By Kathy Fettke

If you’re challenged by the high cost of college housing, there are ways to offset your expenses. One California parent says her method is not only cutting college housing costs down to the bone, it’s also providing a valuable “life lesson” for her son.

Kaaren Hall of Irvine, California, is a single mom with two kids in college. Her business, uDirect IRA Services, helps people self-direct their IRA’s to invest in alternative assets, like real estate.

She’s seen many investors get creative with their investing, so she decided she would too.

Hall, who has 20 plus years of experience in mortgage banking, real estate and property management has two children: Lauren and Mitchell.

Her daughter Lauren is going to UC Berkeley outside of San Francisco, and her son Mitchell is going to Kansas State in Manhattan, Kansas.

While she couldn’t find a solution to the high cost of living in the San Francisco area where starter homes cost about a million dollars, she was able to help her son buy a home in Kansas for $144,000.

And because Kaaren was a former mortgage broker, she also knew how to get creative with loans. She and Mitchell only had to come $4,000 out-of-pocket.

Financial Solution to College Housing Expenses

The low home price is only a small part of this financially-elegant solution to her son’s housing needs. Their story begins two years ago in 2015. They bought the house with 3.5% down on an FHA owner-occupied loan. Mitchell was the primary borrower and Hall was the non-occupant co-borrower. They offered $147,000 on the home, got accepted, and put down $1,000 in earnest money. The additional $3,000 was used for closing costs. The total upfront cost was just $4,000.

Hall says this solution might not work for everyone, but it’s a good opportunity for some parents. She says: “It might be easier than people think. I don’t know if FHA still offers that program where you can be the co-borrower. But two years ago it did. Lending rules are always changing, but at that time you could do it, and we did.”

Their next strategic move was to turn the 3-bedroom home into a 4-bedroom home, with permits. Mitchell is now living in one room rent free and getting $500 for each of the other three rooms. That’s enough to pay the mortgage, and his truck payment! They also increased the equity on the home by increasing the number of bedrooms.

Basically, the home is now paying for itself, and they will benefit over the long-run from the equity, and appreciation. When you compare the situation to the one in Berkeley, Hall says: “It’s the tale of two cities. The amount it costs for my son’s mortgage payment, all in, principal, interest, taxes, and insurance, in a house that four people live in… is the same as my daughter renting a room with two other girls in Berkeley.”

Real Life Lesson for a Son in College

Kaaren’s son is also gaining some very important experience. By making good on the loan, she says her son will get out of college with “an incredibly decent credit rating.” He’s also learning how to be a landlord and how to deal with issues like an overflowing toilet that turns into a mold problem. She says it’s all fixed now, but he had to put on his “responsibility cap” and get it resolved.

Kaaren said, “It’s a big change from his former days when she had a hard time getting him to take out the garbage. Now he does it out of “pride of ownership.”

She doesn’t know what they will do yet when he graduates. They will probably continue to rent it out but it will be a whole different ball game. Her son is the on-site “landlord” right now, and he’s bringing in personally-screened tenants. When he graduates, they will have to hire a property manager and accept tenants they don’t know.

Kaaren says: “It’s a great option for a kid. Mitchell’s had to learn some things. He’s not just a roommate. He’s the boss of the house. So he’s learning how to be an authority figure.”

Finding the Right Deal on a College Home

Location matters in any real estate deal, so you will have to run the numbers on potential college districts. If there’s more than one college or university on a list of candidates, you might want to factor in the savings or revenue from home ownership as opposed to dorm or rental expenses before the choice is made. It could help sway a decision about where to go.

Mitchell received an athletic scholarship, which landed him in Kansas. With real estate in his Mom’s background, they checked out homes in the area, and found one three miles away.

Here’s some of Kaaren’s advice for parents: Find a home that’s as close as possible to the school. The closest ones may be more expensive, even if they are older and in need of more maintenance. She says her son’s home is further out, but close enough to campus, and is only about ten years old and in good shape.

Tax rules are also an important consideration. If the parent is the primary owner, it might be possible to designate the home as a second family home and deduct 100% of the mortgage interest and property taxes. You can also buy the home as an investment property and “rent” it back to your child. Tax deductions are even better on investment property, as repairs, taxes, insurance – and most expenses can be deducted. (This is not tax advice! Always speak with your CPA or tax advisor for your specific situation.)

Another option: A parent may be able to give a child up to $14,000 a year to pay that rent. Two parents can give a total of $28,000. As always, there are always rules on top of rules, and they change, so check with your tax accountant.

Other benefits of owning your child’s college digs include fixed housing expenses and housing stability. The child won’t have to go through the summer move-out and the rush to find a new place in the fall, and there will be no “surprises” about how much the next rental will cost – especially if the loan is on a fixed rate.

Hopefully, the ownership scenario will also provide a more productive environment for, let’s say, doing something like… homework. But with 4 roommates in the house, you shouldn’t count on that.

Author Kathy Fettke is the founder and co-CEO of Real Wealth Network. You can reach her at kathy@realwealthnetwork.com.

Co-author Donna Behrens is podcast producer and writer for Real Wealth Network.