When parents sending their first young adult off to university recover from tuition sticker shock, they’re gut-punched again by the cost of room, board, and meals.  In the District of Columbia, a college town known for its high rental housing costs, low housing inventory, and pricey food, the numbers can be daunting.

Not only that, but the housing options for your student can seem… less than ideal.

Instead of outlaying a total loss every month and worrying about safety and quality of living, you can buy a property you like in a neighborhood you’re comfortable with, move your student into one bedroom and rent out the other bedroom(s) to a classmate(s). Add your student to the mortgage and they’ll pay lower/no rent and build credit in exchange for property management duties like supervising housemates, signing leases, collecting rent, and handling repairs. They’ll live better for less, and gain valuable, real-life investing & property management experience in the bargain.

Parents get tax deductions, an investment property financed at owner-occupied interest rates sans property manager fees, and home equity appreciation in one of the nation’s strongest real estate markets.

It depends on the price of the home you choose and the mortgage loan you select, if any.

Bonuses:

• 3.5% Minimum Down Payment
• Low Interest Rates & Fees
• FHA loans are assumable

Low for a standard homeowner mortgage loan, exceptional for a rental property down payment, and points can be zero with good qualifications, compared to 2-3 points for a typical investor loan. The student-occupant co-borrower satisfies FHA’s owner-occupant requirement, per lenders.

District of Columbia 2022 loan limits:

• Single: $970,800.
• Duplex: $1,243,050.
• Triplex: $1,502,475.

For a $450,000 rental property, most borrowers will pay a $15,750 down payment for an FHA loan.

FHA interest rates are currently in the 6.0-6.25% range, a monthly payment of about $2,945. Remember to add condo fees to the equation if you’re opting for that home type.

Downsides:

• Higher monthly payment with a lower downpayment
• MIP

Mortgage insurance premium or ‘MIP’ is required on all FHA loans, costing 1.75% of the loan amount upfront and 0.85% per year (broken into 12 monthly payments) (effectively increasing the interest rate you’re paying by nearly a full percentage point). But almost anyone purchasing with a down payment under 20% will pay some form of mortgage insurance. While PMI can be removed at the 20% equity mark, however, FHA MIP remains for the life of the FHA loan. Of course, if you plan to sell the property when your student graduates, this is not an issue, and those planning to retain the property as a rental can refinance when rates are advantageous.