Can you invest while in college?

Question

I am currently enrolled in college and studying electrical engineering. I am on a co-op where I am not in classes but instead working for a company in my field. I want to buy a house in my college town and rent out the rooms. I know at least for the next 2-3 years I can rent to my friends and then after graduation, being in a college town there should always be a steady influx of new people in need of housing. With my co-op I am currently saving as much as I can and wanted to know if trying to save for a down-payment and pursuing my plan is a good idea while I am still in school. Any advice would be helpful, thank you!

Bradley Dosch · Answer

Hey Drake, that's awesome and it's good to see a fellow EE in the BP community. @Sam Smith makes some great points about getting in touch with a lender. I'd say that's the way to go. My biggest question is with your current employment. Typically as a student, the co-ops and internships are not full time W2 employment, which lenders will want to see. This may be tough to get around but that's where a lender can come in and help! I can say that as soon as you get an offer letter for a job in the EE field, you'll be able to get pre approved quickly. Lenders can use your schooling as work experience if it's in the same field. I know bc that's what I did :) Good luck Drake!

Sam Smith · Answer

@Drake Robertson

I don't think it's crazy! But you want to make sure to run, run, run the numbers. If I were you, I would keep saving while you have the co-op, keep looking at potential deals, and talk to your parents openly without pressuring them. Just focus on educating them on the numbers, and ask them why they are uncomfortable with the rental business.

It's okay not to deal while you are in college. When you get your degree in electrical engineering you'll likely move and get paid excellently right out the gate. But you'll still need your parents to co-sign if you want to house-hack when you move to where your first job is (assuming you move). If you spent that time educating them on how the process and numbers work, then they are more likely to co-sign at that time. Plus, if they see you stick with your goal for a few years they'll be more likely to help you "buy your first home and get roommates to pay the mortgage". That's the kind of language I would use. Terms like "house hacking" are fun online, but in person and to older people who are new to investing they can be a little off-putting. Just use plain old english.

Whether you house hack while in college or after college, you're going to do great! Keep up the research and keep running numbers on deals to get used to the whole thing and to know what a good deal is whenever you are in a position to pounce!

Drake Robertson · Answer

@Sam Smith

I really appreciate your advice. I haven't began to start talking to lenders yet, it had not clicked for me that I needed to get that taken care of, thank you for bringing that to light. I also like the idea of using a joint account with my parents so that they can see what I have and know if there starts to be a problem. The $1,500 I am currently saving is only because of my co-op, I will be back in school next semester and I will not have an income, this is what scares me. I am using that money to save for a down-payment and after that I will have to use the money coming in from renting it to cover the mortgage. Ultimately what I was trying to gain was advice on if this is a crazy idea or something that would be feasible and a good idea for me to try and get started on.

Richard Sam · Answer

Hi @Drake Robertson!Fellow EE here. You are starting early, and that's great. In addition to what everyone already mentioned, my advice is to be mindful with renting to friends. Great friends are not necessarily great tenants. So be sure they are also vetted.Good luck!

Sam Smith · Answer

@Drake Robertson,

Congrats on making moves and asking questions! I would suggest getting a 4 bedroom if you can with at least 2 bathrooms. It makes things better financially and the two bathrooms make things better socially within the house (which leads to less roommate turnover).

How many lenders have you spoken to and what did they say exactly? Did they line out what would be necessary for you to qualify for the mortgage on your own?

As for your parents, what gives them pause exactly? Are they worried about losing money and being on the hook for the mortgage? If you're able to save $1,500 per month would that cover the mortage on a 4-bedroom house? You could talk to them about making a deal where you pay them one month early so that if there is a problem they know well ahead of time.

You could also make a deal with them where you have a shared account where you put in $1,500 each month, and make the mortage payments and repairs out of that account. After a few months you should have a good "buffer" savings account there.

It can be hard doing business with family, but I understand that it feels necessary in this situation. Keep in mind that your relationship with your family is more important with money. Be patient when talking them through things. It sounds like they are coming from a place where they don't know nearly as much as you about rentals, so it's your job to teach them in a way that makes them feel comfortable. Explain what your goals are with this, how much you would profit over even just a 2 year period. Make sure you have the names of people who would rent from you and what they would pay. It might feel uncomfortable at first, but it's a huge learning experience. When you talk to your friends make sure they are getting a good deal too (don't try and charge them over market rates or more than they are paying now, not that you would).

Hopefully some of this helps!

Good luck and keep it up!

Drake Robertson · Answer

Alicia,

The current plan is to use an FHA loan because I will be able to use it as my primary residence while I am still in college. With my co-op I do have the luxury of working full time now and I am saving approximately 1500 a month. I also recently got a credit card and use it for anything I have to buy now and then pay it off immediately so that I can start developing credit. I know if I can get a 3-4 bedroom house I should be able to charge 4-5 hundred a month per room which if I get the mortgage payment low enough then covering that, property tax, insurance, etc. should be doable with a little extra to put back towards any unexpected expense with the house. Once I graduate I would start doing it as a one big monthly payment for the whole house and not charge by room.

The biggest problem I can see with it is not being able to obtain the loan without a cosigner but my parents are a little hesitant on the whole renting business.

Alicia Marks · Answer

Hi Drake!

I wish more people would start out when they are younger adults. It is possible to purchase a property, but may require a bit more strategy. If you are going to be living in the house as a primary residence, you can put down a lot less money on the property, making it easier to get your foot in the door. A few other options would be to have a cosigner, such as a family member to sign on a conventional or FHA loan. You will have the hurdle of not having sufficient income to purchase on your own while in college unless you are working full time.

Your other option is to go with an LLC and get. commercial loan. These typically require more down, have higher interest rates, and shorter loan terms (typically up to 20 years instead of 30). The advantage is that it has less to do with your income and credit score, although you still need a solid credit score either way, but commercial loans focus on the property's potential rental income. They will often use 75% of the projected income to help you qualify on these types of loans. I am not sure about a rent by the room comparison vs their standard single family or small multifamily estimate, so I would check with potential lenders to see what they will consider.

Can you invest while in college?

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