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Tuition, books, transportation, room and board…the cost of college can add up fast. At first glance, it may seem crazy to consider buying a home for a college student, but is it?
The truth is that in this scenario, there may be some benefits for yourself and your student for you to invest in real estate. When you consider the high cost of both on-campus and off-campus living in an expensive college town, buying a house that your student can use during their college years may make sense.
The High Cost of College Room and Board
According to EducationData.org, on-campus room and board runs about $13,842 on average annually for private, nonprofit, four-year colleges and $12,302 or more for public, in-state colleges. Of course, these numbers can be much higher at certain schools.
The cost of off-campus housing in college towns varies widely depending on several factors. According to EducationData.org, off-campus boarders, on average, pay $10,876 at private nonprofit institutions and $11,983 at public institutions.
Don’t forget that you will have to multiply those costs by four or more to account for your college student’s full academic career. During that time, the cost of room and board on campus, not to mention the cost of rents off campus, are almost certain to increase annually.
What if you put those five figures of expense to work for you instead? With some planning, you could buy a property that will initially house your college student and then function as an investment property after they’ve graduated. It’s definitely worth weighing the pros and cons of this college room and board option.
Considerations in Buying a Home for a College Student
Now let’s consider a few pros and cons to see if buying a home for a college student may be the right option for your family.
Lowering room and board costs
One big pro is the potential financial benefit. Buying a home or condo can significantly lower the financial burden of off-campus housing or room and board—which can result in massive student loan debt with high interest rates. This is especially true if the property you buy has room for multiple roommates, which would garner rental income for you right away.
Providing your child with stability
Another advantage of buying a home for a college student is the stability and convenience. Owning your child’s home can eliminate their need to find a new place and move every year. It also cuts down on storage costs over the summer and security deposits every fall.
Turning a profit through home appreciation
Home appreciation can be a potential benefit, especially if you buy in a high-growth area. There is the possibility of making a nice profit if you sell when your college student graduates and potentially increase your cash flow.
Buying a house in a college town can be strategic, because there will always be a need for housing as more students enter the school every year. Real estate agents can tell you more about renting to students, but it’s great to have a built-in renter base as long as the college or university is there!
Risks of home depreciation
Speaking of college students, home depreciation is something to consider carefully. Tenants are always plentiful in college towns, but students aren’t always the best renters when it comes to taking care of a property. Your property could lose value if your student renters don’t maintain it well, or if they do something illegal while living in the home.
It’s important to have a conversation with your child about the responsibilities of being a good tenant—especially for their parents! You should have the same discussion with any of your child’s roommates.
It’s also a good idea to involve the roommates’ parents. After all, many parents co-sign leases for their students. As a result, they should also be informed about what you expect, as well as any house rules.
You may also want to consider a property manager to make regular check-ins and to tend to any maintenance issues on your behalf. Your student likely won’t have the time or skills for maintenance and repairs, and this step can help your investment retain its value.
Tax write-offs
Now for some more good news: Buying a home typically comes with tax benefits. These could pertain to the interest on the monthly mortgage payment, mortgage insurance tied to your home loan, and any home repairs or updates you make.
Tax write-offs can vary by state and can also depend on how you use the property. For example, there are different tax implications if you buy a property and allow your college student to stay in it rent-free vs. renting it out to other roommates. That’s why it’s always a good idea to check with your tax advisor before buying a home for a college student.
Your student’s independence
Owning the home means your student will always have their own private space and can personalize it any way they would like. They will also be able to choose their own roommates, do their own cooking, and control the noise level of their space.
Retirement potential for yourself
It’s also never a bad idea to take your retirement strategy into consideration if you’re thinking of buying a home for a college student. Buying a property in a college town can be a great long-term plan.
Your child can live in it as their primary residence while they are in school and even afterward if they’re considering staying in the area. Then you can use it as an investment property and accrue rental income when your child graduates. You can also always sell the property to cash in on your equity, putting it toward your retirement home or another investment.
Are You Ready to Buy a Property?
Let’s look at all the costs associated with buying a house—whether you’re buying a home for a college student or not. There is the sticker price of the home, of course, but there is also the down payment, the closing costs, the monthly mortgage payment, the possible mortgage insurance (if you put less than 20% down), and the cost of any work that may need to be done to the home.
You also need to think about interest rates at the time you’re looking to buy. And you’ll definitely want to schedule a home inspection. The house may have previously served as student housing, and as mentioned, students aren’t always the most conscientious tenants!
To help make the final decision, look at the bottom-line costs. Consider these three possible scenarios for housing during your child’s college years:
- Your college student lives on campus and pays for room and board, likely through student loans.
- Your child rents a property off campus. Consider that they will have to set up accounts for all ongoing living expenses, get themselves to and from campus, and remember to pay each individual bill on time.
- You buy a home for your college student and house them yourself for four or more years. After they graduate, you can sell the home or convert it into an investment property that earns ongoing rental income.
All in all, purchasing a home in a college town is something to consider—but it’s far from a no-brainer. It can, however, be a great way to skirt some of the college debt for you and your child; ensure that they’re housed in a safe, clean environment; and possibly earn you some money in the process.
Are you ready to discuss this idea further? APM is here to review all your options and create a plan that’s right for you. Click here to connect with a Loan Advisor in your area.
