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Five things to consider before buying a pad for your college student

 

Rising college costs are causing some parents to consider an alternate housing plan for their students: They’re bypassing the dorm and off-campus apartments in favor of purchasing a condominium or single-family home. In some cases, it might be not a bad idea.

Take the Oklahoma City area. Here, a single-family home will cost an average $764 a month, including the mortgage payment and taxes, assuming a 30-year fixed-rate mortgage and a 20% down payment, according to data from Cyberhomes.com, a consumer home listing portal owned by Fidelity National Financial. Renting a comparable home near the University of Oklahoma, however, would cost an average $1,088 a month, the firm said.

Lawrence, Kan., is another college town where buying may be a good option: In Lawrence, the monthly payment on a single-family home averages $859, compared with an average $1,162 to rent, according to Cyberhomes.

“More and more people are thinking about getting a kid into a property because tuition is so high,” and room and board also continues to creep up, said Rose Price, a real-estate agent who works in Champaign, Ill., where the University of Illinois is based.

Room and board averaged $7,404 for public, four-year universities and colleges in 2007-2008, up 5.3% over the last school year, according to the College Board. For private schools, room and board averaged $8,595, up 5.0% from the previous school year.

Purchasing a single-family home instead of a condo lets parents have a place where their child can live and other rooms can be rented out, Price said. In her market, they’re buying homes that can range between $60,000 and $200,000, she added.

Another reason parents might be interested in these college towns is that oftentimes — unlike much of the country — they’re “recession proof,” said Brent Lipschultz, a personal wealth manager with New York-based Eisner LLP. A college town produces a certain amount of housing demand no matter what the economy is like, keeping the market healthy, he said.

But before spending a long weekend looking for real estate, parents should consider the following:

1. Buying is not a bargain everywhere

Consider the market conditions, and figure in all the costs before deciding whether to buy or rent. Sometimes, college markets are affordable to buy in because there is heavy competition for rentals, which drive rents up, said Marty Frame, general manager for Cyberhomes.

But in other markets, renting is still more affordable.

For example, if your student is going to the University of Southern California, based in Los Angeles County, an average monthly payment on a single-family home will be $3,163, compared with an average $2,270 rent, according to Cyberhomes data. Other markets where renting is less costly than buying are Eugene, Ore., where the University of Oregon is located, and Fresno, Calif., where Fresno State is located, according to the firm.

Also, consider the overall health of the real-estate market before making a purchase. While prices might indicate that it’s cheaper to buy than rent near the University of South Florida right now, buyers might not want to take the risk of buying into a market that may still experience price declines — unless they’re planning to keep the property for the long term.

2. Not every kid is ready to be a homeowner

It takes a responsible kid to take on the duties of a homeowner, Frame said. If you decide to buy a place for your college student, make sure that he or she is up to the challenge.

Even then, the plan can backfire. Price knew of one college student living in a home who was extremely responsible — but he got homesick after a year and left campus.

3. Being a college landlord isn’t easy

While the first use of the property will be to house your college student, it’s also important to have a plan for the home after your offspring graduates. Considering renting it out to others after graduation? Make sure you have what it takes.

If you’re renting to students, tenants will likely turn over every year, which involves finding new renters and making improvements on annually, Price said. Plus, it’s good to assess upfront if there is strong housing demand year round, and whether there are competent management companies that can manage the property down the road, Lipschultz said.

4. A place to retire

Maybe the next inhabitant of the space isn’t a renter at all. In fact, maybe it will be you.

Increasingly, retirees are seeking out college towns for their cultural amenities and access to health care, among other perks. In fact, a few of AARP’s top 10 healthiest places to retire this year, including Ann Arbor, Mich., and Madison, Wis., are college towns.

“Many universities are trying to attract their alumni. Some are building complexes that are geared for alumni,” said Gabrielle Redford, features editor for AARP The Magazine. Some of the same reasons college towns are great for students also attract retirees, she said.

That said, your idea of a great retirement property might not match up with your college student’s idea of the perfect place to live.

5. Discuss with your college student

Before you schedule a single showing, make sure that this is something that your child is also interested in, Lipschultz suggested. These are your college student’s first years away from home, and they might not want this type of parental involvement.

Also check to see if there are university rules that require students to live in campus dorms their first year or two, he said. It might not be a bad idea anyway to spend a year in the dorm and for your student to figure out what part of town would be best to live in, he said.

By Amy Hoak, MarketWatch

This entry was posted on Monday, August 25th, 2008 at 5:53 am and is filed under FSBO. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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