College Housing: Rent or Buy?

Living on campus is an important part of the college experience. But by sophomore or junior year, most students are ready for the freedom and responsibility of living on their own. Unfortunately, the price of off-campus rentals has skyrocketed; since 2020, college towns Tempe, Arizona, and Knoxville, Tennessee, for example, have seen rents jump by 31% and 36%, respectively.¹

"Some parents are finding it more attractive to buy a place rather than rent," says Chris Kawashima, CFP^®, a senior research analyst at the Schwab Center for Financial Research. "But purchasing real estate is a big commitment, so it's important to think not only about the short-term savings but also the longer-term opportunities and consequences."

Purchasing a home for your college student can make particular sense if:

• Your child isn't the only occupant: Mortgages are the most expensive they've been in two decades, but roommates can help defray the cost of not only monthly mortgage payments but also maintenance and upkeep. "Just be aware that you'll need to report any rental income—and properly account for business expenses—on your taxes if you take on roommates," Chris says.
• You're in it for the long haul: "Selling a home after just a few years probably isn't prudent, given that most real estate needs more time to meaningfully appreciate," Chris says. However, if you treat the home as a rental property in the near term, with a potential payout down the road, it could make sense irrespective of your child's needs. "Large college towns have a reliable pool of renters that could keep prices aloft," Chris says. "However, they may also have higher-than-average turnover rates, so you'll want to account for that expense, as well."
• The property is in a desirable area: Studies indicate that the farther a student lives from campus, the less engaged they are academically and socially. Plus, the closer to campus, the more attractive it will be to future tenants. "Consider, too, your own proximity," Chris adds. "Remote landlords can make it work, but they may have to rely on property managers, which are yet another expense."

"If you believe the property has income and appreciation potential—or you can envision it as, say, a vacation home—it could make more sense to own rather than rent," Chris says. "But you should evaluate any potential purchase first and foremost as an investment, with all the due diligence that implies."