Pay for College with Real Estate 105: Rental Wins

Welcome back to the Pay for College with Real Estate series (101, 102, 103, 104), where we use the capital appreciation of real estate to counteract rising college prices. Today, we are looking at keeping our home and using the rental income to pay for college.

Let’s do a quick refresher. We bought a home in Yuma, Arizona, for $538,000, and over 18 years, we plan to appreciate $928,000. We also assumed a 15-year mortgage that we will pay off before our kids go to college. 

We will want to maximize rental income for today’s scenario by making key modifications to extract as much income as possible. Also, our child will be living in the home, where he can serve as the residential manager (or house boss).

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Remember, we paid off our home in 15 years, so we have three years of rental income before our child starts college. At $3,000/month, that gives us $108,000 to use towards renovations and upgrades. I want to make good use of this money by thinking strategically. 

Our home was a three-bedroom, three-bathroom, 2,300 square foot house. Something tells me that there is a large area of unused space, perhaps a large den or gaming area. The first thing we want to do is ensure that we can convert that area into rentable space. 

Also, I would want to add one more bathroom into the main space, giving us four bedrooms and four bathrooms. We can charge a lot more when each tenant has a private bathroom. I know the house I choose is in a neighborhood, but we want a home with some land in reality. This way, we don’t have to worry about parking, noise, and neighbors.

Finally, we will want to convert the garage into a substantial livable area. We can turn it into a one-bedroom place with separate living and sleeping areas. Then add its own air conditioning, bathroom, kitchenette, and entrance. 

In total, our renovated home would have five bedrooms and five bathrooms, and the square footage would have jumped to 3,000 square feet. Not too bad, and now it’s time to get this baby on the market and see how much we can receive from rental income. 

Start a Community Garden and U-Pick-It Farm

Our son would live in the smallest room in the home to collect as much from everyone else as possible. With each tenant having their own bathroom, we can charge a little more than the dorms. 

Rental rooms 1 and 2 would be the smaller of the remaining three rooms in the main house. We would charge $1,200/month for these. Rental room three would be the master suite, which of course, would be more prominent and command a premium. It costs to live like a king. We would charge $1,500/month for the master.

Finally, the converted garage with its own entrance, bathroom, living room, air conditioner, kitchenette, and bedroom will command a considerable premium. It is basically its own apartment; thus, we can charge apartment prices. It will go for $2,000/month.

Let’s do a quick tally of our rental income thus far, and yes, we are going to add even more income. We have rental room 1 ($1,200), rental room 2 ($1,200), master suite ($1,500), and converted garage ($2,000), for a grand total of $5,900/month. Now, let’s try to maximize even more income out of the home. 

I recently read a book titled “40 Ways to Increase the Net Income of Your Rental Property.” which fits this scenario perfectly. The book brainstorms ideas to increase the income of your property by adding value to your tenants. 

Inflation vs. Rents

We can start by adding a storage shed in the backyard. I wouldn’t expect college kids to need storage space, but we can rent the converted garage to an older person. They love to use storage. Let’s say we can collect $100/month from storage. 

We can have bikes for rent for the tenants. The cool thing about this is that my son can handle the maintenance of the bike, which is a massive benefit to the others. Let’s say we collect $100/month from bike rentals. 

We can also rent a car for our housemates—this would be a perfect situation because of a lack of parking. We can create a shuttle-style schedule, where we leave for school simultaneously and return together. If the tenants needed to use the car for personal errands, they could pay for each use. They would save a ton of money by only paying on a case-by-case basis. We could collect $400/month from a house rental car.

Another option is to have high-end furniture and appliances for rent in the home. People like nice things but don’t necessarily want to own them. We can get with our tenants and see what items they would like to see in the home. We can have high-end mixers, cappuccino machines, smoothies, etc. They could pay a monthly fee to access these items to collect $100/month for house items.

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Adding a fitness center to the home would be a great way to add more income. If we had some land, we could add a pre-built barnhouse on the property. We would just need to have electricity and air conditioning, plus the gym equipment. I think we could be operational for $20,000. However, we could charge each tenant $20/month for gym use. This would also be saving us personal money for going to the gym as well. We can collect $100/month from our gym. We also can advertise the gym to local trainers who can come and use it with their clients. It’ll be a lot cheaper for them than using a significant neighborhood gym. That would bring in $200/month.

We can run a little convenience store inside the home. Remember, these are college kids. We can keep things like beer, chips, salsa, dip, and candy in our store. Think about when you go to a Marriott hotel, and there is that little high-priced store they maintain in the lobby. Same thing here, and they can charge the items to the rent. We can make a good amount of income by tailoring the store to the personal taste of tenets. I predict $300/month for our convenience store. 

Happy Financial Independence Day

Finally, we can have a gaming room. We can have high-end chairs, game consoles, and the newest games. Everyone wants to be a gamer, but it can be costly. Our son has a great sponsor, us, that can assist with purchasing these things. We would just charge a monthly fee to access the gaming room. We can make $200/month from gaming-related charges. 

Let’s tally up our side hustle income and see where we stand. Storage space ($100), bikes ($100), rental car ($400), high-end appliances ($100), gym ($100), gym trainers ($200), convenience store ($300), and game room ($200). This totals $1,500/month. Wow, it’s like having another tenant.

Of course, we only can do what makes sense and what the tenants find valuable. Do not think that our son has to run everything by himself. We like to use the word leverage, meaning that if one tenant finds the use of these side hustles, you can put them in charge for discounted rates. For example, if they want to run the car business, they could pay half price for using it for errands. Some people want to get involved. Learn how to leverage people early, and it will multiply your productivity and income. 

Happiness Isn’t Free

Now, for the grand total of our rental home. The rental income is $5,900/month, plus the side hustles are $1,500/month, for a final tally of $7,400/month. Remember, we need $150,000 to pay for college. 

We can do the math for four years of running this rental house at $7,400/month. The total is $355,000, which pays for our college twice over. It truly pays to read books and use leverage to extract as much income as we can from our property. 

Again, we would want to have land to keep this madhouse away from other neighbors. Overall, I love this idea; however, it requires our son to be hyper mature at age 18. Handling tenants and businesses are things most adults can’t do. That is why we start building our kids to have a responsibility mindset today. Life is easy when we understand what we are doing and, more importantly, why we are doing it. Thanks for reading the Pay for College with Real Estate Series; there will be more to come. Enjoy and Happy Investing. 

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