MoneyWisdom Blog

Will investing in a condo help cut college costs?

Posted by Hanscom Federal Credit Union on Jul 12, 2017 12:35:00 PM

 

campus_condo.jpgWith the cost of college room and board rising through the proverbial roof, some parents consider an alternative to cramped on-campus housing: investing in a condo or house for their child to live in while at school. And it’s no wonder. With room and board running over $1,200 per month, putting that money into a property you own seems like a good idea. Or is it? 

The big answer is: It depends.

According to COLLEGEdata, the average cost of room and board in 2016-2017 ranged from $10,440 for a four-year public school to $11,890 for private school. The costliest room and board is for colleges located in New York, Boston and California. These numbers give you a starting point for figuring out a good investment, but they don’t tell the entire story. 

There are many factors that come into play when considering any investment property, regardless of its intended use. But when you are specifically considering the investment for housing for your college student, these are a few key questions to consider. 

How long will the property meet my needs? 

If you only have one child and are considering a property that will likely not be in an area where your child lives once he/she graduates, then your personal use of the property may be low. On the other hand, if you have more than one child attending the same institution, and/or the college is located in an area with a lot of job opportunities after college, then the investment will serve your needs more. 

“We had two daughters going to NC State, so that was definitely a factor,” said Joel Walukas, a parent who bought a two-bedroom apartment just two blocks off the NC State campus. In addition to providing housing for his children, Walukas continued to rent the property after his daughters graduated. 

Keep in mind that some four-year colleges require that students live on campus in their first year. The rationale is living on campus contributes to the overall success of the student, since the student has the ability to get more involved in clubs and organizations, interact with faculty and other freshmen more, and develop social networks that help him/her do well over the four years spent there. In addition, some colleges require juniors and seniors to live off-campus because of the lack of on-campus dorm facilities. It’s critical that you find out what the requirements and limitations are for your child’s college of choice before you begin looking at properties. 

What will the property cost you compared to what you might pay in room and board? 

“You have to analyze the market,” said Phil Purcell, VP of Commercial Lending at Hanscom Federal Credit Union. There are lots of factors to consider, from current market conditions and rental rates to repairs to management fees and taxes – to name a few. “I give parents an investment cash flow analysis sheet so they can consider all the factors and decide if it makes sense to buy,” he said. 

Of course, this is assuming that you have the money to invest in a property. You will need a 20-25% down payment and then be able to cover your monthly debt at a factor of 1.2 times, Purcell said. He emphasized that you can’t just focus on ordinary cash flow, since unexpected expenses can always pop up. 

“I call it the ‘hiccup’ factor,” he said. “It could be a broken appliance, or an assessment from the condo association for new roofing. You’ve got to do your homework, and that’s where we can help.” 

The adage “location, location, location” holds especially true when considering real estate to house college students. The more accessible to campus, the better chances you will have either renting the property to other students while Junior is there and/or once he/she graduates, or selling it to another parent or investor. Also, the location of the college can dictate the value of property nearby. Is it located in a thriving metropolis or in a remote farming area? These are just a few factors to consider when deeming a property a good investment or not. 

How much time and money is my family willing to invest in the property? 

If you are buying a property and collecting rent, you are now a landlord. That means you’ll be legally responsible for managing rental agreements and security deposits, collecting rent, maintaining the property, and following state health and safety standards. While taking on the responsibilities of a landlord may not be onerous, they do require time and money. 

Generally, the more time and money you are willing to invest in a property, the more likely it will pay off at the end of your children’s college years. Walukas said the apartment that he bought was a “fixer-upper.” He gutted and remodeled it with his wife and two daughters’ help. Both parents and daughters were willing to put a lot of sweat equity in the apartment and went the “do-it-yourself” route to save money. 

“It was a lot of work,” he said. “If you aren’t willing to do the work yourself, you have to build the cost of outside maintenance into your budget. Plumbers and electricians are expensive.”

Purcell echoes Walukas’ comment. “The parents out there making money on properties are buying fixer-uppers and doing a lot of the work themselves,” he said. “If you buy a place in top condition, and pay someone else to manage the property, you likely aren’t going to come out ahead of what room and board will cost you.” 

What are the intangible benefits of buying a property for my child? 

Of course, after doing all your homework on the financial viability of buying a property, it might make sense to just pay room and board, or consider renting off-campus if the return in your investment isn’t what you’d expect. However, there are many intangibles that can weigh into your decision. Some of these are:

  • knowing your child is in a good living situation
  • providing a long-term place where your child doesn’t have to move every year, and
  • teaching your child valuable lessons in investing and self-reliance that can’t be learned in a college classroom 

Walukas said that while he anticipates making a modest return on his investment once he sells, the “off-paper” returns that his daughters reaped were immense. 

“My older daughter is now quite handy,” he said. “She learned from the experience and, for me, that education was very important. What was important for my wife was to have a place that was clean and nice. For my daughters, they feel like the apartment was a special place – a place where they anchored their college life.” 

These are just a few questions to ask when considering whether to buy a place for your college bound child. If you’d like to explore your options further, including a review of the investment cash flow analysis sheet, contact Phil Purcell at ppurcell@hfcu.org. He will walk you through the variables that address your specific situation so you can make an informed, educated decision that you and your child can happily live with. You can also download a free copy of the Hanscom Federal Credit Union Investment Property Ownership guide here

Is Investment Property Ownership Right for You?

Has your family invested in a college condo? Do you recommend doing this? We would love to hear about your experience and advice. Please comment below! 

Topics: College, Investment Property

Trish_Reske.jpegTrish Reske is an award-winning writer and freelance marketing professional from Westborough, MA. She is married to an awesome dad of their four teenage-to-grown children.
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