Housing is usually the second biggest cost for Indiana University students after school fees. In Bloomington, where 70.9% of residents rent and home values are steadily appreciating, some savvy students and their families flip the script: buying homes and renting out extra rooms. It’s not just a way to cut costs; it can be a smart long-term investment.
Bloomington isn’t just a college town—it’s the academic and cultural heart of south-central Indiana. With over 45,000 students enrolled at Indiana University Bloomington, the city’s housing market has long been driven by student demand. Nearly one-third of Bloomington’s population is college-aged (18–24), and the city has one of the lowest homeownership rates in the state at just 29.1%.
This dynamic creates a unique window of opportunity for IU families. In a city where average market rent is around $1,541 and the median home value has surged to $340,931, owning instead of renting—especially for multiple years—can offer real financial upside. Bloomington’s home values appreciated 7.64% over the past 12 months, and nearly 51% over the last five years. That kind of growth isn’t typical for a city this size, and it’s helped position Bloomington as one of Indiana’s top real estate performers.
Then there’s the flexibility. Parents and students who purchase a home can customize it, choose roommates, and sidestep lease headaches. They also benefit from living closer to campus hotspots—like Kirkwood Avenue, College Mall, or Bryan Park—while enjoying a stable, fixed monthly mortgage instead of rising rent.
The housing stock is varied too, with plenty of small apartment-style homes and modest single-family residences, especially around Bryan Park, Elm Heights, Prospect Hill, and the Near West Side. These areas offer walkability to campus, regular city bus access, and a mix of older homes with charm and newer renovations suited for multi-student living.
For students and their families, this isn’t just a housing hack—it’s a path to equity, tax benefits, and even potential rental income. Whether it’s buying a house for four years of college living or holding it longer as a rental, Bloomington’s market offers a compelling case.
Let’s break down why this trend is gaining traction, and why Bloomington might be the perfect market for it.
The Numbers: Housing Costs vs. Rent and Appreciation
| Home Value, Median | $340,931 |
| Average rent, 3-BR Apt | $1,541/month |
| Typical IU lease term | 12 months |
| Average Annual Appreciation | 8.57% |
| 5 Year Appreciation | 50.83% |
| 25 Year Appreciation | 177.31% |
Let’s say a student buys a modest 3-bedroom house in the $280,000 to $340,000 range (which covers about 30% of homes on the market). A mortgage on that property might run around $2,050/month with taxes and insurance. Rent out two of the rooms at $700/month each—very common near campus—and suddenly you’re living nearly for approximately the cost of rent while building equity, gaining appreciation, and obtaining tax benefits although incurring some expenses.
Bloomington’s real estate market is hot. That means a home purchased in a student’s sophomore year could be worth significantly more by the time they graduate.
Investment Potential
Tax Benefits
Buying a home for a college student isn’t just a lifestyle choice—it can also be a strategic financial decision with meaningful tax advantages and a growing range of financing options. Parents who purchase a property for their student in Bloomington may be eligible for several key federal tax deductions. If structured properly, these tax breaks can help offset the upfront and ongoing costs of ownership:
Mortgage Interest Deduction
If the home is financed and qualifies as a second residence, parents can deduct interest paid on mortgage debt up to $750,000 (under current federal tax rules). This is often the largest potential deduction and can be significant over a 4-year college period.
Property Tax Deduction
Homeowners can also deduct up to $10,000 in state and local taxes (SALT), which includes property taxes. Monroe County property taxes can vary based on township, school district, and assessed value—but this deduction can add up fast.
Depreciation (if renting rooms)
If part of the home is rented to other students—whether formally through leases or informally—owners may be able to depreciate the portion of the home used for income. This is an advanced strategy, but one that can create substantial annual deductions.
Capital Gains Exclusion (for longer-term holds)
If the property is held for at least 2 of the last 5 years as a primary residence before selling, owners may exclude up to $250,000 (single) or $500,000 (married) in capital gains from taxes. That’s a major benefit if the home appreciates—which in Bloomington’s market is likely.
Important Note: Tax treatment depends heavily on how the home is titled, used, and financed. Parents should consult with a CPA familiar with rental and investment properties to ensure they’re capturing every available benefit.
Financing Options
There are multiple ways to finance a student home purchase in Bloomington, and not all of them require traditional employment or a full-time income. Some lenders are becoming more flexible, particularly in university towns like Bloomington where parental support and rental income are common.
Here are some of the most common and creative financing routes:
FHA Loans (for First-Time Homebuyers)
FHA loans offer low down payment options (as low as 3.5%) and flexible credit requirements.
While typically designed for owner-occupants, a student can qualify if they meet the criteria and intend to live in the home.
If the student’s income is limited, a parent can co-sign to help qualify, or contribute toward the down payment and closing costs.
Note: FHA guidelines require the borrower to live in the property for at least one year, making this a viable option for long-term students who want to build credit and equity.
Parent-Backed Mortgages
Parents can buy the home in their own name, then allow their student to live there—either for free or for rent.
Some choose to add their child to the title or create a family trust, depending on estate planning goals.
Parents with strong credit and equity in their primary residence may also tap home equity via a HELOC or cash-out refinance to cover the Bloomington purchase.
Conventional Loans with Rental Income Considered
Some lenders will consider anticipated rental income from extra rooms when evaluating your debt-to-income ratio.
This is particularly useful in Bloomington, where the student may have roommates paying $600–$800 per month each—enough to cover a good portion of the mortgage.
To use this strategy, lenders often require:
- A lease agreement
- Proof of market rental rates (via appraisal or rental comps)
- A strong co-signer (usually a parent)
Student-Friendly Lenders and Credit Unions
A few local and national lenders specialize in student housing markets. They may accept nontraditional income sources, such as:
- Parental gifts or ongoing support
- 529 disbursements
- Roommate rent contributions
Check with institutions like IU Credit Union, First Financial Bank, or local mortgage brokers who understand the dynamics of Bloomington’s housing market.
Portfolio Loans and DSCR Loans (Advanced Options)
For high-income parents or investors, portfolio lenders may offer custom loan packages that don’t follow standard underwriting rules.
DSCR loans (Debt-Service Coverage Ratio) focus on whether rental income will cover the mortgage—not the borrower’s W-2 income. These are growing in popularity in college towns, especially for properties bought as long-term rentals.
Don’t Forget: Closing Costs and Ongoing Expenses
Homeownership brings recurring costs that aren’t always obvious up front:
- Closing costs in Bloomington typically range from 2% to 5% of the purchase price.
- Property taxes, homeowners insurance, maintenance, utilities, and potentially an HOA fee should be factored in.
- Landlord insurance
By combining tax advantages with smart financing and a clear understanding of costs, many parents find that buying in Bloomington isn’t just possible—it’s financially compelling.
Where Students Are Buying in Bloomington
Student homebuyers—and their parents—aren’t just looking for any home. They’re seeking a strategic mix of affordability, walkability, rental income potential, and long-term value. Fortunately, Bloomington offers several neighborhoods that meet those criteria.
Near Indiana University Campus: E 17th St / N Fee Ln
This cluster of streets just northeast of campus remains a perennial favorite for student buyers. Why? It combines safety, walkability, and high rental demand. Students can walk to Memorial Stadium, IU’s Kelley School of Business, and the Luddy School of Informatics in under 10 minutes. The neighborhood also scores as one of Bloomington’s safest, based on local crime data.
Housing here tends to be compact—think 3-bedroom ranch-style homes or mid-century houses with partially finished basements, many of which have already been converted into rental-friendly layouts. Buyers pay a premium for the location, but benefit from year-round occupancy demand and strong resale value.
Prospect Hill: Vintage Vibes and Downtown Proximity
Located just southwest of downtown and west of Rogers Street, Prospect Hill is one of Bloomington’s oldest residential neighborhoods. Think brick sidewalks, 1920s Craftsman bungalows, and Queen Anne homes with large porches—many lovingly restored and updated.
Student buyers who gravitate to Prospect Hill often value aesthetics and a neighborhood feel, plus quick access to the B-Line Trail, Hopscotch Coffee, and restaurants like Upland Brewing Company. Renters appreciate the charm and proximity to downtown. Homes here are more likely to qualify for historic tax credits with the right renovations, which can be a hidden financial win.
Bryan Park: Green Space and Rental Demand
A longtime favorite for both grad students and undergrads, Bryan Park combines family-friendly green space with a prime central location. The park itself features tennis courts, a public pool, and ample walking trails. On weekends, it’s dotted with hammocks, Frisbee games, and students picnicking on the grass.
The surrounding neighborhood includes a blend of mid-century brick homes and larger two-story houses—many of which have been converted to multi-unit rentals. Homes with basements or outbuildings are especially attractive for buyers looking to house-hack or create a separate studio for rent.
Near West Side and Switchyard Park Area: Budget-Friendly and Booming
For budget-conscious buyers or those looking for a property with upside potential, the Near West Side and the Switchyard Park corridor (just south of Grimes Lane and west of S Walnut St) are emerging hot zones.
Historically more industrial and working-class, these neighborhoods are in the middle of a renaissance. Switchyard Park itself—formerly a railway corridor—now includes walking paths, a skate park, a dog park, and a large community pavilion. The area is drawing new businesses, including coffee shops, food trucks, and breweries.
Many of the homes here are smaller, older, and priced lower per square foot than comparable ones near Bryan Park or IU campus. That makes them ripe for light renovations—think fresh paint, modern flooring, and a new HVAC—and increased rental income.
Honorable Mentions
- Elm Heights: Upscale, tree-lined streets just southeast of campus. Great for families or graduate students.
- Maple Heights and Forest Park: Quieter areas with mid-century homes, some with larger lots or backyard cottages.
- Eastside (off 3rd Street): Higher price tags but close to Kroger, College Mall, and bus lines—ideal for students without cars.
Whether the goal is walk-to-class convenience or long-term rental value, Bloomington’s diverse neighborhoods offer plenty of options for students and their families.
Pros and Risks of Buying as a Student
Buying a home during college isn’t for everyone—but for many Indiana University students and their families, it’s a decision that can pay off both financially and personally. Bloomington’s unique housing market—with its low ownership rate, rising property values, and consistent student rental demand—makes it one of the rare places where this strategy not only makes sense but is often advantageous. That said, success requires planning, research, and a realistic sense of what homeownership entails.
Here’s a deeper look at the potential advantages and pitfalls of buying a student home in Bloomington.
Pros
Lower Cost of Living
Bloomington rents have been climbing, with the average market rent now around $1,541 per month. Buying a modest home—especially one with three or more bedrooms—can allow families to replace rent with a mortgage, often at a lower monthly outlay when roommates contribute. Even factoring in property taxes and insurance, homeowners can come out ahead financially.
Builds Equity Instead of Burning Rent
Renting for four years can easily total over $60,000—and none of that comes back. With homeownership, part of every mortgage payment builds equity. And if property values rise (as they have in Bloomington by over 50% in the last five years), that equity can multiply. It’s a meaningful way for students and their families to get a financial foothold early in life.
Tax Advantages for Parents and Investors
If a parent is the legal owner or co-owner, they may qualify for several tax deductions: mortgage interest, property taxes, and even depreciation if part of the home is rented. Properly structured, the home may be treated as a second residence or investment property, depending on usage. These benefits can ease the tax burden significantly during the college years.
Stable, Predictable Housing Option
Students who own don’t need to worry about sudden rent increases, lease renewals, or the stress of finding housing every year. This stability can be a major lifestyle improvement—especially for those enrolled in rigorous programs, research labs, or honors tracks where consistency supports performance.
Income from Roommates
Renting out spare bedrooms not only helps cover the mortgage but also builds a sense of financial independence. Many student homeowners in Bloomington offset more than half their housing costs this way. In areas like Bryan Park or E 17th Street near campus, it’s not uncommon to find 4-bedroom homes fully occupied by students, with the owner living rent-free.
Develops Adulting and Life Skills
Managing a property—paying utilities, handling maintenance, collecting rent—can be a crash course in adulthood. Students gain budgeting skills, learn to schedule contractors, manage repairs, and navigate communication with roommates. For business majors or future homeowners, this kind of experience is invaluable.
Post-Graduation Investment Potential
Families can hold the property after graduation and continue to rent it to IU students. Bloomington’s steady student population makes this an attractive option. With an average of over 45,000 students enrolled and a tight rental market, long-term demand remains strong—especially for homes in walkable, amenity-rich neighborhoods.
Control Over Environment
Students who own their home can customize the space—paint walls, add security systems, garden, or adopt a pet—without the limitations of renting. This autonomy can significantly improve quality of life and mental health.
Risks
High Upfront Costs
Buying a home requires significant initial cash. Even with a 5%–10% down payment, families still need to budget for closing costs (2%–5%), inspections, first-year insurance, utilities setup, furniture, and possible renovations. For many families, this outlay is a barrier.
Market Risk: Prices Don’t Always Go Up
While Bloomington has appreciated well historically, no market is immune to downturns. If property values drop during the student’s tenure, selling could result in a loss. This risk is greater for those who may only own for a short time (less than 3 years).
Maintenance and Unexpected Repairs
Homeownership means dealing with the water heater that leaks on a Sunday, the HVAC system that fails in July, and the roof that needs replacing during finals week. These issues take time, money, and attention—things that students often have in short supply.
Short-Term Ownership Dilemma
Real estate generally rewards long-term holding. If the plan is to buy and sell within 2–3 years, transaction costs (realtor fees, taxes, closing expenses) could negate any appreciation. It typically takes 4–5 years to financially “break even,” especially in a moderate-growth market.
Responsibility May Outweigh the Benefits
Not every student is ready for the pressures of homeownership. Managing roommates, keeping up with lawn care, paying utility bills, and calling plumbers is a lot to juggle alongside classes, clubs, and exams. Parents need to honestly assess whether their student is mature and organized enough to handle it.
Tenant Management and Liability
Renting to roommates—even friends—introduces potential legal and financial issues. Lease agreements, rent collection, and handling disputes can get complicated. And if the student is the legal landlord, liability for accidents or damages falls on them.
Legal and Tax Complexity
Decisions like whose name is on the deed, whether to rent formally, and how to report income have tax implications. There are also legal considerations around student status, parental gifting, and rental regulations. Professional guidance is strongly recommended before purchase.
Emotional Stress
Homes are not just assets—they’re personal. When maintenance issues or roommate conflicts arise, it can add stress to an already demanding college life. A bad housing situation can negatively affect academic performance or student well-being.
Resale and Exit Strategy May Be Complicated
Selling a home in a college town isn’t always easy. If you’re trying to sell in December or during finals, buyer activity may be low. And some student-heavy homes are less attractive to family buyers due to layout or wear-and-tear.
Despite these risks, for many Bloomington families the pros outweigh the cons. It all comes down to financial goals, the student’s maturity, and the willingness to think like an investor—not just a parent
Still, for the right student and family, buying a home in Bloomington can transform college housing from an expense into an asset.
Full Financial Breakdown
Assumptions
| Metric | Value |
|---|---|
| Purchase Price | $300,000 |
| Down Payment (10%) | $30,000 |
| Loan Amount | $270,000 |
| Mortgage Rate | 6.5% fixed, 30-year |
| Monthly P&I | $1,706 |
| Property Taxes | ~$3,000/year ($250/mo) |
| Insurance | ~$1,200/year ($100/mo) |
| Maintenance | $200/month |
| Rent from Roommates | $1,400/month |
| Tax Savings | ~$2,800/year |
| Appreciation Rate | 8.57% annually |
Monthly Costs
| Item | Monthly Cost |
|---|---|
| Mortgage | $1,706 |
| Property Tax | $250 |
| Insurance | $100 |
| Maintenance | $200 |
| Total Housing Cost | $2,256 |
| Roommate Rent | - $1,400 |
| Net Cost to Student | $856 |
4-Year Cash Flow Summary
| Year | Home Value | Mortgage Balance | Equity | Rent Income | Expenses | Net Cost | Tax Benefit | Net After Tax |
|---|---|---|---|---|---|---|---|---|
| 1 | $325,710 | $263,610 | $62,100 | $16,800 | $27,072 | $10,272 | $2,800 | $7,472 |
| 2 | $353,607 | $256,330 | $97,277 | $16,800 | $27,072 | $10,272 | $2,800 | $7,472 |
| 3 | $383,940 | $248,510 | $135,430 | $16,800 | $27,072 | $10,272 | $2,800 | $7,472 |
| 4 | $416,969 | $240,110 | $176,859 | $16,800 | $27,072 | $10,272 | $2,800 | $7,472 |
| Total | — | — | — | $67,200 | $108,288 | $41,088 | $11,200 | $29,888 |
Final Equity and Sale Profit
| Category | Amount |
|---|---|
| Final Home Value | $416,969 |
| Remaining Mortgage | $240,110 |
| Equity | $176,859 |
| Selling Costs (6%) | -$25,018 |
| Net Proceeds | $151,841 |
| Total Out-of-Pocket (incl. down payment) | $59,888 |
| Net Gain | $91,953 |
FAQs
Is it legal for a student to rent out rooms in Bloomington?
Yes, but check Bloomington zoning laws and register rentals if needed.
Can a student get a mortgage on their own?
Usually not. Most need a co-signer or parental support.
What if the housing market slows down?
Bloomington’s market has been resilient due to steady university-driven demand. While risk remains, cash flow and tax benefits drive most profit in investment real estate. Short-term market dips rarely affect most long-term real estate investors.
Tips
Only rent to students whose parents have good credit, good income, and will co-sign the lease
Students don’t have the financial means to accept responsibility for default or damages. Also, make sure the renter is at least 18 years of age.
Consider your personality
Are you suitable for landlording? Landlording is a business. You will need to be strict with your renters about payment due dates and keeping the property in good shape. And remember, you’re living with your customers.
Become educated on landlording and real estate investing
Read some books about both.
Most anti-discrimination laws do not apply in this situation
When living in the same house, it’s legal to discriminate based on gender and familial status but not on race. However, this is not real estate advice. Consult an attorney first.
Install webcams in common areas and outside
This includes the living room and kitchen. However, don’t even think of installing cameras in bathrooms or bedrooms. Also, make sure the Web feed is not public.
You will need to have a guest policy
Because you know, college students…
Consider Airbnb rentals during vacancies
You’re ideally set up for Airbnb.
Consider parents owning the property and employing the student as an on-site property manager
Students are unlikely to have income sufficient to benefit from the tax savings but parents do. This also enables the student to show employment. Any income the student receives is taxable but is unlikely to surpass the personal exemption.