With tuition costs soaring and the stock market not exactly helping those who’ve been saving for their kids’ education bills, some parents are getting creative in paying for college.

With three sons fast approaching college age and not a lot of money set aside for their expenses, Greg and his wife began entertaining the idea of buying rental property in the towns where their kids went to school.   Today, with their first child finishing his senior year and their second one in his sophomore year, their strategy has paid off.  Twice.  Here’s how they did it.

Do Your Homework

When their oldest son started college at a school two hours from home, he spent his first year in a dorm.  That gave him time to build friends, some of which would become his roommates in the house his parents eventually bought.  And it gave Greg and his wife time to learn the area.

“I think it’s important to take your time in getting to know the market and the neighborhoods,” Greg said.  “We looked at lots of neighborhoods.  Some were run down and scary; others were nicer, but we couldn’t afford them. It took some time to find the right place.”

At first, they looked into short sales, but found the process “painfully tedious.”  They ended up buying a duplex directly from the seller for $115,000, using a home equity line borrowed against their primary residence.  Being able to pay cash “puts you in a better position to act quickly,” Greg said.  “The downside is you’re mortgaging your primary residence and the interest rate is variable.”

They converted the duplex into a single-family home, with Greg doing most of the work himself.  “That’s my philosophy.  If I can do it myself, I will.  A lot of your profit gets eaten up if you have to hire out the work.”

After some painting, adding a used washer and dryer, and partially furnishing the house with some of their own furniture and other pieces they bought used, it was ready to go.

They traded a $750-a-month dorm bill into having their son live rent-free.  In fact, after paying the mortgage, taxes, insurance, and maintenance, the property is turning a $300 per month profit.

Know Your Renters

Their first property was completely occupied (5 renters plus their son) from the start of their son’s sophomore year.  At first, everything went smoothly.  However, when one renter transferred to a different school and found someone to take his place in the house, the new guy stopped paying his rent after just one month and had to be booted.  That cost Greg and his wife two or three months’ worth of rent in the process.

Still, Greg and his wife do not run credit checks on prospective renters since they are usually friends of their son.  To create lease contracts, Greg used an online service.

They have students sign a one-year lease, even if they don’t plan to take summer school classes, giving renters the option to either pay half-rent over the summer when they’re not there or sub-lease.  Most choose to sub-lease.

Buying a Second Property

Two years after purchasing their first college-town rental property, they did it again for their second son, who chose a school closer to home.

He, too, spent his first year in a dorm, giving Greg and his wife time to look for a suitable property and giving their son time to make friends who would become renters.

They paid $83,500 for a “neglected” 100-year old two-family house and then spent $7,000 and six months of hard labor turning it back into a single-family home with five bedrooms.  Greg worked on the house almost every day after finishing up his day job.  His son helped as well.  Even the dads of some of his son’s friends who planned to live there pitched in.