leases end May 17 and summer leases start June 1 or fall leases start Aug 15-ish so there's a weird gap where people have to store all their belongings somewhere and end up moving a bunch of times. Since we are 10 hours away, we wanted no part of that.

Alas, the landlady has decided to sell the house and within 2 days, they have several offers. Her current lease would hold til May 17 but after that, they could be forced to move again for their senior year. We have until noon today to toss our hat into the ring. I know it is a bubble right now, but being a college town, the prices were always bubbly compared to the towns around it. My initial thought was no - not getting into a bidding war, not buying in a hot market, not buying a rental property 10 hours away - but the more I investigate the more comfortable I am getting with the idea. I talked to several out of state parents who did this and said it was the best thing they ever did and I found a great property manager to take care of things since did I mention we are 10 hours away????

We are basically doing this because of the freedom it affords her - she wouldn't be bound to the nonsensical move in/move out dates that leave kids homeless for weeks or months, her cat would be guaranteed approval (she has it for the current landlady, but who knows what the new owners would say), etc. I am trying to weigh the hassle of owning and maybe selling the house in 2 years in a softer market vs. the hassle of having to drive 10 hours to move her several times, find storage and/or pay summer rent somewhere, transfer utilities several times, and maybe have her end up with a landlord that doesn't take care of the place. And who knows - maybe we'll find it to be easy cash flow and just keep it forever.

She only needs this house for 2 more years. Are we crazy????

And yes, this could all be moot since we might not win the bidding war anyhow.

listing in case you are curious: https://www.redfin.com/OH/Oxfo...788#property-history

Ok, I looked at the listing... So, you would be landlords for your daughter and her friends, and then sell when daughter graduates?

I don't know, I don't think that's crazy. The real problem is, are there any hidden maintenance costs that might rise up to bite you.

Is daughter living there? Can you real quick get a professional inspection?

If you feel confident there won't be any big expenses, I think it makes sense to do it...

Have not seen my rental houses in two years.
Found a great manager.
He is doing a great job.
A friend bought a house in Boulder when his daughter started the university there. It worked well.
Your daughter may help you determine the condition of the place.
Have it inspected and go for it.

I'd buy that house in a heartbeat, and I'd pay over asking if I had to. Way over asking. A 10% overbid is going to cost some $115/month. a 25% overbid about $285. At some point you are going to run in to an appraisal issue (depending on how much cash you put down, possibly the cash you have saved for college costs, but price is only a part of the calculation.

The value of that house has little to do with the market and everything to do with cash flow, especially when you include eliminating the cost of housing for your daughter.

According to the 'net, room and board at that college is $1200/month. You'd have to shop around, but I'd put the amount you could get in rent from each student at some $800/month, and it's a four bedroom with a lower level (I'm counting it as a bedroom - kids will live anywhere)which means 5 kids. $2700/month (your daughter doesn't pay) against a monthly cost of some $2K, resulting in some $700/mo clear. Add that to the $1200/month you'd have to pay for her to stay in the dorms and you're clearing some $1900/month. Throw in something because you aren't going to have to buy the meal plan, pay for laundry, parking, etc. and you're getting close to paying her tuition with nothing more out of pocket than the payment, utilities and management fee.

There's more, too. It's a rental, which means everything you do to it is tax deductible - not so of dorms. You'll get a depreciation allowance and a couple of other little deductions as well (travel to inspect the property, for example, furniture, appliances.) I'd add for appreciation here, but I don't know the market.

I've rented to students before (Chapman University) and it worked out very well. Each kid signed the lease and each of their parents as well. All were jointly and severally liable. Each lease was for the full year, whether they were there in the summer or not. Big security deposits. In three years I had no trouble with damage, parties, or anything like that. I made sure that each kid knew that if there was any trouble I'd evict every one of them and let their parents fight it out.

It's a college town, which means there are plenty of property managers who know exactly how to take care of the property and keep an eye on things. I daresay you can find them if you ask around.

We have several friends who do this. One in particular had three kids go to nursing school in South Carolina, and the profit from the house pretty much paid for tuition. After the kids finished they kept it as a rental and it generates a nice cash flow.

House looks good in the pictures, but put in an inspection clause just in case.

Play with the numbers, but don't wait too long. I think you have a great opportunity here.

I'll throw in one more thought here.

The very worst that can happen is that the house costs more over the course of two years than you were going to pay for dorm housing/meals. I see that as very unlikely as long as you keep it insured.

What Steve said.

Thanks Steve (and everyone else)! We have no idea about the rental business so your feedback is very helpful. I do think your numbers are a bit off though - the whole town is on a weird rental schedule where the leases are for 9 months, from mid August to mid May (varies every year with the start and end date of classes) and rent is paid by semester, not month so very few people sign a 12 month lease. This house is permitted for up to 7 but there are only 4 actual bedrooms so we would be keeping it at 4 at least while LL#1 is living there. (I think it would be crazy to try to cram 7 people in there!) So next year, each girl is paying 3K per semester or 6K per year for a total rent income of 24K including our daughter's payment -- if she doesn't pay, we'd be looking at 18K. (She takes the money out of her 529 so I'd have to figure out if it made sense for her to pay to get the money out with the 529 benefits or not have her pay.) Summer rent, if anyone wants to stay, is usually charged extra though some landlords give free summer if you renew for another year. Sometimes its charged by month (400-500/month), sometimes for the whole summer (1000-1200) -- and those numbers are per kid -- they only charge the kids who stay. It's actually really weird and not at all like the way I paid rent in college Which was a normal monthly 12 month lease).

I wasn't really following your math all that well....does that change your value calculation at all?

They are extending the deadline for us to make an offer. We just did a facetime tour and the house is overall well maintained. The whole retaining wall around the patio is a disaster and needs completely replaced. And some of the siding (it's wood) is kinda in bad shape and all of it probably could use fresh paint/stain. Wonder what it would cost to take the wood down and make it vinyl.

I've thought about doing the same for one of my daughters, but the closing costs on the back end could be expensive.

We looked at it in Muncie which is not a dissimilar market to Oxford, but at that time the houses were MUCH less expensive, like $50-90K. Rents per bedroom around Oxford are running more like $450-500. So you would realize maybe $1500 a month gross income. Factor in that it is about 7 blocks to campus, pretty far in terms of Oxford and that you would have to pay a manager as you are in PA. I think you would be buying yourself more headache than profit by buying during an unnaturally high price period.

https://www.apartments.com/oxford-oh/student-housing/

The listing says it's rented now at $24K per year.

Payments on a $240K loan for 30 years are $13,200 per year. (80% of $300K)

Expenses, including taxes at 1.5% per year are going to be about $5000 per year.

$24,000 - ($13,200 + $5000) = $8200 per year net.

The 9 month leases kind of mess things up. Get more kids in there or go to 12 month leases and it looks a lot better. Even so, there may be advantages to buying it if you have the down payment.

That would be $500 per bedroom for 12 months a year, sure. But Lisa's daughter won't be paying rent, so that goes down to $18K annually assuming that you can get students to sign a 12 month lease which may not be feasible, especially with the distance from campus and the competition for summer renters.

The other thing to consider is the pressure it might put on Lisa's daughter to be de facto landlord. It could affect friendships greatly.

quote:

Originally posted by Mikhailoh:
But Lisa's daughter won't be paying rent, so that goes down to $18K annually assuming that you can get students to sign a 12 month lease which may not be feasible, especially with the distance from campus and the competition for summer renters.

The $24K per year figure came from the listing, and Lisa will be paying for LL1's rent one way or the other anyway.

quote:

The other thing to consider is the pressure it might put on Lisa's daughter to be de facto landlord. It could affect friendships greatly.

Or it might teach her that about the only way left to accumulate wealth over a lifetime is by owning real estate.

The current rent on the house is a bit underpriced. Each girl is paying $3k per semester or $6K per 9 month "year". If any of them want to stay over the summer, I can charge extra but I probably wouldn't at least for her and her roommates -- once the kids are random kids I don't know, then I would. Mik is right about the location not being super close - I can't imagine it would be an in demand property for people to rent just for the summer - most summer rental money will probably be people moving in early or staying past the lease end or staying between years that they've renewed their lease. Based on comparable properties (which I feel like I know pretty well given that I have combed through just about every rental listing there is when we were househunting for her rental place), I feel like I could get at least $3250-$3500 for each semester which would bring the yearly income up to 26-28K. I'd definitely be paying a property manager (already found one I like) plus property tax and insurance but even after that, we should clear a half decent cash flow every year plus I won't be spending on LL#1's rent. I figure the property manager can be "the heavy" who puts the smack down on any misbehaving roommates if needed.

When we go to sell, we're basically in for the 6% realtor commission but that's about it. Unlike PA where they smack you with real estate transfer tax and all kinds of other crap, Ohio doesn't seem to have any of that. So it seems like as long as the market doesn't tank, we should break even if we sell in 2 years, and even if technically have a loss, we will have saved by not having to pay rent/summer storage/moving expenses if they have to find a new place etc. Hopefully I'm right about that.....like I said, this is all completely new to us.

Anyhow, we put the offer in. There is a very obvious issue with the retaining wall around the sunken patio that will give us an out during inspection if we want out so we figured it couldn't hurt to toss the offer out and see where it goes.

Will be interesting to see how it pans out!

There isn't any reason the roommates need to know who the owners of the house are. They would be dealing with the property manager, so there will be no obvious connection between your daughter and the owners/Mom-and-Dad....

Very exciting!

Keep us posted!