Is it smart to buy property for your college student?
Tuition, books, meals, housing… the cost of college adds up faster than it even seems possible. And many parents are left wondering if the idea of also buying a house for their student to live in on top of all those expenses is sheer insanity. But is it? Buying a property for your kid to use could actually have some benefits – and might not only save you some money along the way, but possibly even turn a profit.Group of college students
According to LendEdu.com, on-campus housing runs $12,200+ annually for private 4-year colleges and $10,800+ for public in-state colleges (much more at schools in higher cost areas). Off-campus housing, according to Trulia’s review of colleges nationwide, varies widely by location, but averaged just under $10,000 per year on smaller campuses and topped $14,000 per year in high cost of living areas.
So, what if you put that $10,000-$14,000 towards buying a condo or townhome and allowed your student to live there with roommates? There are a lot of things to think about, but it might be just the ticket to help gain control of at least some of the costs of college.
One big pro is financial. Buying a home or condo can significantly lower the monthly financial burden, especially if the property has room for multiple roommates. Another is stability. Owning a home for your student can eliminate the need to find a new place and move every year – and cut down on storage costs over the summer and deposits every fall.
Appreciation is another potential benefit, especially if you buy in an area that is appreciating quickly. It’s nice to think that you could have a tidy profit after graduation, or even hold the property for passive income by turning it into a long-term rental. But what goes up can also come down. Depreciation is something to consider carefully. While tenants are plentiful in college towns, students are not historically the best tenants when it comes to taking care of a property. You could end up with a property actually losing value if it’s not well maintained, or if illegal activities occur in the home. It’s important to have a conversation with your child about the responsibilities of being a good tenant – especially for their parent! You might also consider having basic maintenance and landscaping needs taken care of by a professional on a regularly scheduled basis so nothing falls through the cracks.
It’s hard not to talk about property ownership without at least touching on tax savings. You may be able to enjoy a tax write off on a second home, depending on your state and financial situation. Check with your tax advisor as there are different rules for property that is a “second home” vs. a true rental and they can vary widely by state. A rental home may not have the same benefits as a second home but may have other tax advantages.
One last thing to think about is your retirement strategy. Many parents consider buying a property in a college town a good long-term plan. Their child has a place to live while in school, then the property turns into passive income as a rental later. If the property is in an area the parents like, many consider retiring there themselves, thus making it a part of their long-term retirement plan.
All in all, purchasing a home in a college town is something to consider, if all the other factors align properly for you and your financial situation. Want more information about investment property financing, or a second home mortgage? Contact your American Pacific Mortgage loan consultant today for details on loan programs designed just for you.