For those families with high school seniors, your college-bound kid has probably made a decision on where to attend school next year. Congratulations! The next few months are exciting and possibly a bit overwhelming as you and your child navigate all of the aspects of entering university life. This collegiate whirlwind also applies to families with juniors who are on the cusp of applying to schools. Advanced education is costly and one of the biggest monetary factors aside from tuition is student housing.
Many students live in university accommodations—be it residence halls or in a fraternity or sorority—their first year. Both of these options offer benefits and pitfalls some of which include sharing very small spaces with one or more roommates (in the Greek system one bedroom is often shared by ten or more people) in addition to a pretty hefty price tag.
An alternative to university housing is purchasing a second home near the school your student will attend. Finding a new place to live every school year, the process of moving in and out, paying to store belonging, and possibly putting down new deposits if your student moves into and out of multiple apartments is stressful, expensive, and time consuming. Buying a residence of your own has pros and cons but for some families, it is a consideration worth investigating as it provides stability for your student and the possibility of a worthwhile investment for you.
A second home can be used as a tax write-off depending upon how it is used. If it is used as a second home and not a rental (which means no roommates), mortgage interest and property taxes can be deducted just as with your primary residence.
If roommates are added to the mix, the property becomes a rental, which could help offset the mortgage, property taxes, and other incurred costs such as homeowners insurance, utilities, and the like.
Your tax advisor can help you determine which option is best suited for your family’s financial needs, especially if you are considering buying a property in a different state.
A second home provides your student a much more spacious place to call home than can be found in a residence hall or in a sorority or fraternity. On the flip side, if your student prefers more social interaction, living alone may not be preferential and having a roommate may be a better option. Either way, it will be much less disruptive and they won’t have to contend with moving in and out at the start and year of every academic year. Another pro is that your student will most likely stay healthier as highly populated living spaces do invite illness.
When living off-campus, your student will have the responsibility for helping to maintain the home (keeping it clean), managing their own meal preparation, and possibly paying bills such as utilities, although those could be managed jointly by parents and child. All of these are also great life lessons, which will serve your student well as they enter a new life of independence.
Housing will comprise a large portion of your financial outlay for your college-bound child. According to the U.S News & World Report, “Average prices per year for housing are more than $9,000 in college towns. 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.”
Based on this, investing in property to house your child could be financially beneficial. You could be able to capitalize on paying into a property you own versus paying the university for temporary housing, money on which you will never see a return.
Other items to keep in mind when deciding to buy a property are homeowners insurance, utilities, and general maintenance. All of these will add to the cost of owning a second property but depending on your specific situation, you could still see a net savings or potential profit over time.
If your son or daughter will be attending university in a desirable area, the odds are that investing in property could net you a handsome return. It can be sold once your student graduates, kept as a family vacation home, especially if it is in an area you enjoy visiting, or it can be turned into a rental property, providing you with additional passive income. Other options are gifting the home to your child should they decide to remain in the area or keeping it as a retirement home for yourself.
Again, before arriving at a decision on what option is best, we highly recommend having meeting with your financial and/or tax advisors.
If your daughter or son is one of the 17% who has chosen to attend a college outside of California, you will pay double or even triple the cost of in-state tuition. Purchasing property in the state where your student will be attending university could possibly allow them to achieve resident status, thus lowering their tuition.
According to student financial aid website, FinAid, “Most states have established residency requirements designed to prevent out-of-state students who become residents incidental to their education from qualifying.”
Each college has very distinct requirements that must be followed to achieve this so again, it is recommended that you do research in advance and have a very clear understanding of the school’s guidelines in advance of buying a property for this reason alone.
Purchasing a second property for your college student to live in while they attend university is becoming a popular housing route for many families. There are definitely pros and cons but after weighing those against your potential housing savings as well as taking the ROI into account, buying may be a very viable opportunity.