1031 Exchanges Help with College Planning

Posted by Margo McDonnell | Wed, Jul 25, 2012

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Many of us are saving money in anticipation of our children heading off to college. Some of us have more time before our child begins college than others but most of us doubt we will have enough money saved with escalating cost of tuition, books, room and board. Believe it or not, with some planning, a 1031 exchange can help with some of that. 1031 CORP. has had many investors employ the following strategy over the last twenty-one years.

For those already invested in real estate, once your child has selected the school he or she will attend, you can 1031 exchange one of your current investment properties for another one that is on or near the campus of your child’s college. The property should be a residential unit that can eventually be used by your child after living in the dorm for a year or two. Many schools do not offer dorm living for all four years.  When the time is right, you can rent the house to your child and few friends. It is important that your child also pay rent so the property cannot be deemed to be used for personal use by a family member. The lease should list your child as the tenant even if it means you deposit their portion of the rent into his or her checking account. Some investors have reduced the rent slightly for their child in exchange for the child acting as the property manager and maintaining the property for your benefit.

For those who do not yet have investment property, it is never too early to start. If this is a plan that sounds like it might work for you, invest in something close to home or in a resort area – whichever makes the most sense to you. Another idea would be to acquire a residential property near a local college or university to get experience dealing with student tenants so you are a pro before your child and his or her friends move in. The advantage to acquiring a property used for student housing is that they are always in demand and in most college towns, they have retained their values over the last five years when many other investment properties lost value. For example, in you are a Penn State alumnus and purchased a home in State College in 2005 when property values in most areas were at their peak, you would have enjoyed appreciation since then. Penn State property values have increased over the last seven years and that is likely to continue even with the negative press Penn State has right now. Of course, if your child continues the Penn State tradition, he or she probably does not want you to stay at their house Homecoming Weekend!    

A good knowledge of 1031 exchanges and a well thought out and executed plan can create great wealth. 

Here are just some of the benefits of a 1031 exchange.

Topics: student housing and 1031, 1031 Exchange

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