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.