Buying a Home to Save on College Housing Expenses Comes With Risks
College is back in session, and many students are unpacking their suitcases in cramped dorm rooms, beer-soaked apartment complexes and roach-infested frat houses.
But those one-star accommodations don't come cheap. Average on-campus room and board for undergraduates cost between $8,961 for four-year public schools and $9,307 for privates in 2013-2014, according to federal data. Off-campus, non-university owned living arrangements cost an average of $9,110 for public universities and $9,002 for private schools.
[Avoid these four student loan mistakes when living off campus.]
With average monthly costs nearing $1,000, some parents may question why they're padding the pockets of university housing offices and college town landlords. Why not purchase an off-campus home for Junior during college and sell it after graduation for a small profit?
That's what Rob Weiss thought when he bought a two-bedroom condo for his daughter at the University of California--Santa Cruz. His daughter enlisted her friends as roommates to help subsidize the cost. Weiss, who lives outside of San Francisco, says he paid $420,000 for the home in 2007 and sold it a few months ago for $390,000.
"I probably broke even on the whole thing," says Weiss. "The benefit to me was that she wasn't moving each year and had a stable, clean place to live."
Here are three things to know about buying a house for your student.
-- This isn't a long-term investment. Weiss held onto his Santa Cruz property for several years after his daughter's graduation. But your student will probably only need the house for three years -- sophomore through senior year, with a required on-campus freshman year. So, this home won't become a long-term investment with a long-term payoff, say experts.
The vast majority of parents who buy properties for kids in college end up selling them within five to six years and don't make any money, says Leonard Baron, who runs a real estate buyer help site, and is wary of the idea.
Five years typically is not enough time to turn a profit or recoup the closing costs and other fees associated with purchasing a home, says Baron.
If you're stuck with the short-term purchase, hedge your bets by buying cheap, says Duane Duggan, a realtor in Colorado who bought two college properties, one for each of his two children. "I have had college parents spend $700,000 on a house," he says. "Then it would've been cheaper to live in the dorms." He suggests keeping costs below $200,000.
Experts also warn against buying your student a house if you're unsure of how you'll even pay for tuition and fees.
"This is not a strategy for people who are struggling to fund college," says Wendy Cutrufelli, vice president of mortgage banking at Bank of the West. "It's not a way to save money you don't have. It's a way to strategically fund college expenses."
-- It's all about location, location, location. In some towns, buying a home may cost less than renting when spread out over several years. Zilllow, an online real estate database, recently broke down the numbers, comparing the costs of buying and renting in various college towns and estimating how long it would take before the cost of renting catches up to the cost of buying a home.
Berkeley, where the University of California--Berkeley is located and monthly rents top $3,000, is one buyer-friendly location. The city has seen rents rise 20 percent from last year, according to a Zillow blog post. That's compared with 4 percent home value growth during the same period. It would take less than two years to break even on a home purchase.
On the other hand, renters in Lawrence, where the University of Kansas is located, would need to rent for nearly four years before the cost exceeded that of buying a home.
[Find out how to make a large college feel like home.]
-- Your child will take on responsibility. You aren't just betting that the real estate market will grow and blossom when you buy a home for your student. You're hoping that your child will, too.
If you're looking for good, clean tenants with solid credit histories, who won't punch holes in your walls or leave burn marks on your floors, then you're in the wrong market. College students are traditionally terrible tenants, says Baron. "College renters are not going to be taking care of your property," he says.
Plus, owning a house can tax an already busy college student. In addition to studying, socializing, interning and applying for jobs, your kid may have to collect rent as well as take care of mowing, shoveling, hiring a plumber and taking care of the daily challenges of owning a home.
[Do these seven things before buying a home.]
Some parents choose to hire a property manager or buy a condo to spare their child the hassle of dealing with these issues, but hired help or condo association fees will eat into their profits.
The bottom line: Buying a home can be a savvy move in certain college towns and for certain families, but you probably won't make a fortune over the short term and the risks are much greater than simply shelling out for room and board at the university.
Trying to fund your education? Get tips and more in the U.S. News Paying for College center.
Susannah Snider is an education reporter at U.S. News, covering paying for college and graduate school. You can follow her on Twitter or email her at ssnider@usnews.com.
