Parents as landlords a popular option in college towns

Iowa City residents Terri and Steve Larson own a second home in Cedar Falls, and they have a deal with the tenants there: If and when the Larsons sell the ranch house, the tenants get a share of the profits.

Such a deal encourages maintenance and responsible stewardship by the tenants, said Terri Larson, an Iowa City Realtor and president of the Iowa City Area Association of Realtors.

In this case, two of the tenants are the Larsons' sons - students at the University of Northern Iowa.

The Larsons are part of a national trend of parents buying property in university towns for their kids to live in during college. Parents see it as an investment, while they avoid the cost of rent or dorm housing.

“We realized if you can afford to do it, it's really a smart thing to do with your money,” Terri Larson said.

A few Iowa City and Ames Realtors say they are seeing an increase in such parent property sales in the past year or two as the housing market affords some good deals. Other realtors say they haven't noticed a recent spike, but note that such parent purchases have been popular for some time.

The National Association of Realtors doesn't keep statistics on such sales, but officials with the group said they've heard anecdotally that parent-landlord purchases are popular in college towns.

In a recent national survey of Coldwell Banker real estate professionals, the company said 64 percent of agents reported seeing a significant number of parent investors buying homes for their kids to live in during college.

The same survey listed the average home prices in the college and university towns covered by the Football Bowl Subdivision. Ames, home to Iowa State University, was 36th on the affordability list, with an average price of $190,943, while Iowa City was 81st on the list, with an average price of $259,952 for a four-bedroom, two-bath home.

“We're getting more inquires from parents, inquiring into what can you buy for X amount of dollars, where is a good spot for the kids to be,” said Lou Ann Lathrop, broker for Iowa Realty in Iowa City. “I think we have seen the trend pick up, because of the market.”

Ron Murphy, broker manager with Friedrich Iowa Realty in Ames, said he's noticed over the past two years more sales to parents. He believes lower housing prices are driving the trend and also possibly personal preferences of students who don't want the dorm life.

“I think in a lot of cases, in fact in most of them, they have more than one child coming here,” Murphy said. “So sometimes they own the unit for seven or eight years, and then they dump it.”

UI junior Michael Seedorff, 21, said his parents bought a condo northeast of downtown Iowa City after he spent his freshman year in the dorms. They wanted to avoid the hunt for a nice rental and hope to come out ahead financially, Seedorff said. He has one roommate in the three-bedroom condo and next semester will have two roommates.

He likes the quiet neighborhood and having a garage and ample parking for visitors. It also comes with quasi-homeowner headaches, Seedorff said.

“We had a problem with our dryer and at the very beginning a problem with the sump pump, so you have to get those things taken care of,” he said.

Terri Larson said her two sons at UNI shovel the walks for their elderly neighbors and deliver Christmas cards around the neighborhood.

“It's been a really good experience for them,” she said. “They have friends over sometimes, but they really understand that it isn't the wild ‘Animal House' scene, and it can't be. Actually, I think it's helped everybody grow up a bit.”

The Larsons have a daughter who may attend UNI, meaning the house would be used by a third child in the family. Once their kids are out of college, Terri Larson said, she and her husband will decide if they want to sell the house or keep it as a rental property.

Unless their child's name is on the deed, parents in such situations must have a rental permit from the city, said Jann Ream, code enforcement assistant with Iowa City's Housing and Inspection Services. The permit costs between $176 and $212, depending on the number of bedrooms, and requires city inspection every two years, Ream said.

“Some parents go ahead and get the permit, and some parents don't,” she said.

Parents buying houses or condos for college-age children accounted for 7 percent of his business last year, said Rob McCain, a Realtor with Coldwell Banker in Iowa City. He hasn't noticed the numbers picking up lately.

“The trend seems like it's been around about 10 years, and it's stayed pretty consistent,” he said.