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. Some parents are finding it more attractive to buy a place rather than rent. But purchasing real estate is a big commitment, so it's important to think not only about the short-term living arrangements for your student but also the longer-term opportunities and consequences.
Purchasing a second home for your child to live in while in college can make particular sense if:
- Your child isn't the only occupant: Roommates can help defray the cost of monthly mortgage payments and upkeep, though having roommates could also mean greater potential for property damage. And be aware that you'll need to report any rental income—and business expenses—on your taxes if you allow for roommates.
- 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. 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 demand and prices high. But 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. Remote landlords can make it work, but they may have to rely on property managers, which are yet another expense.
If you have the temperament and time to be a landlord, believe the property has income and appreciation potential, or even envision it as a vacation home in the future, it could make more sense to own rather than rent. But you should evaluate any potential purchase first and foremost as an investment, with all the due diligence that implies.
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This material is intended for general informational and educational purposes only. This should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decisions.
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