Campus Cribs: Buying Real Estate Property for Your College Student
So you didn't buy a rental home as part of your child's college savings plan? No problem. Buy a property for your teenager to live in now while they're attending college. It can be a worthwhile investment financially as well as an excellent learning experience.
In Boulder, Colo., if a parent bought a condo in the 1980s and held on to it for four years, they most likely would have sold it for about what they paid for it. If a parent bought a condo in the 1990s and sold it in four years, they most likely would have made enough profit to pay for their child’s education at the University of Colorado.
Owning the property your student lives in while he or she attends college can be beneficial in several ways:
- Stability. The student won’t need to look for a different apartment to live in each year. In addition, you can pick the lifestyle that will help your student succeed in school by choosing the location and the quality of housing that best fits their needs.
- Fixed housing expenses. In the past, apartment rents in Boulder have typically increased on an annual basis. By purchasing a property with a fixed rate mortgage, your student's housing expense will be fixed. In addition, you won’t have to deal with paying security deposits or going through the hassle of getting the deposit back.
- Storage space. Having a single place to live in that you own means your student will not have to worry about storing furniture over the summer break.
- Life lessons. By purchasing a home for your student, you'll be providing him/her an excellent learning experience. Your student will not only learn about the process of investing in real estate, but will also learn about the responsibilities that go along with property ownership.
- Financial benefits. Potential financial benefits include possible appreciation in value, possible tax benefits, and debt reduction on an amortized loan which increases equity build-up.
However, also consider the potential drawbacks of buying for your student:
- Unpredictability. Staying put for four or five years can be difficult for a college student. He or she may decide to transfer to another school, spend a year abroad or (heaven forbid) drop out and move back home. Investing in one place for your student to spend his or her entire college career could be a bad move.
- Responsibility. If you rent out extra rooms in the home, your student will have to act as a landlord. He or she needs to be mature enough to collect rent, pay bills on time and possibly deal with irresponsible roommates. If the roommates won’t cough up the rent, your student will be in a very awkward situation.
- Insufficient appreciation. If you plan to sell the home shortly after your student graduates in four to five years, you may not get enough appreciation to make up for the costs of buying and selling the property. In addition, college towns often have lower-than-average appreciation rates.
- Additional costs. Parents typically spend between $5,000 and $10,000 for room and board or rent for their student, so a monthly mortgage payment is often not much more expensive. But don’t forget to factor in the additional costs of homeownership besides the mortgage, like maintenance expenses, homeowners association fees, insurance and taxes. You may find that buying a home doesn’t make as much financial sense as you think.
Before deciding to buy a home for your student, crunch the numbers to make sure the investment makes sense. Even if buying a home is more costly than you expected, you might decide to go through with the purchase anyway so your child has a nicer place to live with more amenities.
I have two sons who attend the University of Colorado. I bought them each a condo using owner occupied FHA financing. Each lives in the unit and has a roommate paying rent to help pay the monthly mortgage. At the end of their college careers, they most likely will have built up some significant real estate equity to use in the next phase of their lives.
I've had some clients buy a piece of real estate in which they had all two, three or more of their children live in while attending college, in some cases, spanning a 10-year time frame. Rather than throwing money down the rent drain, they've built equity in a real estate investment over this period of time.