First, I will say that buying is not always an option.  My parents struggled to pay the bills each month so a down payment and a second mortgage were not even a consideration.  However, for those parents with some financial flexibility, buying a property for your son or daughter makes a lot more sense than renting a dorm or apartment.

According to College Board statistics, average room and board at a four-year private school is close to $9,000 per year. That’s roughly $28,000 to $36,000 just to put a roof over your child's head.  What’s your financial return from this "investment"?  Nada. Zip. Zero.

For this analysis, let’s take a figure of $60,000 to use as a 20% down payment on a $300,000 property.

Annual Mortgage = $7,800

Annual Prop Tax = $13,750

Insurance = $1,000

TOTAL INVESTMENT = $22,550 per year

Next, let’s assume that your son or daughter has two roommates and each of them pays rent of $900 per month (this is cheaper than it would typically cost for them to live in a dorm or apartment) or $21,600 per year.  This means your out of pocket costs would be about $1,000 PER YEAR!

Compare this with spending anywhere from $1,000 - $1,500 per month for your son or daughter to live in a dorm/apartment and the savings become very obvious.  Let’s assume you pay $1,000 per month for 9 months ($9,000 per year) in housing costs by renting versus $1,000 per year buying a property. 

That equals $8,000 per year in savings and $16,000 over two years.  Add in a very reasonable 3% annual appreciation and the property value has increased $18,000 (plus a couple thousand in additional paid-down equity).  Factoring in closing costs, your total return over 2 years would be somewhere in the range of $34,000.

RENT OPTION (2 Years)                              BUY OPTION

Investment:  $16,000                                     Investment:  $60,000

Return: $0                                                    Return: $34,000+

It doesn’t make sense financially for every parent but there is a compelling case to be made for purchasing a property for your son and daughter while they attend college.  Contact Us today for a more detailed analysis in your market.

Note: These figures are for illustrative purposes and will vary depending on market factors.