Families Investing in Off-Campus Housing to Save Money on College
Posted By Donna Fuscaldo on July 16, 2015 at 2:05 pm
Staying on campus in a dorm may not be the cheapest route for every student. If families are willing to commit, purchasing a property for your college student could pay dividends.
To live in a dorm or off-campus isn’t only a lifestyle choice – it’s a financial one. With room and board at colleges and universities across the country costing anywhere from $7,500 to $10,000 every year, many parents are becoming real estate investors, opting to purchase a condo, town house or home for their college student to live in instead of paying for four years in a dorm. The goal: to at least cover the cost of room and board, and hopefully make an eventual profit off the investment.
“It’s a great alternative,” says Jennifer Fredericks, a broker with Better Homes and Gardens Real Estate, Preferred Living. “Homes in college towns are pretty stable. It tends to appreciate a couple of percent per year.”
Real estate investing has its benefits, but a quick turnaround isn’t one of them. Anyone thinking of buying a property for their college student has to be willing to commit. After all, according to Leonard Baron, who has been involved in the real estate business as a landlord, property manager and investor for more than two decades, it can take at least five years to simply recoup the upfront investment.
“If you are looking for something to hang on for a year or two and then sell, you are not going to make a monetary return,” says Sara Fischer, a Redfin real estate agent. “It’s got to be something your kid lives in while he or she goes to college, and you continue to keep it and rent it out until you’ve held it long enough.”
For Phillip Michael, a media professional in New York, that’s was the case for his father, who purchased an apartment in Denmark when Michael attended school there in 2007. With so many students vying for limited space, over paying for “cell-like dorms” was commonplace. But rather than getting embroiled in a bidding war for a dingy room with a shared kitchen,Michael’s father decided to buy him an apartment. Michael ended up paying about the same per month, but he moved from a dorm room on the outskirts of the city to a 1-bedroom apartment in the heart of town, which his father still owns today. The purchase price in 2007: just under $400,000. The average price for an apartment in that area today: $500,000 to $600,000.
“I would totally advise parents to at least look into it. Even if your kid is renting from you, at least they’re helping pay your mortgage as opposed to a stranger’s,” says Michael. “Historically, even with downturns, real estate appreciates in the long run, so it’s not only a huge convenience, it also could be a tremendous investment, whether it’s a smaller apartment or a bigger property for more than one person.”
Single family homes may give you a better return
When it comes to college properties, parents typically can choose between condos, townhouses and private homes. Real estate experts say that private homes will require more maintenance, but can typically include multiple roommates, which can help spread out the cost of the rent. A condo or townhouse requires less maintenance, but there are extra costs, like the monthly maintenance fee or homeowner’s insurance. In some cases, there are also rules governing how many people can live in those properties.
The location of the property also matters down the road. The closer you are to campus, the higher the rent you can charge – and hopefully, the more it will appreciate over the years. “Townhomes and condos do not appreciate in value as much as a single family home,” says Raylene Lewis, a realtor at Century 21 Beal in College Station, Texas, home to Texas A&M University. “When you think about resale, you want to have a larger target buyer audience, so you want to find a property that appeals to lot of people.”
Real estate investing isn’t for everyone
Real estate may seem like a no-brainer if you have the cash, but it’s not for everyone. Not only do you need to be willing to play landlord, or spend the extra cash for a property management company, but you also have to know your child’s maturity level. Is he or she the type that will stay on top of maintenance, or will your property be subject to wild parties or neglect? Lewis saw firsthand what can happen when college students aren’t responsible enough to take care of the property – in this case, not watering the cracks in the soil. The result: a foundation that needed immediate and costly repair. “Your child has to be responsible enough to handle certain basic things,” says Lewis. “You also have to think about it if it’s worth the hassle for them to deal with repairs.”
Security can also be another issue, depending on where your child is attending school. Some parents are willing to pay the extra money for peace of mind, knowing their child will be on campus with campus security, gated dorms and other faculty.
Ultimately, however, there there are no guarantees in life – and that’s particularly true of real estate investments. “College towns have very low returns, because every doctor, lawyer and parent who wants to buy a property for their kid can’t calculate the rate of return,” says Barron. “There’s very low yield if you sell in less than ten years.”