When Kru Ye Mori’s son was entering his junior year at the University of Portland, she made an unconventional decision: Instead of writing another check for a dorm room or an off-campus apartment, her Salt Lake City real estate agent bought him a house.
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“I no longer have to waste money on rent,” Mori said, as reported by Realtor.com. “Now I collect rental income from his roommate to help supplement our household finances. For me, it’s a win-win.”
Mori is one of a growing number of parents buying properties for their college-aged children to live in, seeing it as an investment strategy that will pay dividends not only during their children’s studies but also after they graduate.
The trend isn’t new, but it’s gaining momentum as housing costs soar in many college towns. Instead of paying for increasingly expensive dorms and rental housing, parents see an opportunity to build equity. “There’s certainly demand for rental properties in college towns,” real estate broker Samantha Souza wrote in a Realtor report. “College towns have historically seen rising property values, so parents are likely to benefit from the equity they’ve built if they decide to sell in a few years.”
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But this strategy is not without risks: The parents essentially become the landlords, responsible for maintenance and potential problems with the property, and there’s also the risk that the home could turn into a party house if the students aren’t mature enough to handle the responsibilities.
Jay Voorhees, founder of JVM Lending in Walnut Creek, Calif., has seen the strategy work. “I’ve seen investors make hundreds of thousands of dollars buying properties for their college-aged kids to live in and rent to their roommates,” Mr. Voorhees says.
In a blog post, Voorhees noted that parents can get better home loan rates if their children are taking out a loan. “Children don’t need to have an income to get a loan, but they do need good credit,” he said.
That’s why some parents are helping their kids build credit early: “My wife and co-founder Heejin established her credit by getting her credit cards right after she graduated from high school and having her listed as an authorized user on a few cards,” Voorhees says. “By the time she was a sophomore in college, her credit score was insanely high.”
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The strategy could pay long-term dividends beyond the college years: Mori plans to keep the property as a rental after her son graduates. “When we sell it, Shoji and I will each have a quarter-million-dollar profit and we won’t have to pay any taxes,” she said of the capital gains tax exemption on primary residences.
For Mori’s 22-year-old son, Shoji, managing the property has been a learning experience. “I manage the household, collect the rent, and pay all of the rent from a designated account,” Shoji told Realtor.com. “I’m replacing the garbage disposal, painting the deck, fixing the dishwasher, etc. This situation has forced me to act like an adult and think for myself a lot of things.”
The strategy isn’t equally suited to all markets. Jameson Tyler Drew, president of Anubis Properties in Whittier, California, cites Muncie, Indiana, where homes near Ball State University can be purchased for less than $150,000. “After taxes and fees, a 20 percent down payment would put you paying about $860, or you could rent the house next door for $850 a month,” Drew says. “For people who can afford it, it’s a no-brainer.”
But the calculations are different in pricier markets like Portland, where Mori bought: In 2022, Mori won a bidding war for a home that was originally listed for $820,000, purchasing the property for $970,000.
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