Student Loans

The Pitfalls of Buying Your Child’s College Housing

This has got to be an old idea, but is it outdated? Is it no longer valid? What I am referring to is parents or even grandparents buying a condo (or single-family home) for a college student who rents it (perhaps with a friend) for four years as their college housing, then it is sold.

At a nice profit, of course.

I question whether this is still the case but years ago (20 or so), my own son went to Georgia Tech, where he got a great education at a good price as well: something like $25,000 a year.

I didn’t buy him a condo but I did have friends who did. Most of them made a small profit. So it can be done. But that was then.

This came up at a time when I got a real estate ad from an Atlanta-based realtor who suggested parents of present-day students consider buying a Midtown Atlanta condo for their Georgia Tech son or daughter to live in, and you guessed the rest.

Sounded good, of course.

The offspring’s rent pays for the building, and perhaps a roommate’s as well. Get a two-bedroom, the site suggested.

Can much go wrong with that? (it might even make you hope the student will stay there long enough to get a Master’s or even a PhD), no? Or maybe even dad/mom or granddad/grandma has other potential renters in sisters or brothers, no?

Well, maybe not.

The realtor points out that in Atlanta, condos are easily surpassing the $300,000 price point.

In more recent years, one development is that you need a lot more money than formerly to even think of the idea.

In addition, universities everywhere have been building a lot of college housing (some of it very upscale and catering to students with amenities such as swimming pools and recreation centers) to add more housing competition.

Approach this idea with caution for various reasons. They include the housing rules of the university, the whims of the local market, and the relatively short investment timetable.

Potential problems in today’s market:

—The condition of the market you are investigating. Does it offer much student housing? Of course, it has a large university, since you already checked. But is it large enough?

—The potential or future of the university. I live in Orlando, where we have one of the largest and fastest growing universities in the country. This is something that needs careful examination not only for the university size today but where it’s headed: growth or not?

—Local housing trends in the university but also in the community in general. There are no signs that tell potential renters they can only lease this college-convenient building, so a place with a lot of rental units may be far too competitive for small owners to make money on their investment.

—Ownership costs are a given, no matter if your tenant is your son or daughter. AS is always the case, find maintenance and common area costs if it’s a condo (and apartment and other rental unit costs). These costs alone can outstrip the price of even cheap housing.

—Your window of investment. Students can typically take anywhere from three to five years to graduate. A lot of such owners look at three years, which is at times not enough of a time period for the property to appreciate. If that is not the case, the landlord can continue to rent it out but tenants will no longer be relatives, of course.

This all is in no way a warning not to do it. But amateur investors’ who see this as a potential gold mine, and a mindless investment, might want to check with area professionals for their advice. Maybe you have a relative who already knows the market who (as luck would have it for the best) majored in real estate?

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