Should parents buy property in a college town?
It's not just the uber rich who are buying property where their kids go to school.
Tal Rabinowitz had an instinct. Although Rabinowitz, a former NBC Entertainment executive and current meditation studio owner, was just a sophomore at Tufts University, she recognized opportunity when she saw it. “I was shocked by the rents and knew the bar scene in Davis would pick up, so I convinced my parents, who had dabbled in real estate, to buy a place,’’ Rabinowitz said. “To this day, they say it’s the best investment they ever made. It’s tripled or quadrupled in value.’’
That was back in 1996. Rabinowitz, who at 12 years old called a broker to follow up on a too-good-to-be-true real estate listing in The New York Times (it was indeed a misprint) and has since flipped a few properties in her adopted town of Los Angeles, lived in the four-bedroom unit of the two-family triplex with three friends her senior year. Her parents, who hired a property manager to handle the details, rented the lower unit to graduate students. Today, it’s still a source of easy income.
In 2001, Tom K. Wilson, an electrical engineer-turned-real estate investor based just west of San Jose, Calif., purchased a three-bedroom house in San Luis Obispo for $385,000. He spent another $10,000 to add a bedroom. His daughter, who was attending California Polytechnic State University, lived there with roommates, sharing the master bedroom. Six years later, they sold the home for $760,000, which covered the entire cost of his daughter’s undergraduate education (housing included), as well as the down payment on a graduate school home.
If you can buy a five- or six-bedroom property for under $350,000, you should be able to break even, Wilson said. Plus, there’s potential for appreciation with lower-than-average downside risk, given college markets are relatively stable. “I think it’s a good play,’’ he said.
Wilson’s daughter acted as “house mom,’’ managing 26 students in two residences over nine years. “In hindsight, she said that even though, or maybe because, there were stressful moments, the life experiences were very valuable,’’ he said.
As the spring house hunt gets underway and National College Decision Day nears (high school seniors must commit to colleges by May 1), thoughts are turning to campus housing. Sure, many schools require freshmen to live on campus, but what happens after that?
Not all parents want to complicate their children’s lives with logistical challenges like collecting rent from friends. Many, in fact, list making life easier for their child as a motivating factor for purchasing real estate over a dorm or an off-campus rental. Late-night noise, shady landlords, unsafe conditions, and inflexible move-in schedules contribute, too.
“It takes one or two showings of a rental with the parents present for them to say ‘Hell, no,’ ’’ said Collin Bray of Century 21 Cityside in Back Bay. “Parents used to send kids back to school with clean laundry, ramen, and chocolate chip cookies. Now they’re sending kids with fire extinguishers.’’
Some buyers seek outright luxury for their kids.
Nelson Taylor of Mott & Chace Sotheby’s International Realty in Providence mentions a pair of Brown University families who purchased a mansion for their four offspring. Global real estate adviser Beth Dickerson has sold luxury units in Millennium Place, The Residences at The Ritz-Carlton Towers, and The Residences at Mandarin Oriental, Boston for undergraduate occupancy, often to foreign nationals, who are attracted to Boston’s strong real estate market.
However, dorm living (if you can get it), can be a bargain.
In a 2017 study, the real estate listing site Redfin found that monthly mortgage payments were less expensive than living in a dorm at 47 of the 195 public colleges they examined nationwide. Of the 16 New England schools included in the study (among them the University of Southern Maine, University of Massachusetts Lowell, and University of Vermont), a monthly mortgage payment at just two — Bridgewater State University and Worcester State University — was the less-expensive option.
We looked at room and board rates at 10 independent colleges and universities in Boston. Schools’ options for a shared dorm room and a meal plan ranged from $13,290 for the least expensive, at Wentworth Institute of Technology, to $18,360 at Berklee College of Music. The median cost for room and board at Boston schools is $15,621.
On the other hand, according to the real estate listings site Zillow, the median rent in Boston is $2,850. Multiply that by nine months for a whopping $25,650 — and that doesn’t even include the cost of food. Does it make financial sense to put that money toward ownership? If you have the capital for a down payment, many think it does.
When Lucas Garofalo of Keller Williams Realty in Boston was showing an empty-nester couple from the western suburbs downtownproperties in the $2.5 million range, almost every unit they saw was occupied by undergraduate or graduate students. “The guy joked that he was starting to feel bad for not buying his kid a $2 million condo,’’ Garofalo said. “It was an eye-opener.’’
While buying in Boston can be tricky, given the high prices, many other college towns offer excellent investment opportunities.
Danielle Hale, chief economist for Realtor.com, compared monthly rental costs with the average monthly home payment in 100 college and university areas with strong local economies and healthy real estate markets.
If you have a child headed off to Johns Hopkins or the University of Maryland Baltimore, start looking at listings. Baltimore comes out on top, with a $571 difference between the $1,475 median county rental price and a $904 mortgage payment (including property taxes and insurance) if one were to purchase a home at the median list price of $149,900. Given the high rental rates and relatively low home prices, buying in Baltimore could make sense if you have the capital for a down payment.
Closer to home, Hampshire County, home to the University of Massachusetts Amherst and four well-known private institutions, is number 73 on the list. Based on the median list price of a home in that county, $332,725, it would cost $606 more per month to buy than it would to rent. According to Zillow, Hampshire County home values have gone up 0.6 percent over the past year, and the website predicts a rise of 1.3 percent within the next year. If you think the prices will continue to increase, and you don’t plan to flip it quickly, buying could still be a viable option.
“These rankings focus solely on monthly cash flow,’’ Hale said. “Remember, in hot markets, prices increase significantly year after year. The longer you hold a property, the more price appreciation you are likely to experience, which helps your return as an investor.’’
Some parents are getting in early, perhaps for just that reason. Bray met a local couple at a Back Bay open house last year who said they were looking for an investment property that their daughter could live in later, when she goes to MIT. She was 7.
Ed Greable of Keller Williams Realty in Cambridge sees the same thing across the river. “A lot of people buy properties around Harvard and MIT thinking their kids will go there five or six years from now, renting it out in the meantime,’’ Greable said. Many are foreign nationals who offer $50,000 or $100,000 in cash over the asking price, he said.
Last month, the home improvement site Houzz polled its users to learn whether they had purchased real estate in the town or city where their child attended college. About 1,050responded, with more than half answering yes.
Parents purchased condos and houses for their kids to live in with roommates all over the country, including Tuscaloosa, Ala; Dayton, Ohio; Corvallis, Ore.; Oxford, Miss.; East Stroudsburg, Pa.; Charleston, S.C.; and Austin, Texas.
Some went on to invest in additional properties in college neighborhoods. Others would not repeat the experience, despite the financial gain or other perks, like having a place to stay on big football game weekends.
One user, who bought an affordable place in decent condition close to the University of New Mexico campus in Albuquerque commented, “Made a small profit, but I’m not sure it was worth the effort for the kids’ sanity or for my time.’’ She goes on to list the headaches, including the fridge dying the night before finals, the washer overflowing, receiving notices from the city that the yard was overgrown, and trying to tell her kids what to do over FaceTime.
Anther Houzz user might have the right idea. His comment: “I’ve just decided I’m buying our child a used RV for college housing.’’
Hard to get more practical than that.
Marni Elyse Katz blogs about design at StyleCarrot.com. Send comments to [email protected]. Subscribe to our free real estate newsletter — our weekly digest on buying, selling, and design — at pages.email.bostonglobe.com/AddressSignUp.
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