Should you buy your college student a house?
Pros and cons as children head back to school
By Clare Trapasso
For the Bulletin
It’s that bittersweet time of year again (more bitter than sweet, actually) when you can feel that summer’s days are numbered. The days are getting shorter. You’re finally getting sick to death of iced coffee. People are starting to ask about your Labor Day plans. Oh, and the shelves at Target and WalMart are overflowing with school supplies — including bedding and furniture for college students to outfit their cookie- cutter dorm rooms.
But with the costs of living on campus soaring, some parents are considering whether it makes financial sense to buy their newly minted college students a home instead.
It cost an average $10,138 to $11,516 to live on campus in the 2015–16 school year, according to estimates from the College Board. That can add up to more than $40,000 over four years — or more than $60,000 over six years (for those who have, perhaps, a little too much fun and not enough study time). That ain’t cheap for utilitarian shared rooms and showers.
But let’s take a step back. For comparison, the median price of an existing residence (i.e., not newly built) reached a high of $247,700 in June, according to National Association of Realtors data. New homes sold for a median $306,700 in June, according U.S. Census Bureau and the U.S. Department of Housing and Urban Development data.
So with dorm living and home prices both high and getting higher, does it pay off for families to invest in a property for their kids?
The pros of buying your college student a home
Buying another abode is a smarter investment if the family truly considers it as one — planning to rent it out long after their child has (hopefully) earned that diploma, according to U.S. News and World Report. It also makes sense if the graduate lives there long after those college days are over.
It’s also not a bad idea if Mom and Dad break even on what they spend on the property, San Francisco–based financial coach Kathryn Amenta tells realtor. com . And they shouldn’t forget to factor in maintenance and repairs.
“The parents should assume that their child, plus their roommates, should cover all expenses,” she said. “They should pay rent.”
Another option is to turn the student into the property manager, financial planner Beth V. Walker told U.S. News and World Report. This may even help families whose incomes are too high to receive financial aid or tax credits by moving money into their children’s bank accounts.
But it’s key that the arrangement be turned into a law-abiding business, which may involve discussing the arrangement with an accountant or financial adviser, she says.
The cons of buying your college student a home
For starters, buying a property for just four to six years isn’t much time to see a big return on an investment. And it’s risky if there’s another housing crash, as the owners aren’t giving the market much time to recover.
Parents also need to consider that up to onethird of freshmen drop out of school or transfer to new ones, according to U.S. News and World Report. So what would they do with the property then?
They also need to ask themselves whether their college kid is mature enough to collect rent and take care of maintenance and repairs, Amenta says. For all they know, angelic little Johnny or Susie could be throwing keggers every weekend and trashing the place.
And if their children can’t handle it when the toilet overflows or the heat gives out in mid-January, the parents may need to step in. That may not be a big deal if they live a few towns away and can check in periodically— but it could be quite a headache if they’re on the other side of the country.
“It’s not inexpensive to get into the real market and get out,” Allen J. Falke, an attorney with Worcester, MA–based Mirick O’Connell, told U.S. News and World Report. “But you’re taking a market risk.”
Clare Trapasso is the senior news editor of realtor.com. She previously covered finance for a Financial Times publication and wrote for the New York Daily News. She also teaches journalism at a local college, loves food festivals and bike trips, and enjoys playing with her dog. Printed with permission from Realtor.com