WRITTEN BY JAYMI NACIRI
If you’re about to send your child to college, you’re undoubtedly suffering from sticker shock. And it’s not just from the cost of tuition and mandatory fees and books and a meal plan and parking, but also from housing. Maybe, especially, from housing. The mouse – hole your dorm – bound child will live in for at least the next year come August or so might as well be the Taj Mahal for what it costs to shelter them in much less extravagant environs.
The high cost of student housing – not just in the first year when they are typically living in on – campus housing – is just one of the reasons people are increasingly looking to purchase property for their college kids to live in. Is this a consideration for your family? We’re breaking down the particulars.
Yes, it may be that buying a property for your college kid to live in is a smart financial decision. “Average prices per year for housing are more than $9,000 in college towns,” said U.S. News & World Report. “In highly desirable college towns outside major cities, housing costs can be much higher. Monthly housing prices in Berkeley, California, home of the flagship of the University of California system, can reach more than $3,000, making the price tag for the academic year more than $27,000. In Cambridge, Massachusetts, outside of university – rich Boston, the four – year price for housing can exceed $100,000 as well.”
If that has you getting ready to search for homes for sale RIGHT THIS SECOND, “Don’t forget to factor in the additional costs of homeownership besides the mortgage, like maintenance expenses, homeowners’ association fees, insurance and taxes,” they said. You may find that buying a home doesn’t make as much financial sense as you think.”
You can enjoy a tax write – off on a second home, which could make a college town purchase much more affordable in the long run, but you have to be careful about how the property is used and the way it is reported on your taxes. “Many homeowners look forward to purchasing a second home that can be used for vacations, rental income, investment purposes or as a primary residence during retirement. Current tax laws offer several tax breaks that can help make second – home ownership more affordable,” said Investopedia. “If you already own, or are thinking about purchasing a second home, it will be in your best interest to understand the tax breaks and how they work. Different tax rules apply depending on how you use the property, for either personal or rental use, or a combination of the two.
As long as you use the property as a second home – and not as a rental – you can deduct mortgage interest the same way you would for your primary home. You can deduct up to 100% of the interest you pay on up to $1.1 million of debt that is secured by your first and second homes (that’s the total amount – – it’s not $1.1 million for each home).”
That would mean adding rent – paying tenants/roommates to the mix would be off the table. Keep in mind also that you can deduct property taxes on a second home. You will want to talk to your tax advisor about the tax situation in the state in which you are considering making a purchase.
Is your child attending college in an area that is appreciating nicely? It might be a good investment to purchase a property that you can sell after graduation for a nice profit, or hold onto for passive income by turning it into a rental for future college students.
Then again, there is the chance that entrusting your child, and your child’s future roommates and friends, with a property you own could spell financial disaster if the home is not maintained. Worried about college parties that trash the place and/or illegal activities like drug – taking in the home, which could endanger your child’s future? If you’re thinking about buying a property for your child (and possibly other people’s children as well) to live in, you need to have an honest conversation with him or her, and with yourself, about the responsibilities involved. Is your offspring responsible enough to make smart decisions and properly care for a home?
To roommate or not to roommate
There are additional questions and potential concerns around the roommate issue. Yes, allowing your child to live with friends will provide companionship that is important for college students and will cut down on your monthly costs – and perhaps even provide some monthly income. But consider these questions from Bader Martin:
“If your child will have roommates, how much do you plan to charge them and can they be depended upon to pay their share of the rent on time each month? What will you do if a roommate – renter moves out and how long are you willing to carry the mortgage without replacing the roommate? And will your child and roommates occupy the property all twelve months of the year or only during the school year? What are your potential liabilities if a roommate is hurt on the property or loses personal possessions in a robbery or fire? Are you adequately insured?”
Individual real estate markets differ widely, and what seems like a good investment in one city may be totally undoable in another. Having an alternate or future use for the property in question can tip the scales. In some cases, parents purchase a condo or townhome in the city for their college student child to live in, with the intention of keeping it in the family for the child post – graduation, for another child intending to attend the same college, or even as a place for themselves. Another growing real estate trend has parents following their child to the city in question as part of their retirement plan.
“Increasingly, parents are also considering the move as part of a long – term plan in which they also participate,” said U.S. News & World Report. “If your child goes to school in a city whose lifestyle and cultural offerings are pleasant to you as well, why not retire there? Schools from Berkeley and Cambridge to Chapel Hill, North Carolina, and Bellingham, Washington, can be pleasant places to retire. The property you purchase could thus be part of your long – term retirement strategy.”
Having to find a new place and move every year, find storage, and put down new deposits is a drag for anyone. Buying a home that your child can live in for his or her entire college experience provides stability as well as a fixed expense they (and you!) can count on.
In – state tuition
If your child is attending college out of state, you’re being hit with even higher expenses. “About 17 percent of students attend college out – of – state, and they pay dearly for it,” said Parenting. “The typical out – of – state tuition rate at a four – year public university is three to four times more than the in – state rate.”
For this reason, parents often explore options for in – state tuition, like purchasing a property – but with varying success. “Most states have established residency requirements designed to prevent out – of – state students who become residents incidental to their education from qualifying,” said FinAid. Buying a home in the state is a good start, but likely won’t be the only commitment that needs to be made in order to get that elusive in – state tuition. It’s a good idea to learn all you can about the requirements for the school and state in question before making a purchase for this sole reason.