Should You Buy Off-Campus Housing for Your College Kid?
If you have a child heading off to college in the near future or you currently have a student in first-year dorms, you may be experiencing sticker shock at the price of student housing. Average prices per year for housing are more than $9,000 in college towns.
In highly desirable college towns outside major cities, housing costs can be much higher. Monthly housing prices in Berkeley, California, home of the flagship of the University of California system, can reach more than $3,000, making the price tag for the academic year more than $27,000. In Cambridge, Massachusetts, outside of university-rich Boston, the four-year price for housing can exceed $100,000 as well.
[Read: How Investors Can Identify a Great Rental Property.]
A Rising Trend
These steep prices have made an increasing number of parents consider simply purchasing housing for their children.
After all, parents are shelling out mega-bucks for housing to either the colleges themselves -- for dorm rooms that may be small and lacking amenities -- or to off-campus landlords, whose housing may also be small, lacking amenities or located in less than desirable neighborhoods. Why not simply make the payments to yourself, for a property you can profit from down the line?
The move can make sense if your child will be sharing with friends or roommates whose monthly rent would help fund the costs. Buying a home can also make sense if you have or will have more than one child attending the same school. The property can become a home away from home for any children who live there.
Increasingly, parents are also considering the move as part of a long-term plan in which they also participate. If your child goes to school in a city whose lifestyle and cultural offerings are pleasant to you as well, why not retire there? Schools from Berkeley and Cambridge to Chapel Hill, North Carolina, and Bellingham, Washington, can be pleasant places to retire. The property you purchase could thus be part of your long-term retirement strategy.
[Read: Want to Invest in Real Estate? Consider Off-Campus Student Housing.]
What to Consider
That said, there are multiple elements and indicators to consider when thinking about purchasing off-campus housing for your child. Parents thinking about this need to evaluate the following questions:
-- How long will your child be there? The price of purchasing real estate and associated costs takes time to recoup. If your child may only be in town a year or two, or the future is entirely uncertain, it may not make financial sense to buy off-campus housing.
-- What are real estate trends in the area? Buying off-campus housing is the same as buying any other real estate investment property in many respects. It only makes sense if you can financially benefit, or at least break even. You should also consider real estate trends in the area. Do prices look likely to rise or fall? What is the overall economy of the area like? If it's healthy, real estate investment can be prudent. If it isn't, the price of your investment and what you can charge for it per month may decline.
-- What are the costs vis-à-vis available real estate? Don't let sheer sticker shock drive your decision. Sit down and figure out the costs of purchasing off-campus real estate versus your child renting off-campus housing. Factor in the purchase price, closing costs, mortgage interest rates in the area, fees and moving costs. Be sure to factor in maintenance and upkeep costs, as well. Research average rents in the area. What can roommates reasonably be expected to pay? Then, evaluate whether the decision makes financial sense for you. If it would save money, it may be a smart choice. If it's likely to give you a return on investment, it's a good idea. If it's a money loser, stay away, no matter how much you'll be paying someone else in monthly rent.
-- Who will handle maintenance and upkeep? Maintenance and upkeep is central to having a real estate investment. It's especially important with young renters in a college environment. Partying, after all, is part of college life. It's inevitable some part of the house will need to be fixed or replaced. If you live close to the town, you may be able to do the maintenance and upkeep yourself. If not, you may have to hire a local property manager. Can you find a reliable one? What would the costs be? Think about your child's overall responsibility level, as well. Relationships with family and friends are generally complicated enough without throwing the landlord aspect in. Are parties or careless behavior likely? Or are they and their friends ideal tenants?
-- What's the tax situation? Taxes are a large part of any real estate picture. Don't assume property and other taxes are the same from state to state or locale to locale. Many different factors can affect property and other real estate taxes. Be sure to investigate thoroughly.
[Read: When Does It Pay to Rent, Even When the Numbers Say It's Cheaper to Buy?]
-- Will you be a landlord after your child has moved on? Think about whether the investment would make sense in the future. Once your child graduates, would you still be a landlord? Many college towns are good places for rental property. Students are continually coming in, after all, and many of them need somewhere to live. Faculty and staff also need housing.
Housing prices for college students can be steep. Many parents are determining buying off-campus housing for their child is a good financial decision. If you're considering it, weigh all your pros and cons carefully and answer the questions above to make the wisest choice.
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