Pay for a dorm room or buy a condo? Know what your money gets you
So you’re sending your kid off to college. Hats off. But what about housing? Will they live in a dorm, or is there a better alternative outside of him or her renting a room in a house? According to Bankrate, Janna Herron, many parents bypass university housing or off-campus renting altogether and buy a condo instead — all with the goal of recouping their investment after graduation.
The price of housing and meals can vary depending on where you live and what school your child attends. Students at public schools can expect to pay an average of $8,887, and those at private schools will pay an average of $10,089 per year for dorms on campus. Add to that the cost of tuition and calculate it over the 4-6 years it might take for him or her to get a degree and, well, you get it.
Herron admits that buying a condo is no cakewalk. Like any real estate purchase, it comes with potential pitfalls. She quotes a Realtor, who says, “You need to look at it from the perspective that you will be a seller a few years down the road. Be very aware of market conditions before you make a purchase. It’s not just about if you can get your kid’s friends to pay rent and make a little money.”
The factors to consider are how long your student-child might be there, what you might get for the property when you sell it, and whether the rents in the neighborhood support your investment. Here is one cold, hard fact, however. Only 39 percent of college students complete their studies in four years, according to the National Center for Education Statistics. 59 percent graduate within six years. So, it might be wise to calculate the worst-case scenario, then work backward if your kid sails through in 3-4 years.
Speaking of your grown child, how responsible might he or she be? Property that is not well maintained or abused can affect resale value unless you gut it and invest more money in it once they move out. Then there are on and off-campus rental rates. This is something you must study seriously to see if you must include other students renting rooms in the condo to defray the cost. Might getting some information on these potential renters be a good idea? A Realtor versed in rentals in the campus area can help you here.
Check with your loan consultant about all the variables of a purchase like this: short term ownership might mean a smaller down payment in case the condo loses value by the time you sell. By the same token, plans to own it longer might be best accomplished with a higher down to buffer against any spikes in interest rates and keep the mortgage payment lower.
On top of all this, there is research to do. How well is the HOA run? Are there complaints pending? Liens against the property? Even with an attractive unit, ownership can be a nightmare if the complex is poorly run, making it difficult to eventually sell. If you do invest, make sure your rental agreement is specific, spelling out damage deposits, pet permission/prohibitions, late rental fees, etc.
Knowing the rental market is valuable. If there are too many rentals, it might be best to skip buying. “Otherwise, look for communities with student-oriented amenities that will appeal to future parent buyers, such as shuttle buses to campus, common work areas with copy machines and Wi-Fi, pet-friendly units and facilities such as pools, tennis courts or movie theater rooms,” says Herron.
If your child is open to which school to attend, there are a number of college campuses where dorm rooms are not prohibitively expensive or are even in line with what a mortgage payment might be, according to Redfin. These include the University of Arizona, Georgia State University, University of Buffalo, University of Texas at El Paso, and many more. So even before your child gets out of high school, you may want to see where your dollar goes the farthest — whether they live on the campus or off.
Source: BankRate, Redfin, TBWS