Ask the Experts

The Money Pit

Is purchasing an off campus house a good 4-year investment?

Buying a house is usually one of the largest purchases you ever make. Conversely, spending thousands of dollars on rental housing during college is good money lost. There are pros and cons for both renting and buying, so we will look at the big picture.

Student housing is not cheap, with the current cost of living on campus for a year between $9,000 and $11,500. Off-campus accommodation can cost even more, adding to your expenses and student debt. Many parents and students question whether paying a landlord or college is sensible finance.

An alternative to spending around $40,000 for student housing is to buy a property and sell it after you graduate. According to reports, the median price of an existing home in the U.S. is around $190,000. Naturally, this will vary depending on city and type of property, with houses near universities often more expensive. Still, it may make financial sense to buy a house and sell it for a potential profit after 4-5 years.

Realtors claim that this short period is not enough time to make a profit after subtracting purchase costs. Breaking even still saves the $40,000 otherwise spent on rent. Buying an off-campus house is not a long-term investment, but it can save money and may even turn into a small profit.

The likelihood of turning a profit is influenced by the location of house and the competitive rates for other student rentals. In some states, off-campus student housing can cost as much as $4,000 per month. Real estate professionals suggest purchasing lower-end properties in the sub $200K price range. These would sell quickly later and tie up less capital.

Owning a house comes with its own set of expenses which include mortgage payments, insurance, maintenance and repairs. You also have furnishings, cleaning and utility bills which would have been included in a campus rental. Furthermore, students partying in your house where alcohol or drugs are present can easily result in an injury where the homeowner is liable.

You can rent rooms to other students to cover some of your costs. There are potential student and local tenants all around campus, but you have to ensure that these are responsible young people.

There are hidden costs from a decision to settle into off-campus housing. First, you have given up any thought of transferring to another school after a year or two. Statistics shows nearly 40 percent of students make a transfer during their college years. When you are moving from another state, costs are greatly increased. Also, selling property owned in another state requires declaring the profit there.

Buying and managing your own property will give a student experience for later in life. However, your primary focus is college, so you must decide if you want to handle the extra workload. Purchasing an off-campus house is probably not a lucrative investment over four years. It should offer savings on rent with a possibility for a small profit if the market is favorable.

I never buy a house thinking that I’m going to sell it… Ellen DeGeneres

John Regan is a former Director of Sales for equity research.