Stop Paying Rent: The Benefits (and Risks) of Buying a Home for Your College Student

College is expensive.

According to data from College Board, a non-profit college information resource, the average cost of attending a public four-year institution is $40,940 a year; if your scholar attends a private four-year institution, be ready to pay an average of $50,900 for a single year!

But roughly a quarter of this total estimated expense is room and board. If you could find a way around this cost, you could significantly lower the cost of college attendance. For public schools, the average is $10,800 a year, while private schools require over $12,000 for room and board.

Many parents are turning to homeownership as a way to significantly reduce their total bill for sending a child to college. While purchasing a home for your child’s college experience is a large investment and a bit of a risk, it can reduce the total cost of higher education.

Buying a Home for Your College Student

Benefits of Buying a Home for Your College Student

Let’s start with the positive reasons why you should buy a home for your college kid. As you’ll see, the benefits go beyond mere dollars…

Money Spent Goes to Home Equity

The top reason that parents purchase a home for their college student is to keep from paying rent, which goes to someone else and never comes back. By taking out a mortgage and purchasing a home, the monthly bill is largely going towards your equity in the property, not the landlord’s pocket. In the end, this can lead to a breakeven or even a profit when the final tally is made. 

Added Rent from Roommates Can Enhance the Investment

Purchasing a home also gives you the opportunity to rent out rooms to your child’s friends and fellow students. This can be a great way to offset the costs of the mortgage on the home, and could be the difference between losing money and gaining a profit.

Giving the Student a Clean, Reliable, Stable Home

Your student certainly deserves a clean, reliable, and peaceful home for their college studies. By offering them a place to live that is controlled by the family, you create a place where they can relax and study.

Gives Your Child (Almost) Real-World Experience in Homeownership

Not all education happens in the lecture hall. While you’ll likely be the one dealing with real estate agents and mortgage professionals, purchasing a home for your student gives them a foundational knowledge of the real estate system. This knowledge can be crucial when your child graduates and moves on to homeownership of their own.

Risks of Buying a Home

There are, of course, potential downsides to the choice, many of which are dependent on factors for which you have little to no control…

You Could be Stuck with the Property

Selling the property quickly once your child graduates is not guaranteed. While you’ll likely be able to find a buyer (especially in a college town with other parents, property companies, and landlords) you never know how long it will take to sell. Although unlikely, it may take years to sell; if this happens, you’ll have to keep paying the mortgage and may have to rent out the home to keep your budget in order.

Second Homes Come with Higher Qualification Requirements

When you purchase a second home, whether it’s a vacation house or a condo for your college student, you will likely need to bring a higher down payment and have superior credit scores. Lenders will take an in-depth look at your finances to ensure you can pay the second mortgage. Even if you expect to rent out some rooms, the lender will likely want to see that you can make the payments without this added income. 

Taxes and Deductions Can be Complicated

Property taxes vary from state to state and county to county. Until you research the area, you never know how much you’ll have to pay. Always talk with a tax professional to get a clear idea of tax burdens and other payments involved in homeownership.

Final Tally is Dependent on Market

You can do everything right, from getting a bargain purchase to renting properly to maintaining the home, but the final sale price will still depend on the local market and general demand, factors for which you have no control. An increase in value is likely, but it’s not guaranteed.

Things to Consider

If you decide to buy a home for your college student, keep these tips in mind…

A quality condo may be the best choice when buying a home for your college student.
A condo is great when buying a home for your college student.

It May be Better to Buy Low

In many situations, it may be best to buy as a home with as low a price as you can. Obviously this is within reason, as you don’t want your college student living in a rundown home thirty miles from campus, but you need to remember that your student doesn’t need a luxury home; they simply need a comfortable place to study and relax. Purchasing a second home can be a risk (a wise, calculated risk, but a risk nonetheless), so you may be best served by purchasing a moderate house or a condo that you can easily afford, rather than aiming high and putting your financial standing in jeopardy.

Take into Account the Location

If you are considering a home purchase for your student, conduct thorough research on the market and understand the expected breakeven point. A valuable resource here is Zillow’s College Town Breakeven Horizons spreadsheet. This database shows you the home value index, the rent index, and the median breakeven time. According to their current information, Honolulu has the longest breakeven period with 7.5 years, while Victorville, CA has the shortest, with only .6 years to break even on the home purchase. In San Diego, the median breakeven period is 2.2 years.

Consider it an Investment in Your Child, Not in Your Portfolio

The top motivation to purchase a home for a college student should not be financial gains; if that were the case, there are certainly better options than buying and selling a home in five years. Instead, remember that the real reason is your student. You are buying the home to provide a better living situation and a stable college experience. While there are certainly financial benefits, you should not consider it an investment property but rather an investment in your child. 

Guiding You Through Every Mortgage Loan Decision

Are you considering purchasing a home for your college student? Contact San Diego Purchase Loans and we’ll help you decide if this would be a smart decision for you and your student.

With years of experience and a dedication to service, we’ll make sure you get the right information and, if needed, help you get approved for a wonderful college home.

Testimonials

Chad and his team are fantastic!

Chad and his team assisted me with the financing of my condo. Every member of Chad’s team was extremely professional, highly competent, super responsive, and friendly. They realize that financing a home can be a stressful experience and they do their best to alleviate that stress by keeping you in the loop on everything. They were great about giving me frequent updates on the status of my application. In addition, they happily answered my questions. At one point, when I felt like I was pestering Chad with questions, his response was a friendly, “keep them coming!” And he meant it!!! Likewise, Maria and Karina were just a pleasure to work with as well! This team is like a fine-tuned machine. Thank you so much for all of your help!!!

Everything about our transaction with this lender was perfectly explained to us, easy to do, and they were able to help us get our loan closed ahead of schedule. It was a perfect 10 and we couldn’t have been happier with the whole thing

highly recommend Chad and his team. They were always available for any questions, concerns etc. we had. The process to close the loan went super fast. Chad and his team always went above and beyond. The customer service was the best! I will definitely recommend to all Thank you again for everything!

I hope you enjoyed reading this article. It's my goal to keep you updated with the latest real estate mortgage news. I'm proud to provide you with 100% original and unique content. Subscribe now to get high quality real estate mortgage content and articles delivered directly to your inbox. Chad Baker is Regional Manager for Cross Country Mortgage. Chad is consistently recognized in the top 1% of mortgage originators in the United States 2011-2019. Got a question for Chad? Call (858) 353-8331 or submit your question online