Attracting renters without togas in a college town

For parents of college students, back-to-school shopping could include off-campus shelter. The number of homes purchased as second residences and rentals continues to be a greater percentage of the housing picture.

From a tax standpoint, a home purchased in a college town as an alternative to dorm living could be viewed as either a second home or an investment property. Typically, the student manages the rental investment while Mom and Dad reap the tax benefits and appreciation that come from owning the home.

Sometimes, homes and condos near schools are too expensive to make the venture financially feasible. Also, there is the initial problem of handling the down payment and monthly expenses in addition to paying tuition. However, there are moderately priced college towns that continue to appreciate, bringing interest from parent-investors.

If the property definitely is going to be a rental, you can’t rent to your children and their friends for a song. The IRS will not allow you to show a taxable loss on the property if you personally use it for more than 14 days or 10% of the total rental period. Personal use includes renting to any relative unless you charge a fair market rent. If the student-occupant does not pay rent, depreciation cannot result in a taxable loss. Expenses may be deducted but not to the point where an actual loss is shown.

If you do not have children or feel they are not mature enough to head a household, there are still attractive rental possibilities for your potential property that do not include underclassmen seeking to reenact “Animal House.” There are often visiting professors seeking temporary housing near college campuses as well as employees (secretaries, security staff, caterers, librarians) who often are good tenant prospects. Notes to hiring departments can work wonders in landing mature renters, as can ads posted in faculty lounges and on-campus faculty living areas. Graduate and married students also form a significant renter pool.

Sometimes, professors seek alternative housing for highly coveted students. For example, several years ago, the dean of the Institute for Theological Studies at Seattle University was trying to locate a group home for a number of his graduate students. Several of his applicants were former nuns relocating from other states. Needless to say, the women were not eager to occupy rooms in an undergraduate high-rise dorm dominated by college freshmen.

The dean contacted an investor friend whose wife was an associate on the Seattle University faculty. The investor did not own property in the area but told the dean he would see what might be for sale. A quick drive through the area revealed no “for sale” signs, so the investor copied down the addresses of several large houses within a four-block walk from campus.

Today, the investor would be able to enter the addresses into the county’s real property database, or other property websites, to determine the owner and tax assessment. Then, however, he would have had to make a trip to the county treasurer’s office to determine the owners’ names and addresses.

The investor found an owner willing to sell who not only would make the home available so that the former nuns could occupy the house in time for the fall term, but also agreed to provide seller financing. The arrangement worked for all parties involved -- the dean used the example as a recruiting tool, the former nuns (none of whom owned a car) found affordable housing within walking distance from campus, the investor secured an appreciating asset while the nuns covered his monthly housing costs, and the seller got a quick, clean sale.

What made the deal run smoothly was the investor’s ability to meet and communicate with the eventual seller the intent of the rental.

Tom Kelly co-wrote “Cashing In on a Second Home in Mexico: How to Buy, Rent and Profit From Property South of the Border.”