Oct 31, 2007

Buying a House ... For Your College Student?

When I graduated high school, it was a big deal if your parents bought you a new car as a graduation gift. Most of us were happy to get our own electric typewriter (this was in the prehistoric age). Well, many parents have upped the ante lately, and buy a house or condo for their college-bound children.

According to a recent article, "College Area Properties Get Good Grades," by Jay MacDonald on Bankrate.com, about three million properties have been purchased for college students in total. Student-owned condos are becoming so popular, there's even a name for them -- "kiddie condos."

Parents (especially of children going to college in major cities with housing shortages) point to a multitude of financial benefits. There's the potential for home appreciation, even within the four (or more) years it takes the child to finish college (college towns rarely have huge real estate slumps). There are tax deductions associated with home ownership. And then there's the fact that the parents would have spent $5-10,000 per year on campus housing or an apartment rental anyway. In some cases, there may also be tuition savings (home ownership may establish residency that qualifies an out-of-state resident for lower tuition at a state college; but usually there are a lot of hoops to jump through to establish residency). What's more, parents who put their college student's name on the deed as co-owner of the property help their child build up their credit history.

Beyond the financial considerations, many parents like the idea that their child has a nicer place and neighborhood to live in, with more amenities, such as a private bath or covered parking. They're just saying no to noisy cinderblock dorms.

But don't start shopping quite yet. Even if you can afford to buy a $200,000 condo or a $500,000 house for your college student kids (factoring in all the usual costs such as property taxes and insurance and condo association fees), buying might not be the wisest move -- particularly if campus housing is relatively cheap and plentiful. Here are some issues to consider:

How responsible is your child? And how much do you want to take on the role of landlord? Unless you're buying a studio apartment for one, it's likely your college student will have roommates. To protect your investment, you'll want all roommates to sign a lease, pay a security deposit, and take good care of the property -- not use it as party central for all their friends from the (officially) "dry" dorms.

Even if your child is the only tenant, you'll want him or her to keep the place in good shape and not disturb the neighbors with loud parties. (And if they're in a condo, the walls are likely to be a lot thinner than in a detached house.)

If the college is far from your home, you won't even be able to stop by and check things out occasionally. (Not that you'd necessarily be welcome!) If your son or daughter's room at home usually looks like a hurricane just hit, don't expect them to suddenly become happy homemakers who dust and vacuum regularly (let alone scrub the bathroom floors and clean out the refrigerator).

Is the property a good investment? Assuming your child finishes college in four or five years and moves away from the college town, do you anticipate that property values will appreciate and that you will be able to sell after graduation? And what if the child transfers after a few years or does a junior year abroad? Or worse, drops out and moves away from the area (possibly back home)? Do you want to continue playing landlord to other college students (maybe moving up to professors)? Or is the place in a great vacation area or near close relatives so that you can use it as a second home?

Finally, what will your child lose by living in a house other than a dorm, frat house, or apartment? There's a lot to be said for experiencing communal living, either on campus or off. Your child will learn to live with all kinds of people, deal with a landlord or resident hall adviser, manage money, and pay bills--all without mom or dad involved (unless of course you're one of those "helicopter" parents, hovering nearby).

While not always pleasant (most of us can remember at least a few obnoxious dorm-mates, noisy apartment neighbors, vermin-infested apartments, and horrible landlords), there's something to be said for the character-building aspects of living in student housing or a campus rental. Becoming independent and dealing with all the pros and cons of the real world (not the MTV one) can even convince your child to work harder in school so as to afford something better later! And there's nothing like student housing to forge bonds of friendship. One of my closest college friends and I still laugh about the dumpy apartment we lived in above a pet store and the day the monkey escaped... but hey, that's another story.

To help your college-age student learn all about what goes into the purchase of real estate -- and, by extension, what Mom & Dad have to do to get them their hoped-for new condo -- buy them a copy of Nolo's Essential Guide to Buying Your First Home (Nolo) for summer reading.

Marcia Stewart

1 Comments

Is the purchase of the condo for your student considered an investment purchase for tax purposes or a second home/vacation property? Tax benefits can be different. Is there a website that can give me the details.