As your child heads off toward college, finding ways to make it less stressful and less expensive is on most parents' minds. One increasingly popular way to manage the costs of room and board is to buy a home for the student to live in while at school.
This idea has many pros, including the student being able to have roommates to share expenses and live away from the dorm situation. It also has some cons, of course. The primary con for most people is the upfront cost of buying a second home.
If you're thinking of doing this, here is a five-step guide to making the right decision.
Research the Area. Homes in the immediate college area may have higher price tags, so it pays to do some research on alternatives. If your student has a car, it may be a much better deal to find a home for sale in a nearby residential area and pay for parking on campus.
Check Financial Aid. It may surprise many people, but where you live during school can affect what kind of financial help you receive. For example, some scholarships or grants can be used toward on-campus housing but not off-campus options. Check the fine print for all financial aid prospects before you buy a home.
Decide on Roommates. If the home is large enough to house multiple students, this can save both you and your student a lot of money. However, it requires that your student be responsible enough to act as an intermediary with their roommates. It also means having tenants living in your house, which you may not be ready for if you've never been a landlord before. Deciding on whether or not there will be other tenants before buying will help avoid over- or under-buying.
Do the Math. If your college budget is tight, it pays to do the math to calculate what the actual costs will be. Be sure to include the mortgage, property taxes, insurance, HOA fees, utilities, food for the student, and maintenance. Even if there's a higher initial outlay, the cost should be calculated over the full 4 or 8 years of traditional university degrees. Some costs will change over the years, so look at it from a long-term perspective.
Know Your Future Plan. What will you do with the house once your student has graduated? If they plan to stay in the area, it could become their first home and alleviate stress for both of you. It could become a house for the next child in line, or you could decide to rent it out to future tenants and use it build future wealth. Or, you may simply be selling it and moving on. Deciding your most likely plan for the house before buying will also help you know how much you should be investing in the home.
Sending your child to college is a time of much uncertainty and enthusiasm. Having their own home to enjoy and learn in can go a long way toward making those years successful, both for you and for them. And by following these few planning tips, you can make the best choice possible.