How to Live Rent Free and Pay for College
(This article was written for college students, however,
the principals are sound and apply to all who are
interested in purchasing a home to live in while renting
out the remaining rooms.)
What if there was a way to purchase a home and rent out the
rooms to other college students so their
rent
covers your
mortgage?
In this report, I will describe how it is done in 7 easy
steps. I have over 7 years of personal experience. I
currently own 15 homes as well as my own property
management company. I specialize in helping college
students purchase and manage their first home.
Read these simple steps and decide for yourself if this is
something you want.
STEP 1: GET QUALIFIED!
Getting
qualified for a loan is similar to filling out a rental
application. The loan officer will ask you some questions,
run the numbers and then get back to you with an estimated
payment and loan amount that you can afford. The loan
officer I recommend is Heidi at
www.Affinity-Financial.com
(858)
693-5400. She specializes in first time buyer programs
that provide down payment assistance up to $125,000 and
monthly tax credits up to $350/m. She can provide you
with a pre-approval certificate, which will be necessary
once we start writing offers.
Stay positive if you don’t get approved in the beginning.
Often times, Heidi can tell you exactly what steps you need
to take. I believe that if you develop a burning desire to
own a home and you have a plan for achieving it, you will
get there.
Some people are only one or two steps away from being
qualified. You may need to have your parents co-sign in
order to qualify. If you have parents that have expressed
an interest in helping you out with your first home, one
excellent way to get started is by “Shared Equity” also
know as “Joint Ownership”. My parents helped me this way on
my first home, and I will be forever grateful to them for
this. I won’t go into all the details about how successful
this was, but I will say, it helped inspire me to show
others how easy it is to get started as well as some of the
many benefits. Here is a link to the author Marilyn D.
Sullivan of the best books I have read on the subject of
“Joint Ownership/Shared Equity”
www.msullivan.com
Once you are qualified, the fun begins.
STEP
2: START LOOKING FOR A HOUSE
You
probably already have some ideas where you would like to
live. Based on your preferences, I will give you some
suggestions as to areas and types of homes that will be
best suited for this scenario. Off the top, I recommend
houses with at least four bedrooms or three bedrooms and an
extra room that can be converted into a bedroom. Typically,
the more rooms the better. I will set you up with your own
website where you can see what is available in your search
criteria. After you’ve homed in on a few you’d like to see,
call me, and we’ll make an appointment to see them.
STEP
3: ESTIMATE INCOME AND EXPENSES
Income:
Using online resources such as www.UCSDHousing.org,
determine comparable rents for the house you are interested
in. Call or email the person running the ad to get a feel
for what others are offering and how much they are
charging. Do drive-bys or visit the house to make a
comparison.
Expense: Call the local utility company and get the annual
utility cost for the house over the last two years.
Phones, Internet and Cable: Personally, I would keep your
expenses down to a minimum. If you absolutely need
Internet, shop around for the best price. There are some
good deals out there if you look. Most people have mobile
phones. If you need a land-line to save on costs, use
either an internet phone, (VOIP phone) such as Vonage or
Skype. If your tenants want to get a phone line in their
own name, that is fine, but adding a “House Phone” to the
equation can complicate things real quick. Trust me, it
isn’t worth it. Keep it simple and stay out of financial
agreements with your tenants. Remember, the more costly the
place, the less attractive it will be to renters.
Figure out the monthly cost to run the place. Divide that
number by the number of rooms less one room (your room).
You will need to finesse the numbers here a little to have
them make sense, but the idea is to the get your rent as
close to zero while keeping the other rooms in check with
other available rooms. I have a spreadsheet that can help
you with this.
Once you find a place you really like, and the numbers look
attractive, we write an offer.
STEP 4: BUY A HOUSE
Buying
the house is actually the easiest part. We write and submit
the offer. Often times, it gets countered back and forth
before an agreeable price is met.
STEP
5: ESCROW
Everyone
has their jobs: real estate agents, escrow officers,
termite and home inspectors, loan officer, all working
together to make the transaction go smoothly. For buyer’s
tips and more information on this, visit my website
at
www.johnrlawler.com
STEP
6: FINDING ROOMMATES
Go
online to the Roommates website
www.UCSDHousing.org
and
create an account as someone that has rooms to rent.
Advertise your rooms as either private or shared.
Remember, you can still share your room. Others don't
mind sharing if they can save money.
After you find someone, have him or her fill out an
application as soon as possible. What I like to do is give
them the address, let them drive by, and if they like the
place, the neighborhood… then email it to them, requesting
that they bring the application when you meet. It’s not too
much to ask, and it will show you right off, who is serious
and who is just looking. (I will give you a couple online
places to go to qualify your prospects.) Be selective. This
is not the same as a landlord renting a house or an
apartment. Have other tenants be present for safety as well
as their feedback. They may pick up on something you might
miss. And while it’s a good idea for everyone to get along,
you are still the landlord and have the final say.
STEP
7: THE LEASE
I
recommend that you have your tenants sign a 1-year lease
rather than month-to-month. Finding tenants can be a
tedious process and you don’t want to do it any more than
necessary. I have never personally held anyone to the
1-year agreement if circumstances arose which prompted them
to leave, however, it’s more of a mindset. You want someone
who is comfortable enough to commit to a year. Request
first months rent plus a deposit equal to the rent. Do not
call it “first and last months rent”. While it is easier to
“say”, it is not the same. You want to collect a deposit,
which you will keep in a separate checking account with all
other deposits. I will show you which lease I use, however,
I need to disclose that I am not a real estate attorney and
release myself of all liability and do not claim to be an
attorney in any way, shape or form. I advise you as a
future homeowner to seek advice from a real estate
attorney for any questions concerning contracts and
leases. The information given on this page
is intended for informational purposes only
and is not to be used in any other way
than with your attorney.
These are your roommates as well as your tenants. Don’t get
caught into the power of being a landlord or you may begin
to be treated like a boss. One strategy people have used
was to resort to the higher authority response. “This isn’t
my house, I am just managing it for my parents”. And if
they helped you in any way with the deposit or co-signing,
you wouldn’t even be stretching the truth.
Set up the tenants with
www.ClearNow.com, a
third party rent collection agency. They automatically
withdraw the rent from your tenants account and deposit
into yours. If there is any problem with funds, you will
know right away. No awkwardness of collecting from your
tenant/roommates and for $15/month, it is an absolute
must.
TIPS
AND WARNINGS
* Do
Interview the folks that email or call right away.
* Do not reduce your price to "help out" someone.
* On the phone, ask them “why are you moving?” and then be
quiet. Let them answer.
* When they arrive for the interview, ask them again, “why
are you moving?” and then be quiet. Let them answer.
Hopefully, answer 1 and answer 2 are the same. You are
grading two things, Honesty, and their answer.
* Do rent to college students with similar interests.
* Do not take less than the first and full deposit
* Do be picky about who you rent to. Also state that their
parents will be also responsible for the payment of their
rent and damages and provide additional copies for their
parents to sign and have notarized. Don't be intimidated by
folks saying their parents won't sign. If they won't, then
they can't rent from you PERIOD.
* Do Sign up with ClearNow.com to have your rents collected
automatically.
* Type up a simple statement of agreement, that they will
pay the rent by the first, it’s late on the 5th, and they
are out of the house or apartment on the 15th if not paid
in full. Also say on the statement that not paying rent is
in violation of the student code of conduct at your school
and that you will ask that the student conduct counsel take
disciplinary action against them for non-payment of rent.
Sounds harsh, but it is not. Responsible people will sign
the agreement and be happy, great tenants. Those that don't
or leave you owing money will pay when their transcripts
are held due to the debt.
* Create a rules list that they must sign at the time of
the rental agreement that includes no overnight guests more
than 4 times a month, no parties, no illegal drugs, no
underage drinking, and full compliance with the University
Code of Student Conduct.
* Only accept cash or money orders for the first month and
deposit.
* Deposit the security deposits into a separate bank
account and do not touch it. It is against the law in most
states to spend the deposits until they are forfeited by
the roommate.
* Keep clear, concise, accurate records.
* Do not give discounts. If someone cannot afford to move
in, they cannot afford to pay rent the following months.
* Do not
engage in underage drinking or drug use as it will make
enforcing your rent agreement impossible. Besides, it will
destroy your grades as well.
* Do not rent to couples as a package deal. Singles only.
* Do get
a tax advisor that can answer questions like: Do you get
taxed for renting out rooms in your house? Do I get taxed
for having income (from rent minus rental expenses, such as
utilities, depreciation, repairs, new fixtures, etc.)? MUST
I depreciate the square-footage percentage of those rooms
on a 27.5-year basis? Is depreciation mandatory and can I
recapture depreciation as capital gains when those rooms
are withdrawn from the rental market? (For more
information, see the IRS website instructions for Schedule
E, Rents and Royalties.)
The
information provided above is general in nature and thus,
may not apply to your situation. Before relying on this
information, you should consult with your legal and/or tax
professional.
You are going to have to deal with these things anyway,
paying rent, and utilities, finding roommates, signing
leases. Why not get paid for it?
College can be a place where you will learn a lot of “book
knowledge”, but when you graduate, what “real world”
experience will you have? I am amazed to hear about the
students who worked their way through school, but I often
ask myself “what part of their academics did they have to
sacrifice for this?“
What impresses me the most, are the free thinkers who take
initiative and start their own business by buying their
first home. These are the people who are running other
companies now, because they learned important skills like,
contract negotiation, conflict resolution, how to track
income and expenses. They are responsible decision makers
with established credit, equity in their homes and have
some stability in their life.
Still interested? Call me. I am easily reached at (858)
538-9100 from 8:00 to 6:00. (pacific time). Otherwise, just
leave a message. I would be happy to talk about this.
Best Regards,
John Lawler
john@JohnRLawler.com
P.S. Forward this email to friends or family members who
might benefit from this information.