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 not be 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 percent down payment, according to data from Cyberhomes.com, a consumer home listing portal. Renting a comparable home near the University of Oklahoma, however, would cost an average $1,088 a month, the firm said.
“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.
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.
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 looking for real estate, parents should consider the following:
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.
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.
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 he or she is up to the challenge.
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 the property annually, Price said.
Discuss with your college student. Before you schedule a single showing, make sure 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.