In the September issue of Financial Planning Magazine, one article was focused on parents purchasing rental properties instead of having their children pay room and board while attending college. Looking at the costs, we found room and board can be as much as $16,000 or more, depending on the circumstances and college the children are attending.  With that in mind, here are a few suggestions to minimize your risks...

1. When leasing to students, make sure their parents sign the leases and provide guarantees that they accept responsibility for rent and damages.
2. A potential benefit for you as well is to pay your child for managing the investment.  In most cases, the management fee is deductible against rental income and the income may be tax-free to your child.  In 2006, single tax payers may have up to $5,150 in earned income sheltered by the standard deduction.  Their responsibilities may include collecting rents, renewing leases, and arranging necessary maintenance.  (An added benefit is the position may assist your children in running a business or managing their own rental properties in the future.)
3. You can even tie in all or at least a portion of the proceeds when the property is sold.  This will give your children added incentive to maintain the property.
4. Include your children in the house hunting and purchasing process.  This gives them a great education on the home buying process and will help them learn how to do it properly themselves in the future.
5. Consider using an LLC (Limited Liability Company) to limit your legal exposure.  Seek an attorney for details regarding this issue.
6. Do not purchase fixer uppers, where maintenance and repair costs can get out of control.
7. Think twice before purchasing property for a short period of time.  If your childern are only atttending that school for a couple of years, or if they likely will be transferring, it is probably wiser to avoid the purchase.

There are many advantages and "gotchas" when making this type of investment.  Incorporate seeking the advice of a Certified Mortgage Planning Specialist into your process.  They can help identify unique opportunities to add value to those who have children in college or are about to send one.  Would you like to save $16,000+ per year?  What about having the potential profits and experience your children can have while attending college by managing this investment?

If you would like to seek a Certified Mortgage Planning Specialist in your area, or would like more information on the CMPS designation, visit http://www.cmpsinstitute.org/.