At high school graduation ceremonies across the country, proud parents are mentally saying fond farewells to their hands-on parenting days and looking forward to long-distance love from children who will be moving away to attend university this fall. What too many parents don't realize, as they help their children make the transition into adulthood, is that the parents should be making a transition, too -- into investment property owners and landlords.

Grandparents may also consider these new roles for themselves.

One Realtor and grandparent, who asks to remain anonymous, shares a personal story which illustrates the benefits of putting real estate to work across the generations.

"[The family] had several grandchildren going through university and I thought we should help my daughter out -- she had two in school at the same time," said the Realtor, explaining the two children were in two different universities, in two different towns, so two different housing solutions were required. "I decided to give them some of their inheritance early by buying real estate with enough rooms to rent out and cover costs."

Both the properties selected were in good condition and within walking distance of campus:

• The property in one university town was a 3-bedroom, end-unit townhouse containing a self-contained basement suite with walk-out. Income from two of the upstairs bedrooms was almost CDN$1000 a month while the basement rented for $600. Rents included heat and hydro. Tenants paid their own long-distance bills. The property was purchased for CDN$169,000 and sold four years later for CDN$212,000.

• The real estate bought in the other university town was a 3-bedroom, 1100-square-foot, end-unit condominium with a 60-foot balcony and lots of storage. Some improvements were made, including replacing the windows and balcony door. The property, which was bought 5 years ago and is about to be sold, is expected to return a net profit of between CDN$55,000 and $60,000.

"Each [grandchild] was in residence first year and got to know students," said the Realtor, explaining that each grandchild essentially lived rent free. "The property was bought part way through the year, so leases ran from May 1 to April 30 ... . I put [the real estate] in both my daughter and son-in-law's names, and the student's -- as joint tenants -- to make sure [my grandchild] felt part of it and to make sure [each] would look after it. We did leases and did it all properly. My daughter claimed rental income."

For joint tenants, through right of survivorship, title passes automatically from a deceased owner to surviving owners.

The Realtor provided sufficient down payment to make rental income equivalent to costs -- mortgage payments, maintenance fees, taxes, heating, etc., most of which are tax deductions against income for tax purposes. Each child viewed properties with a local real estate salesperson familiar with rentals. The Realtor and her daughter oversaw financial details and legalities with each salesperson.

The proceeds of each sale are divided between the daughter and her child: two thirds to the daughter as part of her inheritance, and one third to the child. The Realtor's family requested the children's profit not go to a new car, but be used toward the purchase of real estate. Any "strings" attached to profit sharing should be discussed and clarified in writing in advance.

These children did not need student loans since they worked and saved to pay for their education; therefore, being on title did not compromise loan applications. Those who require student education loans should inquire into qualification requirements before proceeding.

What should you look for in student investment real estate?

1. A well-maintained property with enough rent-earning bedrooms to cover expenses -- if not, this will not work. Our Realtor emphasizes the importance of basing rent calculations on reasonable rates for the area, since competitive rents will ensure stable tenancies, even long-term tenants, which saves on time and effort.

2. Proximity to campus or a main public transit route.

3. Well-maintained end-units, which tend to have larger yard areas and one less neighbour to disturb. Good locations hold their value and sell well even in quiet markets.

4. Modernized systems and up-to-date appliances keep costs manageable for tenants and landlord. When sharing, many expenses must be included in rent calculations, so good estimates of heating and other shared costs are essential.

5. Low-maintenance condominium suites or townhomes.

To save on property management fees and keep the property in good condition, the resident child can be taught basic home maintenance, like changing a tap washer and keeping the unit's common areas clean. Since each child shares in the profit, or at least saves on residence costs, they should be committed to keeping the property in excellent condition.

So where do you start? When you take your child to university in the fall, spend time exploring neighbourhoods within a walk or short transit ride of campus. Search out a real estate professional who concentrates on these locations and may have experience with rental strategies. Explain the financial parameters you have set and inquire about local rents and other specifics.

Ask to be informed when a property meeting your criteria comes on the market. Have financing and other requirements in place, so you can respond quickly.

The knowledge acquired and skills learned by the parents and children will benefit them greatly in future financial and real estate ventures -- now that's education.

Published: June 3, 2008

Use of this article without permission is a violation of federal copyright laws.

Strategist and Futurist is The Catalyst -- intent on "Helping The Best Get Better." An internationally-recognized "new retirement" authority, PJ's research, writing and speaking programs focus on decisions Baby Boomers face to achieve a successful future. Author of 6 books, PJ knows that, since home is headquarters for the "new retirement," professionals and consumers need relevant knowledge and insights, along with solid decision-making skills, to protect and enhance this private oasis. As The Catalyst, PJ provides strategic communication, client appreciation and advanced education services to the financial, tourism, lifestyle and service sectors -- and the clients they serve. A frequently quoted financial and business commentator, PJ is a thought-provoking strategic speaker who offers practical, real-life suggestions on leaving "the box" behind and embracing Forward Thinking -- a talent she regularly demonstrates in this column. For more, visit TheCatalyst.com.