Should You Purchase Your College Housing?

Rent or Own?  That is the question many college students and their parents ask as they consider housing options.  As a real estate broker in a thriving college community, I hear it often.  As a parent of college students and someone who analyzed the options, I made a decision to purchase housing in my community for my college aged kids.  However, buying is NOT the answer for everyone.  When I talk to students and their parents I like to give them some criteria to think about before making this decision.

Purchasing housing for your college student means you will become a real estate investor.  Along with that title, you will inherit certain benefits, discussed later,  and obligations, perhaps most importantly your duty to pay taxes on any capital gains you acquire when you sale your investment in the future.  Buying investment property means that you will increase your responsibility to report your income on the property and in order to take advantage of tax write-offs, you must keep track of your tax deductible investment expenditures, such as money spent for repairs, management, and maintenance.  Maintaining a property is an issue that must be considered seriously.  Out of town parents often means that maintenance or responsibility to report needed maintenance is left to the student(s).  Does the parent feel that they can trust the student to take on this responsibility?  If not, the parent must visit the property often or hire a management company which can eat up potential savings.

Another duty of owning rental property is the duty attached to becoming a landlord.  There are strict state laws that apply to owning rental property and an owner must familiarize and adhere to these laws or hire an agent.  Additionally, the student often becomes the "manager" and the parents agent as he must take care of not only maintenance but roommate/lease issues and other potential problems.  This can cause strain on the parent/child relationship.  I recommend that you make sure your student fully understands what you will expect of him so he can be aware of his level of commitment.  You may find the student is not willing or not capable to do what is expected.

You must weigh those extra expenditures of time,effort and expense against the savings you will gain from paying a mortgage versus paying rent.  The first question I ask students and their parents is "How long do you anticipate owning the property?"  Appreciation is often the most coveted  benefit of investing in real estate.  After all, everyone knows that real estate is lasting and permanent and frequently outperforms other investments as long as the property is property maintained.  Even in a declining economy, real estate holds value relatively well and usually always bounces back in an upturn.  So, assuming there is a history of appreciation in your college town, and assuming you buy in a great location, apply that rate per year to the purchase price of your property and see where you end up when it is time to sell.  In my community, I can consistently apply a rate of 4% appreciation per year, sometimes even a little more, depending on location.  If I add that appreciation to the current value of the home and subtract my expenses, I can fully understand my potential profit upon selling.  I can estimate from historical data in my area, and on the assumption that the investor maintains the property (not to mention upgrading) he should hold a property a minumum of about 3 years to break even.  When I have a family telling me they have a current student and three more following in the future, I can assure them that purchasing housing is a very good bet!

Once you decide to buy your student's housing, you should seriously consider hiring a real estate professional with expertise in the student housing market.  This is a specialized niche that requires an understanding of student trends, needs, and desires.  The agent should know about the positive and negative community factors that differentiates a good investment from a bad one.  Those factors include transportation to and from the college, resale data, amenities desired by students, community amenities, design criteria that make for good resale such as floor plans and curb appeal.  The agent should have a good understanding of how to finance such properties and will be able to assist you in locating a  property, negotiate and contract for the property, and even assist you with management information.

I seek to work closely with not only the parent investor but the student as well.  I try to maintain contact with my student clients and their parents throughout their tenure at the local university.  I can assist them in holding a key to their property in case of lockouts.  I offer assistance in management and maintenance.  I provide updates on value throughout the holding period and finally I can resale the property for the highest possible price when it's time for graduation!

If you are considering purchasing student housing in our local community, contact me at your earliest convenience to discuss timing of your purchase.  Our market is seasonal and there is an deal time to buy and sale student housing.  Contact Lori Walker at River Valley Realty, 979-255-0702.