October 13th, 2014 5:58 PM by Gregg Mower
This time of year there are thousands of parents taking their kids off to college? As a parent I just did this and one might think it would be relatively easy as you have prepared your child for this all of his or her lives, but the problem is have you prepared yourself? I found out that I may not have done such a great job of preparing myself for this event. As a parent we do everything to give our children the best possible lives we can. We provide them food and housing and teach them how to interact with others and we build them towards leaving the nest someday. We help them pick out a college that will best fit their educational goals and their social goals. We get everything all set up for them pay their tuition and make sure they are set up with room and board. Then we deliver them and know they are all setup for their life in their new location. We know we have raised them for this very day, for them they are nervously excited with their whole life in front of them. Then the time comes to say goodbye and drive away leaving your child all setup for his or her future and it is somewhere around that time you realize that you are waving goodbye to what was your future, as for your whole adult life has revolved around raising this child to be a productive part of society and readied them for the world in front of them the whole time not thinking of what you will do when they are gone. They say it is bittersweet, but in reality your world is being turned upside down, especially if you have been a stay-at-home mom and now you are out of a full time job. Some of you have gone through this and know where it leads and others have intentionally put it out of their minds. Starting a new chapter in life at an older age is sometimes very hard and we have to look forward to get through.
So what does this have to do with Real Estate and loans you ask? Well I just went through this exact scenario and I find that writing about things help me get through the tough times. I have also been in the Mortgage and Real Estate business for 30+ years so I naturally look to Real Estate as a means to have purpose in possibly helping myself and my son at the same time. My wife and I are both in real estate she more the sales end and myself the loan side. So when we go to a new town one of the first things we do is to get a feel for the local Real Estate market. With our son going to Montana State in Bozeman we have been thinking of buying a home there so our son could rent it to him and his friends and we would have a rental property up there. I am sure this goes through many parents mind as they move their student into a new town. But you may not know how to go about doing this or wondering if it is a good idea to do so.
The facts are the about 20% of kids drop out of the school they have originally chose, or transfer to another school. So it is important not to jump right into the purchase of property right away as your child may change their mind on going to that school. My wife and I understand this have decided to keep looking but not to commit to purchasing anything until he has completed at least a year there. This way he will be able to make sure that the school and town are for him or her. If you did jump right into purchasing a home several things could happen, one of which could be your son or daughter may not like the school and secondly, and probably most importantly, your son or daughter would not get the social aspect out of living in dorm the first year which could inevitably lead to isolation and them not liking the school and your stuck with a rental in a town you no longer have ties to if your son or daughter decides to leave.
OK your child has been there a year and he/she would like to get a group of his or her buddies together to live in a house and you have an opportunity to buy a rental in that town, how do you go about it? Your options are actually more than you think. You can go into the process as if the house, condo, town home, or multifamily home is going to be your rental and that your child will only live there and you have the means to put a large down payment on the property (20% or more), and once her or she graduates you will continue to own the property as a rental that is one rout you can take. Another route to take would be to look at the home as a starter home for your child which will allow you to do owner occupied financing under certain circumstances. Owner occupied financing will allow for smaller down payments and less cash that you would have to come up with to close. You can do this type of financing if your child is going to live there. FHA will allow this to happen with as little as 3.5% down payment. Either direction you choose you have to remember, from an IRS point of view, that if you write the property off as a rental on your personal taxes you would be under a different taxation when and if you ever decided to sell the property. Capital Gains rules pertaining to real estate has changed considerably the last several years, so when considering this please consult your tax professional. This is a very touchy subject with respect to the IRS but it must be addressed before you file your first return with your new property.
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