Dear Roadie,
We have a couple of real estate investments already, and we’re considering adding another one in the same town where our daughter will attend college as an alternative to paying for room and board. We read that it may also save us money on tuition by allowing her to acquire in-state residency. Is this a good idea given that at most she’ll be there for only four years?
— Looking For The Best Deal
Dear Looking For The Best Deal,
If your daughter will be attending college in a different city or state, it’s tempting to consider buying real estate there. Even if the school requires your student to live on campus during his or her first year, most students can move off campus after that (and at some schools, they have to). This means they’ll be looking for housing for another three years.
Let’s start with the easy part. If you’re looking to buy property for in-state tuition purposes, every state has different requirements, so be sure to check what those are before you proceed. In some cases, students have to live in a state for several years before they can even qualify, so it may not be worth it if that’s the primary reason you’re considering buying property.
Now let’s look at the numbers. The average cost of room and board is over $12,000 for public 4-year colleges and nearly $14,000 for private 4-year schools. That usually decreases slightly when students move off campus, but that depends on many factors. The average monthly rent for a bedroom in college towns across the United States is estimated to be about $8,400 per year. However, in Florida, that number doubles, and in California, it can easily triple.
With those figures in mind, a good first step is to speak to a local real estate agent with extensive knowledge of the area who can provide real numbers. There are pros and cons to buying a property near your child’s university, and some of them vary depending on the city, county, and state where the home is located. A local real estate agent can help you navigate that, so you’re not taken by surprise later.
The major benefit of buying property where your child will attend college is that it can provide a stable and convenient living arrangement for your student while allowing you to capitalize on the potential for financial gains.
If it’s a given that your child will live there for sophomore year and beyond and you have the money for a down payment, plus monthly mortgage payments, taxes, and maintenance costs, it’s important to crunch the numbers to ensure that it will be worthwhile.
Compare that investment to the average rent in that area, keeping in mind that rents tend to increase annually, while fixed-rate mortgages don’t. Also, consider the home values in the area — have they been trending up or down, and for how long and by how much?
Interest rates are always a concern, especially now, when they’re higher than they’ve been in recent years. There’s no way to know for sure if and when that may change. Working with a reputable mortgage lender and perhaps also a financial planner can help you determine if now is the best time to invest, given your other financial goals and obligations.
Buying Requires More Responsibility
Even if you’ll be saving on rent, keep in mind that buying a home comes with a much larger share of responsibilities than renting one, both for you and your student. From maintenance to security issues, owning a home and potentially acting as a landlord if you rent out some rooms is more work than renting. It’s important to make sure your child understands that and that she is prepared to take that on.
That said, buying a home for your college student to live in will also provide her with an opportunity to learn the responsibilities of owning and maintaining a home, including potentially collecting rent and ensuring bills are paid on time.
Some college towns have large universities with robust sports, academic, and cultural programming. With a constant influx of visitors, there may be an opportunity for you to tap into the short-term rental market when your daughter graduates, but you’d have to check with a local agent to ensure local ordinances allow that.
If you have the means to explore this investment opportunity, buying a home where your college student will attend school will certainly free you from having to worry about fluctuating rent costs and the hassle of paying (and recouping) security deposits. In most cases, you’ll also benefit when the value of the home appreciates — just be sure to do your homework so you understand the potential pitfalls if it doesn’t.
Have a perplexing college question? Email Dear Roadie for advice at dearroadie@road2college.com
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