Thinking About Buying Your Kid a Condo for College Living? What to Consider

25th March 2022

Thinking About Buying Your Kid a Condo for College Living? What to Consider

It's an exciting time for the Wolff family. Laura, an only child, begins her second year of college this fall - and, for the first time, she'll be living truly on her own.

As a freshman, Laura was required to stay in on-campus housing, at a cost of nearly $11,000 for basic room and board. This year, since she has the option, she'd rather live off-campus with two long-time friends in a shared house or an apartment.

Her parents are researching the cost and availability of rentals near campus. But they've also heard of families who found another alternative: buying a college condo or single-family home as an investment property or second home.

Increasingly, parents are leveraging low interest rates to buy such properties as an alternative to paying for dorms or rental apartments. Often, they've made the rent-or-buy decision based simply on a comparison of cash flows. But a cash flow analysis overlooks other critical considerations in buying a college condo.

The statistics are eye-opening. Roughly one in four college students will either change schools or drop out after the first year. And half of all students who enroll in a four-year college never actually earn a degree from that college, according to the National Center for Education Statistics.

If there's a reasonable chance that your son or daughter will want to change schools before earning a degree - or spend a semester or two abroad - would you buy your college student an off-campus home, at least during the first year or two? Or would you prefer to limit the risk by renting?

It's just one of the many personal, financial and tax considerations that factor into the analysis when pus real estate, including college condos.

Personal Considerations

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Before you seriously consider the financial implications of buying a property for your child's college years, there are important payday loans in Madisonville TX no bank account nonfinancial concerns to address. They include your child's maturity and readiness to both maintain a home and possibly function as a landlord for one or more rent-paying roommates.

They also include your own motivation. Why are you buying the property? Do you intend to sell it as soon as your child graduates, hold onto it until a younger child attends college, or simply maintain it as an investment? What do you hope to gain from the purchase?

Financial Considerations

Cash flow is an obvious factor in the decision-making process for most parents: Will it be more or less expensive to buy as opposed to renting - and by how much?

You'll likely incur up-front costs to acquire the college condo property, such as the appraisal fee, down payment and various closing costs. Major monthly expenses to maintain the property generally include the following:

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? To enhance your liability protection, you might consider creating a limited liability company (LLC) to own the property.

Aside from the recurring cash flow issues, are you counting on the property to maintain or increase in value during your ownership? Property values can fluctuate significantly in some markets and you may not be able to count on real estate appreciating over relatively short periods of time. If you plan to sell in a few years, the commissions and closing costs will reduce any potential profit. Are you financially prepared for a loss in value - even one that might negate any other financial benefits of ownership?