Purchasing a home for yourself can be overwhelming, so how do you go about buying an investment property? We’ve created a guide on how to start building wealth through real estate. This series will feature a list of the four most attainable ways to get started as a new investor, the advantages and challenges of each, financial aspects, what our local market looks like, and how to set yourself up for financial success.
Think ahead for your future and invest in a college town rental
It’s never too early to plan for your future. College is an exciting time where you are striving to find a career path that you are passionate about. Investing in real estate is a great way to set yourself up for financial freedom and success. It can supplement your career passions and give you access to a facet of resources.
Purchasing a college town rental and moving into it with friends or family is a low-risk way to come into real estate investing.
A college town rental is not out of sight
Consider asking your parents to cosign. You can get a loan when you’re 18+, but your parents’ strong and established credit history could help you. They could be the ticket to a lower interest rate.
Advantages
It may be easier to screen potential renters because you’ll have a good sense of who to live with. When you’ve graduated, you can hand the baton down to lower-classmen friends and so forth.
There seems to always be a necessity for decent housing in college towns. College students and employees are in need of housing during the school year and tend to stay over the summer. There are plenty of amenities in college towns, including sporting events and entertainment, and they are fairly pedestrian friendly.
This is a great way to build equity. It’s also the best time to build a network. Young investors who are motivated and willing to hit the ground running are able to use new life skills and experiences to go far in their careers, whether that be in real estate or not.
Buying a fixer upper requires a lot of sweat equity. Condos are more cosmetic work while single-family homes are cosmetic and structural. Make sure to do plenty of research on the back end before purchasing a home. Older homes tend to have unique structures, which could cause you problems when you go to make updates.
Ask about the condition of the roof, windows and their shape, if the house has good bones and is built on a sturdy foundation, and if electrical upgrades are needed. Really look into the property. Do so more than you would if you were looking to rent a home or apartment.
Challenges
Buying up real estate in a college town is not a passive investment. Once you graduate and pass the property down to other students, you’ll find yourself signing lease agreements to students you may not know, potentially dealing with noise complaints and roommate conflicts.
The property may need extra TLC in between move-ins. Make it clear to the residents that they need to fill out the move-in inspection sheet thoroughly, and markup anything that they see. This will clear up any potential issues come move-out day. If you need advice on how to create a move-in / move-out inspection sheet, follow this link. Check every nook and cranny of the home to be sure you didn’t miss anything when doing move-out inspections. You can schedule a move-out walkthrough with the current occupants. This way they’re in the know about what they’re being charged for. Make room in your budget to handle future fixes – just in case.
Owning a college town rental is in a different ballpark than other multi-family homes. You’ll have multiple occupants over the age of 18 that will have to sign lease agreements, multiple payments for rent, and more people to communicate with. Keep that in mind when you’re setting up the administrative side of your investment home.
FAQ
Who better to answer questions about a college town rental than a city administrator in a well-known college area? Sara Van Meeteren is a Building Official a part of the inspection division for the city of Ames, Iowa. We asked her a few questions that a new investor needs to be aware of when looking for an investment property. In true Q&A format, here are her responses:
What are some laws and regulations people need to keep in mind when looking for housing near a college, that they intend to turn into a rental?
In Ames, the most important thing to know would be that there is a rental code that requires all rental properties to be registered with the City of Ames. Rental properties are required to comply with the rental code so it’s important to have a basic understanding of the Code to determine if converting the property would be financially feasible. Some corrections (off-street parking, plumbing, etc.) that are required can be quite costly and could be a major determining factor in purchasing a property. Occupancy regulations are another important thing to consider in purchasing a property as a rental. The Rental Code regulates occupancy based on number of bedrooms. Not all jurisdictions regulate it in this way so it’s important to know the regulations in your town.
What kind of violations do you see in single-family housing rentals?
I would say the most frequent and costly corrections that need to be made when converting an owner-occupied home to a rental would be: paving parking areas, correcting illegal plumbing, and obtaining permits for work that was completed at the property without a permit. Less costly corrections include: adding smoke detectors and fire extinguishers, installing GFCI protection on outlets, and having mechanical equipment certified by a licensed contractor.
How does someone start the process of verifying their home as a rental property [in the city of Ames]?
The City of Ames offers a “pre-sale” rental inspection. This allows customers to determine what items need to be corrected or changed for the property to obtain a Letter of Compliance. This is a very good way to get an idea of what it will cost to convert the property to a rental. This process can be initiated by filling out a registration form on our website. Some properties may already have a Letter of Compliance so we recommend always checking with our office.
What things should investors look for when searching for a house to buy and turn into a rental? Is there anything a house may have that would get their rental permit denied by the city?
When deciding whether or not to purchase a property, it’s always a good idea to check with the local jurisdiction. This way, you can be sure there are no open permits and that work was not done on the property without a permit. For example, if you are looking at an older home and see that a bedroom area has been added to the basement in the recent past, you would want to check to make sure the bedroom finish was permitted so you can be sure that it is code compliant.
It would be very unfortunate to purchase a property thinking an area could be used as a bedroom only to find that something about the bedroom is non-compliant and that the room cannot be used for sleeping purposes. One other item that should be considered is the ability to have or create two off-street parking spaces. A property will not be eligible for an LOC without two spaces.
Buying a college town rental
Through searching online platforms accessible to the general public like Zillow and Realtor.com, this is what the current market has to offer:
Price: $139,500 – 180,500
SF: 1,010 – 1,750 SF
Year built: 1940 – 1975
It is within your grasp. It may seem like a big responsibility, especially as a young and aspiring career person. The advantages far outweigh the challenges. Owning the home you live in gives you plenty of independence. Why not collect a monthly income while you focus on exams and classwork? When you graduate, that income can help you pay off student debt or purchase a new home.
Haven’t read about the benefits of real estate investing yet? You can find it here.