Should College Students Try Rent to Own?

June 20, 2018 by Marty Orefice | Real Estate, Rent to Own

Rent to own could be a great cost saving measure for college students.
It’s almost a guarantee that when someone goes off to college, they come back with a boatload of debt.

Students who go away to college spend as much on housing as they do on tuition – in some cases, more. They’re dropping a lot of money to share apartments and – in some cases – bedrooms. Some students have to share a bathroom with 20 other students living on their floor or building.

Other students have figured out a way to hack the system.

There’s Huge Discounts in Bulk

The mistake that many students make is viewing college housing as temporary. Many are looking to rent for a couple of years before leaving to live somewhere else.

Students pay an average of $8,887 at public schools and $10,089 at private schools for lackluster living conditions, according to My College Guide. That’s $26,661 or $40,346 on average for four years in college.

In the end, students have nothing to show for the rent money they put in. They move out of the apartment and that’s it – they start over somewhere else on a new rental or working to buy a home.

Investment-minded students realize that buying a four-bedroom apartment and renting out the other three bedrooms can cover the mortgage.

Even on the cheaper end of the spectrum, four students paying $26,661 is equal to $106,644 in four years. Divided up, it’s $2,221 per month – far more than most mortgage payments for homes in college towns.

By purchasing or lease-optioning a property yourself and, then, leasing/subleasing the extra rooms to friends, you can ensure that you are the one to benefit from any savings.

Instead of being in debt for the $26,661 that you normally would be, you’ll have built at least that much in equity instead. That’s a huge accomplishment for someone fresh out of college.

If you plan to pack your home with double- or triple-occupancy rooms, the way that many dorms do, you could probably make even more per month for less money out of everyone’s budget, but buying an apartment can also be a way out of these less than ideal situations.

While this logically makes sense, most college students are kids right out of high school, and they’re not walking around with enough money to make a down payment on a mortgage or meet most of the other qualifications.

Students Cannot Afford Down Payments

Down payments are typically 20 percent of a home’s purchase price for conventional mortgages. Should you choose to get an FHA loan, your down payment can be as low as 2.5 percent.

However, the average cost of a home in April of 2018 was $400,000, according to the census report. The deposit would be $14,000 when you’ve got an FHA loan. The deposit would be $80,000 with a conventional mortgage. Most students don’t have that kind of money lying around.

Rent to own is a decent alternative that not a lot of students ask for. However, students that use it as a path to investment are savvy. Plus, the fact that not a lot of students are doing it is the reason why it works. If every student was looking to rent to own, it would be a lot more expensive than it is.

You can pay a small option fee, which they can eventually use as part of their down payment. In the meantime, you can pay fair market rent for the home. You can also work out some type of rent credit to start saving toward your down payment.

Lease-terms for rent to own deals typically last 2 to 3 years, leaving a full year for you to start building equity on the property with what you would have paid in rent plus the money your friends pay in for their rooms.

You’ll be making payments into something that can earn you money for years to come instead of losing that money entirely. Plus, if you’re putting $400,000 into a home, it will likely be a lot nicer than the accommodations you would get in an apartment or dorm room.

What Does a Student Do with a Property After College?

After you graduate, you can sell the property and make back what you put into it plus the rent money your friends paid because homes hold their value. As opposed to rent money, which just lines your landlord or housing complexes’ pocket.

You also have the option to rent out the property to new students and make a profit from it for years to come. Every four years, you earn $100,000 in rent money. Therefore, you’ll have paid off an average-priced property within 20 years. Then, you can make a profit off of it for the rest of your life, or at least until you choose to sell it.

A lot of the money is going to the mortgage and not your pocket. However, it’s important to remember that most of what you’re paying is building equity. Real estate tends to hold its value. So, you can turn around and sell the property for what you paid into it minus interest, of course.
First Day, Oh Yeah! by Aaron Hall is licensed under CC BY-SA 2.0.

Marty Orefice

About The Author

Marty Orefice

Martin Orefice is a real estate investor who has been in the industry for over a decade. He has experience with rent to own deals from all sides—as a buyer, seller and investor. He created to provide the #1 resource where people can find information about all things rent to own.

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