College Student - Real Estate Advice

[Andrew Yang]

Throughout high school from working long hours on various jobs and then investing that money into ETFs, I managed to save up (some say I sacrificed my social life through not spending any of it) around $40k.

I’ve been thinking of buying a house as an investment and rental property on a mortgage (credit score is ~780). In terms of employment, I think that I should have no problem securing a $80k+/year job after graduation.

My parents (credit score 800+) have been generally supportive of this and would probably be willing to cosign. I’m heading off to college in an east coast college town (rural and not in my state). In terms of college tuition/student loans, I’ve been fortunate enough to receive a merit scholarship that should be able to cover most of it.

I understand that there is a massive ton of work in maintaining and managing a rental property. I've also been researching legal, insurance, liability, etc. options. I've thought of doing a LLC.

In terms of budget, I think anything under $180k is do-able. A problem is that there aren't a lot of single family homes for that price, but I guess it's not a bad start (townhome/twinhome). I think I'd go for a foreclosure auction or something like that, but I know that most of the other people have had decades of experience on me.

The housing in this college town isn't exactly cheap. A 2 bed 2 bath condo in 5 mins walking distance to the college costs $300k~. Something 20-30 (walking) mins away costs the same, but is a much larger single family. Single family houses (3-5 bed 3-4 bath) are 1-3 million. The college is the main driver behind the economy in this location and real estate value. 

I think I have two options:

• Buy a house in my home city (suburb of Minneapolis) and use a property manager.
• Buy a house in the college town (East Coast) and live there instead of living in a dorm (college dorm costs around $9-10k/year, so that'd be a major expense "saved"). AirBnB/rent it out.

Any thoughts? Advice?

[Hunter Hastings]

Andrew, I am a senior now taking my classes online to focus on my businesses but I have some firsthand experience that I hope helps you out. Just before my freshman year of college I got a waiver to not live in the dorms because I was buying a house. I bought a brick 1,300 sq. ft 3 bed 2 bath house that was just under 2 years old for $129,900 that was about 8 miles from campus, on the edge of town. 20% down = $26,000. My total bills for the house averaged about $1,050/month. I had 2 other college students move into the other 2 rooms @ $500/month each. I was paying only $50/month to have this house! My yearly bills were $600 compared to $16,000+ if I had stayed in the dorms. One of my businesses saw exponential growth last year and I moved about 350 miles to give it my full attention, so I sold the house for $135,900. After closing costs I didn't make much money on that house, but I saved at least $48,000 by being out of the dorms. 

Important things to consider:

1. Are you old enough to not live in dorms or can you get a waiver? Most colleges require on campus living for the first 2 years, until you are 21 or until a number of other qualifications are met. If you aren't required, go talk to the director of Residential Living because they will likely be impressed by your ability to purchase a home and give you a waiver. Also, most colleges make you purchase a meal plan if you live in the dorms, so you might have another $3,000+ a year in savings when you leave the dorms. 

2. Choose your roommates wisely. It is a college town and partying is very common. The wrong kind of roommate can negate any savings/earnings due to repairs. 

3. If I had it to do over again, I wouldn't buy the 2 year old brick house with crown moulding and granite throughout, more expensive flooring and higher-end appliances. After all, we are college students, we could live a little more like college students for significantly less. Granted the market I bought in is much cheaper than yours, but I could've bought a house of the same size, same distance from campus but a different direction, but older and with less upgrades inside for about $60,000. If I had done this, I would've charged roommates a little less but would have had a positive cash flow instead of paying $50/month and still been living better than all those who pay thousands to stay in the dorms. 

I think your plan is a great one assuming you can find the right deal on a property in the college town you plan to live in, but I definitely would go that route rather than buying in your hometown unless you can buy super cheap and have a significant positive cash flow that will do better per year than your savings from not living in the dorms. 

Best of Luck!