The number $22,958 represents the average cost of tuition and fees in 2014-15 for out-of-state students attending a public university, according to the College Board.
On top of that, room and board is estimated to cost $9,804 per year, bringing the grand total to $32,762 per year to attend a public, out-of-state university. These figures explain why many students will rely on their parents for financial assistance with their academic careers.
In many instances, parents will not only help finance a student’s tuition, but also their rent. In 2012, the National Apartment Association surveyed 3,605 parents with children attending college or university and found that 56% of respondents paid for 100% of their students rent. Only 13% reported that their children paid for rent entirely by themselves.
This is likely why some parents contemplate the option of purchasing student housing, instead of paying rent to landlords. But is it a smart financial move for parents to purchase student housing for their children?
The answer isn’t exactly a definitive “yes” or “no” and several considerations come into play. There is a calculated risk involved with making a financial commitment and investing in student housing. Too often, parents make their decision by only looking at the “potential” amount of money they could save, but fail to take into account other important factors.
Here are several factors that need to be assessed before making the decision to invest in student housing for your children.
In certain instances, inexperienced student housing landlords can overshoot the profitability by wrongfully assuming things like 100% occupancy. For example, a first-time student housing landlord with a 4 bedroom house may look at the equation like this:
4 rooms X $500/room X 12 months = $24,000 / year
These numbers sound great but they are applying a flawed logic, assuming that there will always be 100% occupancy. If we took just one tenant away from that equation it would amount to a loss of $6,000 annually.
2. Market Research:
One of the most important considerations that inexperienced landlords fail to perform is research of the given rental market. According to the Canadian Real Estate Wealth, the top five considerations on deciding whether to invest in student housing for a city are financials, city regulations, demand, location and property type. Other considerations to think about are the market’s supply of student housing, the availability of on-campus housing and the enrolment growth rate.
3. Landlord Responsibilities:
Being a landlord of student housing comes with a great deal of responsibilities and considerations. Most parents who purchase student housing treat it as a joint venture with their children, where the parents finance it and the children help with the landlord duties on-site. The problem is that a relatively young adult with no previous landlord experience may not be up for the task of being a landlord. Parents who do make this investment are encouraged to be actively involved in the day-to-day landlord responsibilities.
In many cases, parents who purchase student housing are entirely green to owning and managing a rental property; they may not fully comprehend the tax implications. It’s recommended that parents investigate how owning an income property will affect their personal taxes.
5. Understanding the Student Housing Market:
Chances are parents haven’t lived in student housing for over two decades, so they might be a bit out-of-touch when it comes to understanding the needs of the modern student renter. Many questions will arise, such as:
· Rent by-the-unit or rent by-the-room?
· All-inclusive utilities or non-inclusive?
· 8 month lease or 12 month lease?
· Furnished or unfurnished?
Parents are advised to set up a game plan and do some research, before putting a property up for rent.
6. After Graduation:
Long-term planning is important. Typically, most college or university programs will last between 3-4 years – so what happens after graduation? Will the child continue to live in the property and act as the landlord? Or will the parents be left to handle everything from a distance? Will the parents sell the property? Or continue renting it for years to come in order to maximize on the investment? There are a lot of things to consider a head of time and plan for.
In summary, purchasing student housing for your child can certainly be a profitable venture, but it’s one that comes with many responsibilities and considerations.
SEE ALSO: Is Your City A Good Place To Invest In Student Housing?
The Places4Students.com Team