Is Investing In Property for College Still A Good Idea?

Many families have found in the past that buying a house or condo that they could afford near a college was a good idea because it was an investment, and for the student it meant additional freedom and an opportunity to create a credit history that a college could not provide. This has been a very popular strategy especially for students attending public schools out of state because in many cases, it allowed families to pay in-state rather than out-of-state tuition, a savings annually of around $15,000.

Real estate is currently in a slump. Attitudes about mortgages are changing. Are students being given too much responsibility? The following four questions addresses these concerns to help determine if investing in a condo or house for college is a good idea for your family.

Question #1 ARE YOU FINANCIALLY SECURE?

To become financially secure is to own your home so that you can provide security for your family. It is now possible for many families to pay off their 30 year mortgage in 8 to 12 years using the Money Merge Account system. With a house free and clear it frees up those funds paid monthly for the mortgage and with the availability of a Home Equity Line of Credit provides insurance in case of unemployment, job transferring and short term ill health. Other options are unlimited. You can build your retirement fund, make investments, buy additional property, fund college, a new car and home improvements.

Before MMA it was nearly impossible to pay off a 30 years mortgage early so families would refinance when they needed a large sum of money. This was a very popular strategy especially when refinancing to a lower interest interest rate and consolidating other debts. There were some drawbacks to this approach the biggest being that for a $300,000 loan you would pay back a total of $647,515 over 30 years. Another disadvantage was the fact that the amount the family could refinance was limited by their ability to pay. To obtain an additional $100,000 for their $200,000 mortgage at the same interest rate would cost an additional $599.55 a month.

Question #2 WHAT IS TOO MUCH FREEDOM?

Your college student may have all the good intentions to keep the house neat and clean. Peer pressure sets in and all of a sudden there are meetings, gatherings and then parties being held at the house. Serious property damage becomes a real possibility. A few years ago families living near a college in Kalamazoo, Michigan could not literally give their property away because of the damage caused by students living in the area.

Question #3 CAN YOU MAKE A PROFIT IN FIVE YEARS?

If this question was asked a few years ago the answer would have been a resounding yes in most areas of the country without hesitation. But ask the families that just sold short term living around the University of California Irvine campus. According to The Orange County Register they lost 13.7% and the loss was about 17% in the Cal State Fullerton area.

If you bought a condo with a $200,000 30 year 6% mortgage your payments would be $1199. a month. After five years you would have paid $71,946. P&I and have $13,891 of equity in the property. Factor in the cost of buying and selling property and it would seem almost impossible to make a profit unless the property appreciates substantially.

Question #4 WHAT HAPPENS IF THE WRONG COLLEGE IS CHOSEN?

This would be a nightmare. All you can do is hope. You would have three choices.
1) Hope you can sell the property immediately and keep the losses to a minimum.
2) Keep the property and rent it to other students hoping they will care for the property.
3) Have your student stay and make the best of a difficult situation and hope for success.