Looking for ways to trim college costs for your child or grandchild? Consider investing in housing near the campus for your child to share with some other students.

By becoming a landlord, you can earn rental income, collect tax breaks, provide housing for your student, and hopefully turn a profit that can offset tuition bills. Here are 10 guidelines:

  1. Before investing, visit the area to evaluate real estate around the campus. Location is critical and one block might be more desirable than another. Look for a neighborhood where the tenants and their parents will feel safe. 
  2. Make sure the house or condo is structurally sound and large enough to accommodate three or four tenants.
  3. Once you decide on a property, find out how much you can reasonably expect to receive in rent and pay in expenses. Make a purchase offer that allows you to cover your costs with cash left over. You probably want a relatively small down payment and a large mortgage.
  4. After you close the deal, you have to get the place ready for occupancy. You can hire your student to do basic work like landscaping or painting. You may get a deduction for the wages and your child may get some tax-free pocket money. Take into consideration how much your child can earn before he owes taxes or you can no longer claim him as a dependent.
  5. Charge rents that are comparable to other near-campus apartments. Have parent co-sign leases.
  6. With your student as one of the tenants, you save the cost of room and board on campus. Contact me if you need help managing the property, including finding creditworthy tenants.
  7. You may be able to write off mortgage interest and property taxes, as well as depreciation, repairs, utilities, condo fees, and insurance.
  8. Rent that you collect from the tenants is taxable to you, but your deductions can shelter some or all of the rental income.
  9. Conduct the rental with your child as if it was an "arms-length" transaction between unrelated people. The IRS can be suspicious of business deals between family members. Check with your tax adviser before structuring the arrangement.
  10. You might want to sell the property once your student graduates. If it has appreciated, you'll earn a profit in addition to the money you've saved by not paying for a dorm room. 

Interested in buying a rental property for your college-age child? Call me and we'll discuss your options. 210-478-8555