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Learn how to Turn your College Student's Housing Cost into an Investment vs Expense ?
14th October 2022 • Billion Dollar Blind Spots • Sean T Shallis
00:00:00 00:10:13

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Everybody, Sean Shallis, billion dollar blind spots where we actually help you capitalize and discover on the billion dollar blind spots that lie dormant within your business and your lifestyle.

Last night I was actually at a college fair with my daughter and my wife were walking around. And oddly enough, in the afternoon I actually received a an email chat from one of my certified financial planners asking about the difference between their kid somebody's kid going to college to rent a place or living in the dorm or living in a secure in a sorority and or if the parent purchased a home for the daughter to rent and or live in with her college roommate friends. So here's the skinny on that. for years, you know, I kind of explained this to the to the financial planner.

You know, in the very early in my real estate career on the real estate side, I worked in a town called Hoboken. In that town, had a lot of young professionals, I would come to that town that couldn't afford to live in New York City, but they could live in Hoboken and they would either rent a place in Ho Book and write outta college, or they would rent the place to put their kids in college in, in Stevens Institute, which was right in town. And I would always sit them down and say, Hey, you know, tell me a little bit about what's going on. Tell me a little bit about how long your timeline is gonna be for the person that's gonna live in that place. is it your daughter or your son or somebody along that lines, it's a graduate student. how long, it'll, how long are you gonna rent?

If it's anything more than two years, you may actually fare better by purchasing a home. And they would say, Well, I don't really understand how that looks and this, you know, we don't really have a lot of liquid cash to make that investment. And I would say, Well, first of all, you only need 10, 20% down, number one. Number two, you can actually use the money from a retirement account in lower 401k is, and use real estate as an asset because you're gonna rent it to your kid and it's gonna be an investment property. And they're like, Well, can you tell me more about that, Sean? Absolutely. So, you know, first and foremost on that, you know, on that conversation, you know you're, you're far better off if you can invest in real estate as opposed to investing in somebody else's real estate investment and sending somebody else's kid to college.

The other thing is, is the tax benefits alone far outweigh sending, sending somebody a check for rent to pay for their property. So let's just kind of look at this for a little bit. Like number one, as I said, you can actually, most people don't know this, You can actually take and take money from a 401K or a retirement account and use it to purchase a piece of real estate as a retirement account asset. So instead of purchasing stock in your 401k, you would actually purchase a piece of real estate and then, and understand that property has to be managed by qualified property manager and asset manager, which manages properties within an ira. the other thing is all the, all the money that comes back in rent has to go back into that investment and it gets distributed as, as according to your ira.

But it's a great investment strategy. The other thing is, is that, that when you have your child, usually they're gonna live with roommates. So let's say for argument's sake, you have a two bedroom apartment, which is what we use to sell people is a, a one or a two bedroom condo. And we would actually take the dining room because most kids at that age are not gonna live, not gonna have a formal, you know, sit down dinner and we would put a temporary wall and to make it a three bedroom. So now what you have is two or three children, or two or three, you know, young adults living in a, in a, in a condo, each paying $1,500 a month collecting rent. So you have two kids paying $1,500 a month and you have your kid living for free. In most cases, the mortgage would maybe be 2500, 20 $800 a month, you'd actually be making money, cash on cash.

But the best part is there's a couple other strategies that most people don't even think about because it's an investment property. You're gonna write off anywhere between 20 to 25% of all the expenses and all the costs that it cost to carry that property. The next thing that you're gonna do is any, any kind of capitalization costs or anything that you put into it becomes a tax write off. The other neat thing is, let's say for arguments sake, you take your child and you make them the property manager and they're collecting the rent and they're managing the property, you can actually pay your student an actual a salary for being the property manager and set aside a portion of the collected rent toward the property management of that property. So in, in those cases, in most cases with most of the people that we help set this strategy up, they've far exceeded what, what would've caused them to rent a place in a dorm or rent a place someplace else, and then turn that into an investment strategy versus an expense.

The other thing that's kind of neat is we've had customers that actually look at that asset and all of a sudden, four years later, that property went from being worth 250,000 or worth $500,000. And it doesn't happen all the time, but when it does happen, it's a great windfall. And I've had customers now come back and after their kids are outta college, you know, they rotated their three kids through the college cuz they all went the same school cuz it was their armada. But after it's all over, they've actually come to me and said, Hey Sean, can we buy another one? Because we have some friends that actually are gonna send their kids to that school and we wanna actually turn this into an income strategy. And what they were doing was purchasing properties with, you know, minimal low down payments and then renting them to students.

Some of the financial planners would say, Oh my God, what about the risk of if that property goes down a value or if something happens? Usually, not always, but usually when you're purchasing a property within a college community, there's usually a built in rental community that's gonna rent that property from you. And it usually helps to stabilize their rents and or the property's value of the home because as long as that property can rent for a certain amount of value, somebody's gonna buy it as a, as a, an investment. At any point in the game, if somebody wants to buy it to live in it permanently as their, as their primary residents, it's gonna be, it's gonna also be just dictated by whatever the market is willing to bear. But ideally, properties that have a certain amount of rental income have a certain value to them.

And I, you know, really what it comes down to is, here's really, really, really simple, simple math. If I send my kid to, if I send my kid to college and I pay $1,500 for a dorm, and I do that over, you know, over a 12 month period, that's 1800 $18,000, I times that by four, that's $72,000 that I'm investing in housing for my child. Now they have to live somewhere. So either I gotta spend that on rent or I gotta spend that on investing in a piece of property. What's interesting though is if you're really good in math, you don't even have to be good. Let's take 72,000 times up by zero. How much is that? Zero. That's right. That is, you get a zero tax benefit for sending your kid to college and living in a dorm and paying rent toward either to the college or somebody else's college retirement fund because ideally, if you're renting from that property, you're getting zero tax benefit.

But let's just say for poops and giggles, you had 72,000 and you got a modest 20% tax benefit for owning the property as a rental income and actually writing down the cost of the rent and the interest on the loan. and the mortgage payments you're gonna get on a 20% return, that's a $14,400,000 return on your investment. Again, 14,400 over the 72,000. So 14,400, that's actually a 20% return on your investment. What is now a good time to consider purchasing a home for your child to live in and rent to their roommates at college and help them to actually create one, not only, not only does it give them a place to live, it gives you an investment, but it also helps your child learn about financial literacy and how to operate a business, if you will. And listen, it's not for everybody. It's not may, it may not be for the students that are not wired, that maybe you are more more kinesthetic and maybe they're more at the art and stuff like that.

They may not understand the, the model there. But if you have a child that you're sending a school for business and business management, what better way to teach them is to learn from doing and doing a, you know, learning from, you know, from actually operating a business which is that property. So Sean c your friend, your neighbor, your real estate expert, mortgage, I specialize in doing mortgage at US Bank. We don't just write loans. We bring 30 years of experience, knowledge, and education to you and your family and your friends. And then we bring great products and service on the mortgage side. If you're thinking about doing some, we're actually licensed of all 50 states. I can actually help you and not only can I help you, but I can also be your coach. I think, you know, one of my, one of my coaches has a saying and he says, you know, everybody in this world needs a really good coach.

I mean, God, Tiger Woods doesn't have one. He has three coaches and he doesn't even play golf anymore for professionally, for the, I mean he plays, he plays in tournaments. But the reality is, if you look at the best of the best in the world that are the number, they're like the one two percentile of whatever they do. In most cases, they have a great coach. If you wanna find out more about investing in real estate as opposed to renting real estate when your kids go to college and, and by the way, let me touch on something. There's some people that say, Hey, I'm gonna buy a property in Pennsylvania so that my kid could get instate tuition. You need to go to the college and you need to read the guidelines of instate and what it actually takes. In many cases, you have to own that property for two or three years in advance and they have to be off your off your W2 as a dependent.

So you have to be really careful about that actual strategy. But again, if you wanna find out more, get back to me. The easiest way to get me is you can go to

You can also get a copy of our free book about learning how to sell your house on your own on Amazon. And we're a published author. I look forward to seeing you on the other side. Sean House, your friend, your neighbor, your real estate expert,

US Bank where, where we don't just write you loans, we actually help you to build your financial future. Let's talk more. I'll see you on the other side. Sean Shallis



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