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Re: Student House (ING)

Yesterday Boomer wrote about our rental property venture from my University days (thank Mom, I guess I deserved that).  Now this is a great idea for parents who have children moving away from home to attend University.  Purchase a house and have your child act as the landlord, managing the bills, finding tenants, collecting rent, and keeping the house properly maintained.

While it’s true that I wasn’t really a fiscally responsible landlord (that was a huge responsibility for a 19 year old), this venture did teach me many valuable life lessons.   I’m proud to say that my money management skills have greatly improved since then (whose hasn’t?), so before you Boomers are scared off that your child will destroy the house and leave you in financial ruin, let me highlight the benefits of this rental property venture:

Establishing a good credit rating for your child – As a partner in this venture, I got my name on the title of the house (co-signed by my parents).  It felt pretty good to call myself a home owner at the age of 19, but the real benefits were in building a credit score at an early age.

Keeping a close eye on your investment – Even though the rental property was located in another city, my parents could still keep tabs on what was going on with the house since their child was acting as the live-in landlord.  We shared a joint account for bills, and we could chat any time about any maintenance or vacancy issues.

Teaching valuable life skills to your child – Again, I was only 19 when we started this venture.  I learned a lot during my 5 years at this rental property.  True, some lessons were learned the hard way…but that’s what life is all about, learning from our mistakes.  I managed the household expenses, took care of the lawn and any simple maintenance (I stress the word simple), found roommates, replaced roommates, evicted roommates, and really figured out a lot about people and how to be a good judge of character.

Setting your child up for success – While I was in school I worked 30 hours a week in the hospitality industry.  I advanced fairly quickly, utilizing many of the skills I learned while managing the rental property.  The senior administration at the hotel also held a perception of me as being more responsible and professional than my peers.  Whether that was true or not, it certainly helped me stand out from the crowd when it was time to be promoted.

So for all of the Boomers out there who have children moving away to attend University, think about the positives and negatives involved in purchasing a rental property for them to live in.  Hopefully you learn from our example and can set some solid controls in place to prevent any financial abuse or property damage.  I know I am thankful for the opportunity my parents gave me, as it helped me develop life skills that I wouldn’t have learned by living at home or at the dorms.

How about the readers…do you plan to do something like this for your children?  It’s outside the realm of a traditional RESP, but the benefits could be tremendous for both you and your child.  Heck, you might even make some money when it’s all said and done.

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3 Comments

  1. Tiny Potato on September 8, 2010 at 10:57 pm

    I don’t disagree that the arrangement provides the student with some skills in property management, etc. For the family as a whole, it probably also works out better financially (build up equity instead of paying rent, etc.).

    However, I think there is some downside risk in that the student may have a distorted perception of the risks involved in real estate investment. The main issue I see is that an individual considering a large investment such as a rental property may view the risk/reward profile differently if they had to work and save up the entire down payment themselves. Having the parents purchase a home might give the student the perception that an investment property is “easy” to achieve – whereas in reality it takes most people a long time to accumulate that much capital.

    For example, I know some individuals who have “purchased” a home largely with money gifted to them by parents. Basically, they get the rewards of potential price increases without any of their own capital at risk.

    • Boomer on September 10, 2010 at 7:19 am

      Tiny Potato, I agree with your comments and this situation is certainly not for everyone. There were many times I feared I had made a huge mistake. I had originally saved the money to pay for my children’s education and the sale of the rental house was intended to pay off student loans. The choice to purchase his own house still left him with loans to pay so it wasn’t entirely a gift.

  2. Echo on September 9, 2010 at 12:08 am

    @Tiny Potato – I can only speak for my own experience, but I definitely didn’t feel any sort of entitlement with this situation. It was a lot of work managing the house, and it was a great experience for me personally.

    I did learn that I never want to get into real estate (rental properties) again as part of my future investment strategy due to the high PITA factor involved. It’s not easy money, that’s for sure…

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