It’s not uncommon for parents of college students to consider buying an investment property near their child’s university. The thought is that their child can live in the unit during college and the parents will make some money from the real estate venture. That way, you’ll avoid paying loads of money for a dorm room or apartment with no hope of any profit. But does buying property for your college-age child to live in while they’re attending college make good college cost savings financial sense?
One reason many are going into this type of venture is because in many college towns across the country, home prices are falling faster than rents and dormitory fees, making ownership the more attractive option. Buying a property on campus could be a good idea, but it really depends on how optimistic you are that the real estate market is going to come back. In a Coldwell Banker Real Estate report, 64% of the real estate professionals surveyed around the country reported seeing a significant number of “parent investors” buying homes for their kids to live in while attending a university. Lots of parents have made good money by following this strategy for the four or five or sometimes six years their child spends in college and then sell the property after graduation. Of course, the longer you can hold onto the property, the better the odds of cashing out for a profit.
Before jumping into the real estate market, there are many factors to consider. Here are a few we feel you should focus on.
Every year, millions of college students flood into college cities and towns. Those students, along with the faculty and staff at their schools, have one common need: housing. Where as housing demand may fluctuate in other areas, college towns boast a steady flow of students, professors and staff and a percentage of those will always require off-campus housing. Consistent demand for housing makes college university communities attractive to people interested in real estate investing. Most colleges and universities do not have enough on-campus housing to satisfy demand, and when school budgets are tight, maintaining and upgrading housing can take a back seat to other financial priorities. Properties that are well maintained, well marketed, competitively priced and close to amenities can attract buyers and renters alike.
Length of Time
One factor many people forget to consider when jumping into the real estate market is length of time. How long are you planning to own the property? Most students plan to stay in college for four-years, some can take up to six depending on their studies. If you plan to own the property four to six years, that’s a short time to make money. Typically, you have to own a property for more than five years to make owning it worthwhile, due to the initial fess associated with a loan.
Another factor to consider is what if you can’t sell the property once your child graduates. Are you willing to own and manage a property in a town where no one you know lives? It’s a good idea to look at home sale statistics in the college town of choice so that you know what to expect regarding market performance when you want to sell the property. Make sure you look at depreciation and appreciation of property values.
Is your child able to manage the property and still be able to concentrate on grades while enjoying the college experience? You need to know your child and the level of maturity they are at in order to give them this great responsibility. It’s important to sit down with your child and have a serious conversation about this if you decide to buy a property for them. You need to consider if the home needs some kind of maintenance will your child be willing to do what needs to be done to get it fixed? Or will you need to take time out and resolve the issues yourself? If you decide to have a property management company take care of this for you, this will be an additional expense you will have to consider.
The Bottom Line
Before deciding to buy a home for your college student, crunch the numbers to make sure the investment makes sense. Even if buying a property is more costly than you expect, you might decide to go through with the purchase anyway so your child has a nicer place to live with more amenities. However, many experts don’t recommend buying a home for your college student due to the short period of time and the instability of the personalities of youth. What it boils down to is that you have to do your homework and make sure buying a property makes sense for you and your finances.
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Photo Credit: Ed Bierman