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Purchase home, use 529 to pay for it?

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  • Purchase home, use 529 to pay for it?

    Has anyone tried purchasing a home near where their child will go to college and then renting it back to them and using 529 Plan money to pay for it?

  • #2
    What's to 'try'? You can pay off-campus expenses up to the room and board amount defined by the university in their cost of attendance. Doesn't matter who the landlord is.


    • #3
      you realize you would then owe tax on the rental income right?


      • #4
        If he owns a house and rents it out, he will be taxed on the rental income, whether it comes from a stranger or from his child paying for the rent through the 529.   It is a qualified education expense, regardless of who owns the rental property


        • #5

          you realize you would then owe tax on the rental income right?
          Click to expand...

          Only net income is taxable, not rental income.

          When you factor in property taxes, insurance, maintenance and depreciation. The net income will not likely be significant. especially considering the cost of attendance limitation on "room". Also, unless the OP pays cash for the purchase, there very likely is no net income at all.

          None of this matters, because it is a uniformly bad idea. There is considerable uncompensated risk in this investment. Not to mention that to make this even remotely cash flow neutral would involve the child having roommates. OP do you really want to be a landlord to college students who are not your child. I think not.


          • #6
            Yeah, need roommates.  Put the kid on payroll as property manager.  Expense that, plus your kid gets some moulah for Roth.

            Or a tiny house!

            All kinds of tax fun and learning.

            It's like the "Personal MBA" idea except for taxes!


            • #7
              This idea would make sense, but only if you lived in a college town and your child also went to school there, with roommates. I don’t know why someone would want to do this for only 4 years and in a home 1000 miles away. But even in that event, why not charge rent and have them live at home? Granted, you complicate the sale of your home. But I see no uncompensated risk in that event.


              • #8
                My wife and her sister bought a place near University of Arizona for $40K.  My sister-in-law has five kids, so this has worked out pretty well so far.

                Oldest niece lived there for four years and baby-sat the roommates.  Next oldest spent a year there.  Middle child is getting ready to start senior year (four years in the house), and one of the youngest two has moved in as a freshman.

                Dorm rooms cost about $11K per year.  They're on track to get thirteen school years worth of housing out of the place, plus the property value has increased from $40K to about $120K.  Overall not bad.


                • #9

                  OP do you really want to be a landlord to college students who are not your child. I think not.
                  Click to expand...

                  That would be my take on the matter in a nutshell.

                  Small scale landlords seem to do best with higher-end units and carefully selected, low-maintenance tenants.

                  My college roomates parents bought a place and I rented from them. We were brutal to that condo. I mean come on we were a bunch of dudes who just turned 20. The parties alone rendered the carpet unfit for human life after a year or so.


                  • #10
                    The place I rented in med school was owned by a surgery resident.  My stupid roommate caused all sorts of trouble.

                    2 times in the same year he overflowed the toilet into the downstairs apartment.

                    A weekend that I was away he left so much food out that when I returned there were more ants then I have ever seen in one place.

                    Over the course of the year he locked himself out half a dozen times when I was not around to let him in.

                    I was an MS1 so I was never home.

                    After a year I did not renew.  I cannot imagine what a pain it was for the owner.  I am sure he regrets his RE venture.


                    • #11
                      My ex-girlfriend's uncles bought a house when they were all in law school (overrated football team with a leprechaun mascot). They paid the place off in three years by having nightly keggers/spaghetti dinners. They were my personal heroes for about a year.


                      • #12
                        Ignore the naysayers. If only I had bought a home in Palo Alto in 1991.


                        • #13
                          We rented an off campus house my junior year of college in DC. Snuck in an extra person to reduce the cost. Keggers once a month. Generalized filth. Small backyard quickly attracted these giant rats. We saw them come out every night at dusk. We were afraid to go into the backyard after the first sighting, so whatever garabage that attracted them simply stayed. Every excrement imagineable on house floors. It was so gross after 1 year I had to leave and I returned to on-campus. The other guys stayed - they didn’t seem to mind. They replaced me with a guy who spent his junior year abroad. Maybe girls are cleaner. Maybe not. We trashed that place. An elaborate way of recapturing 529 funds would never make up for the damage we caused.


                          • #14

                            giant rats.
                            Click to expand...

                            I've traveled a fair bit and I have never seen rats like they have in DC.  I mean, WTH???

                            you guys are giving me flashbacks.  in college we had a house that we tore apart/refurbished the attic to make a bedroom and another room that we built a wall through the middle.  the landlady took it in stride when we moved out:  " I guess I shall advertise it as a six bedroom home?"