Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Buying College Housing a Good Choice?


Think back to all the stupid stuff you did as an undergraduate and ask another basic question: Do you want such idiocy played out on your property?

Thinking about buying housing for your college student?

Do the math before buying your student a residence close to campus.

You may want to rent out one or more bedrooms to swing the deal. If so, this raises basic questions: Can your kid act as landlord and collect rent from friends or other students? Who handles routine maintenance? What about summers when your student is away and the rooms are likely to be vacant?

"Buying a residence (for your student) can make sense," says June Walbert, a Certified Financial Planner at USAA Financial Planning Services. "It can be a good tax deduction and good investment if it grows in value over time."

Managing the building may eat into study time. This is probably the biggest reason not to buy a college residence for your student. If the task is likely to overwhelm your student, don't buy – rent.

However, if your student is up to the task, running the building can teach valuable lessons, such as managing time and paying bills. With luck, your kid will develop or improve basic handyman skills, reducing your overhead.

Check out the real estate market at your student's college town before jumping in. Start with the basics: location, initial cost, mortgage interest rate, operating expenses and possible resale value. Remember: If the condo or house is close to campus, it's probably more of a bet on the property's ability to generate rental income than on appreciation.

Balance estimated rental income against known expenses such as mortgage, taxes, insurance, utilities, upkeep and any condo fees. Then add a reserve to cover the inevitable: broken windows, damaged walls, a new water heater – all that maddening and piddling stuff.

Don't overestimate possible savings from buying. The transient nature of many neighborhoods close to campus may mean the housing stock is in poor, or at best, so-so, shape. If the student neighborhood has that hangdog look, you'll pay for convenience – not the possibility of future gains – and upkeep may be higher than you expect.

The upside: Buying close to campus will allow your student to walk to class, saving on transportation costs. Such convenience is also likely to make it easier to rent the extra bedrooms.

The downside: crushed beer cans in the weed-choked gardens of adjacent houses and couches on the front lawn are likely to limit appreciation of your property. (...continue below)

Like what you're reading? Try out some other titles from our Smart Students, Smart Money package: A Good Budget Essential for College Success, College Costs: Paying Your Part, The Scholarship Search: A Guide.

If appreciation is your goal, check out neighborhoods several miles from campus. This means a bus or bike ride to campus, but the investment property is more likely to be in a stable area with well maintained, owner-occupied houses. This increases the prospects for appreciation of the property and means that you won't be limited to student buyers and their parents when you sell.

But the added distance from campus probably makes it less attractive to most students and that may translate into lower rents.

Some university towns limit the number of unrelated people who can share an apartment or house. Check before you buy because such an ordinance might be a factor in determining the size of property you buy.

Typically, schools require freshman to live on campus. If that's the rule at your kid's school, possible appreciation of any property you buy is limited to three years. However, add two or more years if your student plans to pursue graduate study. This gets dicey, especially when planning during your student's sophomore year, because you're betting career goals will remain the same and, of course, on admission to graduate school. However, if you have more than one student who can use the house or condo as an undergraduate, the project may make better financial sense.

Think back to all the stupid stuff you did as an undergraduate and ask another basic question: Do you want such idiocy played out on your property? This means increasing your liability coverage, another expense eroding your monthly cash flow. Check with an attorney about your risks and an insurance agent about needed coverage.

Taxes are never easy so talk to a tax pro before signing on the dotted line. You'll probably be able to deduct mortgage interest and property taxes on the student residence, but you may get stung with capital gains taxes when you sell because the student residence won't receive the exclusion that applies to your primary home.

Mortgage rates remain low by historical standards, but may rise in the future – especially if the Federal Reserve boosts interest rates in an effort to tame inflation.

Your student's studies are more important than any possible financial gain from owning a house in a university town. If managing a house or condo takes an unmanageable bite out of the time your student has to devote to study, the project makes no sense.

Renting is like tossing money down the rabbit hole, but it makes life a lot simpler – especially when the water heater bursts at 2 AM.
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Featured Videos