I’ll be living off campus in college. Someone suggested buying an off-campus house and subletting the extra rooms. Should I persuade my parents to buy or rent?
With this question, you should be studying finance in college. To determine whether it pays to buy or rent, you would have to be psychic regarding the trend in housing prices around your college. However, every homeowner understands the purchase involves more than a numerical calculation. There is much more to owning a home as you will learn below.
Living on campus is neither cheap nor glamorous, dorms and frat houses are often cramped and in poor condition. The cost of college accommodation is also questionable, with average costs for room and board on campus last year being between $10,138 and $11,516, according to the National Center for Education Statistics. This can rack up expenses of over $40,000 for a four-year college program.
Facing a monthly accommodation bill of around a thousand dollars may cause many parents to question why they continue to fill college housing coffers and support local landlords. A possible alternative is to buy an off-campus house and sell it after graduation for a small profit.
However, the average holding time for off-campus properties is five years, and this is generally not long enough to turn a profit or recoup the costs of fees associated with a property purchase. The specter of a major, unforeseen repair is also an issue. A homeowner’s inspection cannot predict the risk of uninsured deterioration requiring sewer repair, mold removal or structural renovation. Buying a college house is not a long-term investment, making it harder to amortize any extra expenses. However, breaking even is a good alternative to a $40K rent bill. Real estate experts suggest buying cheap, around $200K, to limit possible losses and increase the chances of a quick re-sale.
Research has also been done on comparing the costs of renting and buying specifically in college towns. Obviously, they vary from town-to-town. In Berkeley for example, rents top $3,800 per month, so it would take less than two years to break even on a home purchase. Lawrence, near the University of Kansas, on the other hand would see double the time to break even.
To help cover costs, you have the option of renting rooms in the home to other students. The additional income could go towards paying the mortgage, however there are likely to be higher maintenance expenses on furniture, carpeting and bedding, as students do not make the best tenants. College renters are very unlikely to come with good references or solid credit backgrounds and they are less likely to take care of the property. On the up side, you are almost guaranteed to get tenants in college towns.
Buying a college property can give you the experience of managing it for your parents. This additional responsibility will give you the experience to be confident when you make your own property purchase after graduation. This does, however, put a lot more on your plate with property maintenance, repairs, cleaning, and seeking other roommates. Using a management company is an option but this will incur further expenses.
Buying a house near university campus can be a smart move, but it’s unlikely that there will be huge profits, simply saving on shelling out for college accommodation could be the only reason needed.
We live in an age when pizza gets to your home before the police – Jeff Marder.
(John Regan is a former Director of Sales for equity research).
