Ditch the dorm and purchase a property for your college student
By Erik J. Martin
Most families that send a child away to college face two costly housing choices: either commit to a dorm room or other university-owned residence, or lease an apartment, condo or house on or off campus. In both scenarios, the associated expenses will never be recouped, and each option can be increasingly expensive. In fact, according to the latest data provided by the CollegeBoard, room and board can, on average, currently cost more than $11,500 a year.
Which begs the question: Why not instead purchase an off-campus house or condo that your student can occupy while away at school?
Before you dismiss this notion outright, consider the possible advantages. You can build equity with a purchased property, recover costs by having your child co-habitat with one or more rent-paying roommates, rent out the residence to others during school breaks and after graduation, take advantage of real estate tax deductions and write-offs, capitalize on continued low mortgage interest rates, use the home personally as a getaway/vacation residence shared among your family and even flip the property for a possible profit down the road.
You may also be able to save money by claiming a diamond-in-the-rough.
“Depending on the flexibility of your time and budget, a fixer-upper presents the opportunity to greatly increase property value,” says Steve Udelson, president of Owners.com, an Atlanta real estate brokerage.
If off-campus living is in high demand near your student’s college, “buying is worth considering, as it can work out to save more money than paying for on-campus living combined with a meal plan,” says Kevin Lawton, Realtor with Coldwell Banker Schiavone and Associates in Bordentown, New Jersey. “Plus, if you task your student with serving as a somewhat landlord and finding roommates who will pay rent, he or she can learn how to take care of a house and finances as well as help pay the bills.”
Reba Haas, team leader for Seattle-based RE/MAX Metro Realty, says this option makes good financial sense – provided the real estate market around the campus is appreciating by at least 4 percent annually.
“The main good reason is not wasting money on rent, which offers no return at all,” Haas says. “Additionally, a dorm environment can be distracting to a student, and having a private, quiet place may even result in better student grades.”
On the other hand, this strategy isn’t without risks.
“The house could be trashed by rowdy college students. And if one roommate suddenly stops paying, you have to evict, which causes complications, especially if the parents live out of state,” says Brian Davis, director of education for Philadelphia-headquartered SparkRental. “Also, in most markets, it doesn’t make sense to own a property only for three or four years – the owner will not have recovered their upfront closing costs. So parent investors need to be prepared to possibly keep the property long-term as an income property.”
Experts recommend researching the local market carefully and talking with real estate agents before committing to a home purchase.
“Choose a location that offers diversity, walk-ability and access to culture,” Aaron Carter, a Realtor with HomeSmart Elite Group in Phoenix, says. “Avoid a residence that requires a long commute or is in a homogeneous suburb.”
If you’re eyeing a condo or other multifamily attached unit, be aware of restrictive homeowners association rules, too.
“The association may have rental restriction policies that limit the number of rentals,” Haas notes.
While Lawton believes the student should have some “skin in the game” via sweat equity and maintenance duties, he thinks putting your child on the title can be a mistake.
“You don’t want to risk having the student’s finances getting messed up at a young age,” Lawton says.
Lastly, be prepared to demonstrate serious financial worthiness as a mortgage borrower.
“This option won’t be available to those who can’t qualify for traditional financing. It’s a better fit for those with good credit and income ability to cover the debt-to-income ratios necessary for financing or for those with cash available,” Haas says.
© CTW Features
