Sp0rAdiC

I'm going to be transferring to UVM next year and going there for at least 4 years, probably 6. I've got an apartment lined up with the lease starting August 1st. It's a 2 bedroom apartment, with the rent being split 3 ways between myself, my girlfriend, and a mutual friend. I'll be paying $400 a month, as will my girlfriend, and the other person will be paying $500 a month. (She lives there now, and has been paying $650 a month since last August. What I'm wondering, would it be possible(and even if possible, worth it) for me to buy a multiple bedroom house and rent out rooms to other college students?

If I did this, it seems like I could cover mortgage payments and other bills. Now I'm pretty sure there's no way in hell I could get a loan for the price of a house, so does that shut me out right there? I've never had a credit card, I just applied for one a few days ago to help me build credit, the only things on my credit history are student loans which are deferred until I'm done with school. I'm going to school to be a teacher, and I'm aware that the pay for teaching sucks, and I'd like to start investing early.

I'd love to hear thoughts from people about all aspects of this, what might be better or worse, and maybe alternative routes. Thank you!

HamiC

I like the idea of investing early, but being a landlord is tough. Renting to college students makes it even more difficult. I would recommend another approach. Rent. Get to know the new environment you are going to be in, get a job, and -- if you have savings to invest -- start off with a good no-load mutual fund account, perhaps even an IRA.

This kind of activity will build your savings, build your credit score, and give you some time to more accurately assess the lay of the land before junmping into the real estate market as a landlord.

Good luck.

The_Jazz

I think that you've answered your own question - if there's no way in hell anyone is going to loan you the money, your dream pretty much dies on the vine. However, you may be a better credit risk than you think. It's also theoretically possible to use your student loans (which carry a lower interest rate and can be used for things like mortgages and rent) to finance this endevour. If you have some capital for a down payment and you disclose that you plan on using the property as both a home and an investment property, banks will look at you more favorably since you'll have a dedicated income stream. You probably want to have the house along with tenants lined up before you go for the final talks with the lenders, although you probably want to discuss the concept prior to spending that kind of time and energy.

Real estate is generally the safest and best investment out there, but you need to be careful about what you buy and where.

And I also wholeheartedly agree with HamiC that being a landlord can suck. If anything goes wrong, you're the one who has to deal with it, so be prepared to repair leaks or replace fuses at odd hours of the day and night.

Good luck!

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NoSoup

Depending on the area and a variety of other requirements, you may be able to qualify for a program that allows for "Alternative Credit" - basically, the lender looks for payment history for things not on the credit report. Additionally, there are some government programs that allow for first time home buyers with little or no credit history.

I would contact a local mortgage professional and ask them what options you have in your area - but before you do anything for certain, I would make sure that getting into the rental market is something that you want to do at this point.

It's a great investment, but your income will depend on college students paying your rent - although I hate to generalize, often times students as a whole are strapped for cash and not all that punctual with their rent. Make sure you screen your tenants.

I got into the rental business about a year ago, so if you have any questions, just ask

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Sp0rAdiC

One thing I was considering is that I'd probably be renting to people older than me, and that seems like it'd cause problems. I know there'd be a contract and everything, but if they don't pay rent how is that all handled? Does it just come out of my pocket? I haven't looked into all the laws and everything for this because I'm not sure I'm going to do it yet, I'm still just looking around at the moment.

NoSoup

I rent to an older couple, and I tell you - they are the best tenants I could ask for. They care for the property as if it's their own. Conversely, I also rent to a couple of younger guys, and when they move out I'll likely have to spend several thousand dollars repairing the place.

You'll definately, definately, definately want evrything in writing. If your tenants are late on rent, you should have a clause in the lease agreement that requires them to pay a late fee. If they continue non-payment, you can eventually take them to small claims court and evict them. However, in the meantime, you'll obviously have to continue making the mortgage payments without their income. Depending on the situation and your local laws, if they do get evicted, they still have a substantial amount of time (30 days here in Wisconsin) to remove their items. Until they do, obviously you can't rent the place out, causing additional income laoss...

I'd check into getting a really good real estate attorney and have him draw up the paperwork, and ask him/her all the questions you have prior to purchasing the property. Good attorneys are more expensive, but can potentially save you thousands upon thousands of dollars down the road.

Also - make sure that your renters carry rental insurance. If something unfortunate happens to the dwelling and their property is destroyed/damaged, your homeowners coverage may not cover it all...

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abaya

It's a great idea... after ten years of tossing money to the black hole of rent while in school, I wish I'd have been in one place long enough to consider buying a condo and renting it out. Then again, as others have said, the maintenance sucks. I live in a college town and it would be a sure bet to buy some real estate and rent out to students... but that means I'd have to chase money often (students are often very bad about their rent being on time) and do repairs, or hire someone to do that for me.

So I'm holding off on buying until I know I'll be in one place long enough to deal with all the responsibility of owning, including management/maintenance. That may very well work out for you, though, given your 4-6 years in town. (Is your gf involved in any of this? Be careful with that, if so! Things could get very messy.)

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Rodney

Nosoup may be more up to date than this, but I checked into something like this a few years back, and if the premises are to be _primarily_ used as an income property -- even though you live there -- you may more easily be able to get a loan to purchase it than otherwise. Because the lender understands that your tenants will be making the payments for you, no matter what your other income.

The taxes are interesting, too. The fraction of the house you live in is counted as a residence, and your mortgage interest is tax deductible. The rest of the house counts as an income property, where every expense (mortgage, insurance, repairs, etc.) is balanced against income. _And_ you get to deduct depreciation as well.

Bossnass

I tried to finance a rental property last fall, and thought I had a sound plan.

Turns out that both banks insisted on charging a higher interest rate for a "revenue" propety. They also had a chart of the city of estimated rental income and determined that I didn't have enough of a deposit to lower the mortgage enough over any reasonable so that the payments were suffcient to generate a positive revenue, when city taxes and maintainece were considered.

The bottom line, which I was told by both banks, is that it would be unlikly that I would be able to meet the payments for the house on top of my other expenses over a 4 to 6 month period. As I was looking at buying in a student area, it wasn't unlikley that I could be stuck with an empty house over a summer, so I actually would have put myself in a potentially tough situation had I been approved.

CandleInTheDark

My roommates/landlords did it.

She was in her final year of high school at the time, he was in his early 20s. They made a down payment, proved they (he) could get steady work at any point (his parents own a business), and had an eager real estate agent.

Less than 2 years later, they had house appraised and it's gaine $20,000 in value.

It's not impossible.

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NoSoup

Keep in mind that I lend only in the state of Wisconsin, but...

Typically, it is far easier to obtain financing for an owner occupied property vs a rental property.

It is common for lenders to charge a higher interest rate if it is an income producing property.

As far as the taxes are concern, Bossnass is correct. You can write off the portion that applies to the are of the home that is considered owner occupied - the other portions can be written off against the income. A very big consideration is that you will be able to depreciate the property - which is a paper only loss, and depending on the price of the property can be significant. It offsets the income - potentially your personal income as well, so you will get a very large reduction in taxes owed.

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G5_Todd

i just got approved for a mortgage yesterday....

with no credit and being a college student they would have to be nuts to give you a mortgage....

its a good idea you have and i hope it pans out

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nazia

save whatever $$ you make right now until you finish college

you're too young to become a landlord right now... save save save and finish your education

then a whole wide world of opportunities will open up for you

NoSoup

Gee, that's odd. I didn't see him mention his age at all...

Although I'm not trying to get on your case specifically, often times I see many "older" people saying this about younger adults.

To be blunt, it sickens me. Exactly at what age does one become capable of making sound financial decisions?

Perhaps I'm jaded - maybe even an unusual young adult, but by the age of 20 I owned my first rental property. I am well diversivied in stocks and bonds, as well as mutual funds. At the age of 18 I began saving for retirement, and even if I stopped saving right now, I have enough put away to live comfortable if I were to retire at the age of 55. I have even started putting money away for my children's education - children that haven't yet been concieved, and probably won't be for several years.

Am I proud of my accomplishments? You Bet - but I don't try and gloat about them. Financial Investments have little to do with age per say, much more to do with maturity, responsiblity, and having goals set out to accomplish.

Don't dismiss the possiblity of someone becoming a landlord based soley on their age - the only difference it makes is that the younger you start investing, the more rewards you'll reap.

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Sp0rAdiC

Well, right now I have $500 in a savings account at ING, this summer I should make quite a bit of money, which I'll use to pay for my apartment and bills which I'll be starting next fall, and any excess will go into the savings account. I feel like my money could be working harder for me, instead of just the 4% annually in the bank, but at least this way it's gaining a little and staying out of my checking account so I can't spend it.

I just got my first credit card in the mail in the past couple days. It's got 5% back on gas and groceries, everything else is 1%, with me delivering pizza this summer and prices for gas as high as they are that 5% should really add up. I've been reading up a lot on stocks, bonds, all types of investments, and I still just have no idea what to do with my money. Yeah, right now there isn't much, but I should still be able to work with it, and the amount will increase gradually over the next few years and I'm just not sure what to do with it. I'm still somewhat interested in the real estate and rental, but I'd like to put that off for a few years until I'm in a better situation, and more comfortable about where I am in life.

Helpher811

I agree with you on "maturity, responsibility, and having goals set out to accomplish". However, and it is a poor generalization I am making, few young people decide to use it consistently. Not that I blame them, America is a great country full of distractions ( the boobies are my curse ). But, usually after attending the School of Hard Knocks, a majority start using their talents. By then, they are usually old.
Hence, the suggestion of being "not young".

And as for being a landlord at an "early age", the true depth of human stupidity is only surpassed by their consistency for stupidity.

But then, I could be wrong....

NoSoup

Perhaps I'm being dense, but I don't understand what you mean....

At least, I hope I don't.

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Cynthetiq

I wanted to be a property owner when I was in college. I should have made the leap, but I didn't for whatever reasons.

I never finished college, and had I bought the property I was looking at, I'd be much better off today. (I'm financially fine, but I'd have much more assets in that column.)

I know plenty of people out today who are older and don't have any fiduciary responsibility at all. Some filed bancruptcy others had to sell their homes.

Age has nothing to do with fiduciary responsibility.

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Helpher811

I don't think you're being dense. It wasn't a well-written sentence....

Landlords and tenants are equally stupid. Consistently stupid, and in never-ending variety. Some call it "risk". If you choose to be an owner or a renter, reducing that risk takes work. Whether that work is worth it, is the big question.

bjam22

I am currently in a similar situation but doubt I will be doing it because my college makes us do a co-op where we move every 3 months.

Renting to college students is amazing, they will pay $400 for a bedroom when you'd be lucky to get slightly more than that for the whole house in a normal situation. Its strange but it still makes the dorms look cheap.

ratbastid

If you can get one of your parents to co-sign, getting a loan should be no sweat.

Being a landlord isn't easy, and home ownership is a whole level of work and commitment that you've probably never experienced before. But if you're living in the property, you can protect your investment pretty well. Be sure you're renting to people who will be responsible. I recommend accounting students. No athletes.

Bossnass

As of last summer, I became a half owner of another income property. I'm still a student, albeit an adult one, but this is the third mortgage with my name on it. I live in one, one is negative earning (costs me about 200 a month, but signifcant principle paying) and one is pulling in a huge 12 points above the capital cost.

We put pretty questionable clauses in the lease, such as eviction without refund if they have any gatherings in excess of 12 people, security deposit was 2x a months rent, rent is due for the next month on the 21st of the current month instead of the 1st of the next. Other than saying it was a 'harsh lease', they didn't hesitate to sign it. I rented to 4 male athletes, but they all had references and appeared responsible. I think it also helps that they know I live a few blocks away. The Dekes and business students actually have the worst reputation around here.