Rising college costs are causing some parents to consider alternate housing for their students: They're bypassing the dorm and off-campus apartments in favor of buying a condominium or single-family home. In some cases, it might be not a bad idea.
Take the Oklahoma City area. A single-family home will cost an average $764 a month, including the mortgage payment and taxes, assuming a 30-year fixed-rate mortgage and a 20% down payment, according to Cyberhomes.com, a consumer home-listing portal owned by Fidelity National Financial. Renting a comparable home near the University of Oklahoma, however, would cost an average $1,088 a month, the firm says.
Lawrence, Kan., is another college town where buying may be a good option. Monthly payments on single-family homes average $859, compared with $1,162 rent.
"More and more people are thinking about getting a kid into a property because tuition is so high," and room and board also continues to creep up, says Rose Price, a real-estate agent who works in Champaign, Ill., where the University of Illinois is based.
Room and board averaged $7,404 for public, four-year universities and colleges in 2007-2008, up 5.3% over the last school year, according to the College Board. For private schools, room and board averaged $8,595, up 5% from the previous school year.
Another reason parents might be interested in these college towns is that often they're "recession proof," says Brent Lipschultz, a personal-wealth manager at Eisner, a New York-based accounting firm. A college town produces a certain amount of housing demand no matter what the economy is like, keeping the market healthy, he says.
But before spending a long weekend looking for real estate, parents should consider:
1. Buying is not a bargain everywhere. Consider the market conditions, and figure in all the costs before deciding whether to buy or rent. Sometimes, college markets are affordable to buy in because there is heavy competition for rentals, which drives rents up, says Marty Frame, general manager for Cyberhomes.
But in other markets, renting is still more affordable.
For example, if your student is going to the University of Southern California, based in Los Angeles County, an average monthly payment on a single-family home will be $3,163, compared with an average $2,270 rent, according to Cyberhomes data. Other markets where renting is less costly than buying are Eugene, Ore., where the University of Oregon is located, and Fresno, Calif., the home of Fresno State, according to the firm.
Also, consider the overall health of the real-estate market. While prices might indicate that it's cheaper to buy than rent, buyers might not want to buy into a market still experiencing price declines.
2. Not every kid is ready to be a homeowner. It takes a responsible kid to take on the duties of a homeowner, Mr. Frame says. If you decide to buy a place for your college student, make sure her or she is up to the challenge.
Even then, the plan can backfire. Ms. Price knew of one college student living in a home who was extremely responsible -- but he got homesick after a year and left campus.
3. Being a college landlord isn't easy. While the first use of the property will be to house your college student, it's also important to have a plan for the home after your offspring graduates. Considering renting it out to others after graduation? Make sure you have what it takes.
If you're renting to students, tenants will likely turn over every year, which involves finding new renters and making improvements or repairs annually, Ms. Price says. Plus, it's good to assess upfront if there is strong housing demand year round, and whether there are competent management companies to oversee the property down the road, Mr. Lipschultz says.
4. A place to retire. Maybe the next inhabitant of the space won't be a renter at all. It might be you.
Increasingly, retirees are seeking out college towns for their cultural amenities and access to health care, among other perks. Two of AARP's top 10 healthiest places are college towns Ann Arbor, Mich., and Madison, Wis. "Many universities are trying to attract their alumni. Some are building complexes that are geared for alumni," says AARP's Gabrielle Redford. That said, your idea of a great place to retire might not match your college student's idea of a perfect place to live.
5. Discuss it with your college student. Before you schedule a single showing, make sure that this is something that your child is also interested in, Mr. Lipschultz suggests. These are your college student's first years away from home, and he or she might not want this type of parental involvement.
Also check to see if there are university rules that require students to live in campus dorms their first year or two, he says. It might not be a bad idea anyway to spend a year in the dorm and for your student to figure out what part of town would be best to live in, he adds.
