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 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 $10,000 per year. That’s roughly $40,000 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 $70,000 to use as a 20% down payment on a $350,000 property.
Annual Mortgage = $15,000
Annual Prop Tax = $9,000
Insurance = $1,000
TOTAL INVESTMENT = $25,000 per year
Next, let’s assume that your son or daughter has two roommates and each of them pays rent of $1,000 per month (this is often cheaper than it would typically cost for them to live in a dorm or apartment) or $24,000 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 for rent savings alone. Add in a very conservative 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 could be somewhere in the range of $34,000.
RENT/DORM OPTION (2 Years) BUY OPTION
Investment: $18,000+ Investment: $75,000
Return: $0 Return: $37,000 (excluding down payment)
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.