Happy House Hacking Podcast EP 45: Turn Your Student's Rent into a Real Estate Investment

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Turn Your Student's Rent into a Real Estate Investment

As parents of a student at Cal Poly, you’re likely all too familiar with the intense competition for student housing in San Luis Obispo. This challenge is not just about finding a place to live; it's about navigating a highly competitive market where demand for Cal Poly housing far outstrips supply. For years, families have paid high rents, with that money simply disappearing into the pocket of another landlord, but there is a powerful alternative: a strategic real estate investment that benefits both you and your student.

At The Schwaegerle Team, we believe that the high demand for Cal Poly housing is not a burden, but an asset waiting to be leveraged into a successful student housing investment. On a recent episode of our Happy House Hacking podcast, we explored what it would look like to buy a property for your student to live in, transforming their rent into a meaningful real estate investment and building equity over time. 

Student Housing Issues and Real Estate Investment Solutions

The city of San Luis Obispo is home to roughly 46,000 people, with a college student population of 20,000. This immense student presence creates a severe shortage of available student housing. Demand is high, inventory is low, and the housing competition is fierce.

As proud Cal Poly alumni, we have personal experience with this struggle. Camille Schwaegerle stated, "When we were students at Cal Poly over a decade ago, it was still challenging to find housing just to rent. And it was competitive." Today, the problem has only become more complex, making the search for decent San Luis Obispo housing even more difficult.

The unbalanced market gives landlords and property management companies the upper hand. Many student rental properties are not well-maintained, and students are often forced to accept substandard living conditions. Camille shared a troubling story from her college years: "I remember this one apartment my roommates and I lived in. It had a mushroom growing in the upstairs bathroom…And then a few months later, the downstairs bedroom had mold in it."

Beyond the poor conditions, the costs of Cal Poly housing are staggering. The average cost per bed is close to $1,500 a month, with some shared units and on-campus options reaching $1,900 a month. Over a four-year degree, that’s a small fortune paid directly to a landlord. This brings us to the most effective solution: a well-planned real estate investment.

Student Housing as a Real Estate Investment

Instead of paying another landlord, a real estate investment in a student rental property allows you to put that money toward your own asset. It’s a bold and strategic move that provides a secure, well-maintained home for your student and a powerful financial tool for you.

By purchasing a property, you gain complete control over your student's living environment. This ensures they have a safe and comfortable place to live for their entire college career. It also creates a strategic financial loop: you buy the property, your student lives there with roommates, and their rent payments help you cover the mortgage. This is a prime example of a successful student housing investment.

One of the most compelling reasons for a San Luis Obispo real estate investment is the market’s history of strong appreciation. Owen Schwaegerle highlighted this trend, saying, "I remember when I first started at Cal Poly, the median sales price of a house in San Luis Obispo was around $400,000. By the time I had graduated, it was $600,000. And today the median sales price is about $900,000." This significant appreciation is a powerful argument for a student housing investment and a testament to the potential for long-term growth.

The Financial Benefits of Student Housing Investment

A student housing investment offers much more than just a place to live. It’s a financial strategy with multiple benefits. From building equity to generating cash flow, the advantages are both immediate and long-term. 

Potential for Profit

With the right property—typically one with three or more bedrooms—you can easily generate positive cash flow from the rent paid by your student’s roommates. Instead of losing up to $20,000 a year, you could be gaining a few thousand dollars annually while also building equity. This is a massive financial upside that makes a real estate investment far superior to renting.

Investment Appreciation and Future Options

The appreciation of your San Luis Obispo housing investment can be a game-changer. We have seen parents gain hundreds of thousands of dollars in property value during the short time their student was in college. After your student graduates, you have two great options: sell the property and enjoy a significant profit, or keep it as a long-term student rental property to generate ongoing passive income.

Tax Advantages of a Real Estate Investment

As the owner of a student rental property, you may be able to take advantage of several tax deductions. We always advise consulting with a CPA, but these benefits can include deductions for mortgage interest, property taxes, insurance, and maintenance costs, further enhancing the profitability of your real estate investment.

Learning Opportunities for Your Student

A student housing investment is also an incredible learning opportunity for your child. By involving them in the property management process—from selecting roommates to handling maintenance issues and collecting rent—you are giving them a crash course in the real estate world. As Owen put it, “It's like you're giving your student training wheels in property management...It's preparing them for home ownership and helping them succeed in life.” 

This is an invaluable head start on their path to future financial independence and a powerful legacy to pass down. It builds real-world skills and financial literacy that will serve them for a lifetime. 

Getting Started with Your Investment

You don’t have to buy a large single-family home to make a sound real estate investment. A condo investment is an excellent and more affordable entry-level option, perfect for a student who will only be in town for a few years. Condos typically have lower purchase prices than houses, making them a great starting point for a student housing investment. Just be sure to consider the HOA fees when doing your financial calculations.

Using a 529 Account

Many parents have a 529 college savings plan. While you cannot use these funds directly for a down payment on a property without incurring penalties, they can still be a vital part of your financial plan. 

The IRS considers room and board to be a qualified expense, up to the amount listed in the university’s Cost of Attendance (COA). This means you can use your 529 funds to pay for your student’s portion of the rent. This approach frees up other cash that can be directed toward the mortgage, making your student housing investment more manageable. This is a creative and strategic way to use pre-saved college funds to get started on your real estate investment journey.

The Road to a Profitable Student Housing Investment

The challenge of securing safe and affordable Cal Poly housing is a reality for many families, but it doesn't have to be a financial burden. By shifting your mindset from renting to a strategic real estate investment, you can transform a significant expense into a powerful asset. This approach not only provides your student with a secure living environment but also allows you to build equity, generate potential cash flow, and leverage valuable tax benefits.

At The Schwaegerle Team, we believe a student's college years should be about building more than just a degree—they should be about building a financial future. If you’re interested in learning more about real estate investments, be sure to listen to the rest of our Happy House Hacking podcast!