After our College Smart Radio show on January 12th, “Buying Real Estate for Your Student,” we’ve received a lot of emails and comments regarding the financial strategy of buying a home for your student. On that program, we estimated a $300.000 price point and $500 per month per room (a student plus 3 roommates) as a break even point for a 3 bedroom home. In this blog post we will discuss the pros and cons of finding a property at this price point to buy for your student to live in and manage while attending UC Davis.
One of the best things about UC Davis is the friendly and welcoming atmosphere. Expert in Davis Real Estate, Karen Waggoner, works with clients who have purchased a home for their student. She also works with young families who are attracted to Davis because of the excellent school system and small town atmosphere. The city has a land area of 10 square miles and a population of 66,000. Davis residents boast California’s highest level of education with over 67% of the population, 25 years old and older, having attained a four-year degree. Waggoner says Davis is a great place to live for all types of people.
On average, a student begins looking for housing about 6 months prior to the beginning of the school year in order to secure a place to live. According to Waggoner, the rental vacancy rate is around 3%, which is quite low. The consistent demand for housing in Davis also makes it attractive to people interested in real estate investing.
The average price of a Davis home in 2012 was $462,000 and the median price was$435,000. There are definitely 3 bedroom homes available in the $300,000 break even price range. Due to current low inventory, there are only about 6 homes that fit this criteria today, but inventory will increase in the spring and summer. Most of these homes are located in East Davis, are 30-40 years old and are typically in clean, but dated condition. They are an easy bike or bus ride to the university and can be a great fit for student housing.
So what are the pros and cons of buying real estate in this area? Here is the break down.
Financial Pros vs. Cons:
For example, “Family A” bought a 3 bedroom home in 2008 in Davis for $329,000 for their daughter who was studying for an advanced degree at UC Davis in veterinary studies. She wanted to live in an environment that she could control (e.g. not a party atmosphere), have the ability to choose her roommates and be able to have a pet. The parents felt their daughter was mature enough to maintain the property and keep up with adult responsibilities. The daughter also paid her parents $750 per month for her master bedroom while renting out the other two rooms at $650 a month. This taught the student responsibility and gave her the studious environment she was looking for.
However, when “Family A” sold the home last year it went for $277,000, that’s $52,000 less than what it was purchased for. Also, the rent the students paid while living in the home only covered the mortgage payment, insurance and taxes. Repairs to the home itself such as plumbing, construction of a patio and other unexpected expenses were not covered. Those had to be made out of pocket.
Waggoner says that although the parents lost money on the investment, they said they had an overall positive experience with the experience. They said they would purchase a home again if they thought the market was recovering.
Another example is, “Family B.” They purchased a 3-bedroom condo for their daughter attending UC Davis in 2002. Over the course of 10 years it ended up that all 3 of their children attended UC Davis. Their daughters rented out the bedrooms that they didn’t occupy which covered the mortgage payment. This provided all 3 children housing while attending the university. They purchased the condo in 2002 for $196,000 and sold it last year for $234,000. “Family B” ended up making profit.
In conclusion, purchasing a home while your student attends UC Davis can be a great benefit for your child. It will give them the ability to choose their lifestyle and give them a glimpse at what adulthood will be like. However, parents should consider the pros and cons before committing to a purchase.
Listen to this broadcast on YouTube here.
About Karen Waggoner
Karen Waggoner is a realtor in Northern California specializing in properties in the Davis-Sacramento area. She lives in Davis with her husband and 2 high school aged daughters. She currently works with Coldwell Banker Doug Arnold Real Estate. To learn more about Karen Waggoner visit her site www.HomesForSaleInDavis.com.