Your kids are finally all grown up and heading off to college. If you’re like most parents, you’re getting ready to shell out hundreds if not thousands of dollars every month on dorm fees or apartment rents. If the thought of burning money makes you groan, you might want to consider a less traditional alternative—contacting A and N Mortgage Company in Chicago, and purchasing a property for your college-bound student.
Buy Property for a College Student? Are You Kidding?
Not at all. Although many people grasp the wisdom of buying instead of renting when it comes to their own homes, they refuse to apply the same rule to their college-age students. Yet, the same principles apply in both cases. As long as there is reasonable hope that the value of the property will go up in the next few years, then it makes more sense to buy a condo or small home than it does to throw away money on overpriced dorms or apartments.
That’s particularly true if your son or daughter is like most students, who spend an average of four to six years pursuing their higher education. After all, many homeowners stay in one place for about the same length of time. There’s no reason the laws of homeownership and personal finance can’t work equally as well when it comes to your children.
What Are the Concrete Benefits of Buying?
There are three potential benefits to purchasing a condo or house rather than renting a dorm or apartment. They are:
- Tax write-offs
- Rental income
- Value increases
Tax Write-Offs. A loophole in the tax laws might help you recoup some of your investment. Specifically, certain provisions allow you to deduct losses that you may incur from renting out a home to a family member who chooses to make it his or her primary residence. You can even give your kid up to $14,000 per year ($28,000 if you’re married) in rent (which they pay right back to you) without Uncle Sam looking askance.
There are other tax goodies and loopholes that you can take advantage of when buying, renting out, and then selling a property. To compute how much, if any, the money you might save on your taxes, tell your CPA about your plan and get some expert advice.
Rental Income. If you purchase a condo or small house for your not-so-little one, chances are it will be big enough to house more than one person. That means that in addition to renting the property out to your offspring, you or your child might be able to sublet rooms to other people’s children. Depending on the deal you work out, that money could go toward helping your kid pay you back, or it could be over and above the rent your son or daughter pays. Either way, you have more options than you would if you simply rented the normal way.
Value Increases. Of course, the biggest argument in favour of buying is the potential for profit. If you can sell the property for more money than you spent on it, then the decision is a no-brainer. To keep the risk to a minimum, it’s recommended that you purchase a relatively cheap property—less than $200,000 is a good rule of thumb. Anything more, and you might regret ever sending your kid to college.
Is It Worth It?
In order to determine whether buying makes sense, you’ll first need to do some simple math and then practice a little guesstimating. First, research college dorm fees and rental rates for the area surrounding the school. Then calculate the total cost of renting over the course of four or five years.
To compare renting versus buying, find property listings for the area and use A and N Mortgage company’s calculator to work out your monthly mortgage payments. Then estimate the money you stand to make from renting out part of the property (considering whether you choose to bring in additional renters), and then the amount you’ll earn on the final sale of the home. Only then will you be ready to make an informed decision.
In the end, the biggest factor governing your deliberations should be whether or not the home will increase in value. If it doesn’t, then you will probably come out on the losing end no matter what peripheral benefits you may enjoy. If you can sell the house for more than you bought it for, on the other hand, then you can’t lose.
Qualify with A and N Mortgage
If you think purchasing property for your college-bound student may be the way to go, you should call your A and N Mortgage brokers at 773-305-LOAN to find out if you qualify. You can also use our online mortgage application to pre-qualify for a mortgage.