Working to "Pay It Forward"
4 Tips For Buying An Investment Home Near Campus
Posted on August 29, 2014 by Ilyce Glink
Would you buy a place to live for your kids in college? Would you make the purchase while your kids were in middle school?
Apparently some overeager parents are buying their college-bound kids apartments near some top ivy schools, long before they’re even accepted.
Real estate agent Ed Feijo of Coldwell Banker Residential Brokerage in Cambridge, Massachusetts has an influx of international buyers buying properties for their kids as young as 14-years-old, with aspirations they will one day attend Harvard or MIT.
While those may be extreme cases, lots of parents are considering purchasing a piece of real estate near their kid’s college campus.
According to a recent survey from Coldwell Banker Real Estate, 40 percent of the company’s agents have seen an increase in parents purchasing homes for their children to live in while attending college over the past two years.
Not only could this be a good investment, but it may wind up saving you money on campus housing and rent in the long run.
If you’ve considered this, there are a few things to keep in mind, however. College campuses have been real hot places to real estate investors for a while now, and prices have jumped in the last few years, so it’s not like this is a no-brainer.
1. Compare costs. How much are you really spending on housing your college kid for the next four years? Think about the costs of campus housing and the rent you or your child may pay when they move out and move off campus. Then calculate the costs of buying a place and renting it out. That will give you a solid financial picture of the costs.
2. Is your child responsible enough to manage a piece of real estate? If you’re buying an apartment or house, chances are your child will be sharing it with roommates. That can both lower the cost and provide an affordable home for other students. But there are bills to be paid, items to maintain and sometimes that means your child will have to be tough with his or her friends. Is your child mature enough to manage a piece of property? And, what happens if he or she lets important things slip? Do you live close enough that you can intervene?
3. Can you afford to buy something you’d want your child to live in? It’s not as cheap to buy near college campuses as it once was, so if you can’t afford something you actually want your children and their friends to live in, skip it.
4. How long will you have this investment? Most kids go to college for four or five years. If you’re making this investment, it’s a short time horizon, unless you plan to keep the property longer because you like renting to college kids or you have another child following in his or her sibling’s footsteps. Think about an exit strategy and how you’ll compute the “profitability” of the investment. Don’t forget to think about the lost opportunity cost of the capital.
In the end, this investment may not be about “making money” as much as it is about spending less than you otherwise would have to house your child during college.