Turn a condo into cheap college housing
Here's a money-saving idea for any parent with kids in college: Stop paying for a dorm or rental apartment and buy them a condo or house to live in.
It won't work for every family and every school, but it's something everyone should consider.
Room and board at public four-year schools averaged an estimated $8,540 in 2010-11, according to the College Board.
With home prices down almost everywhere, you might be able to find a great deal that saves you money now and allows you to cash in on the appreciation in a few years, after the real estate market turns around and your child graduates.
Here are eight questions that can help you decide if buying a second home for your college student makes sense.
Question 1. Is your kid mature enough to care for a second home?
You've got to be able to trust your son or daughter. If they're going to trash it, you don't want to own it.
Question 2. Is housing affordable where they go to school?
Buying won't make sense in a high-cost city such as San Francisco -- where median home prices can top $600,000.
But what if your kid attends classes in the Oklahoma City area, where the median home price is closer to $100,000?
If you put 20% down on a 30-year, fixed-rate $125,000 mortgage, the monthly payment would be about $700 in a town where rent for a two-bedroom apartment can cost more than $1,000 per month, according to Rent.com.
Question 3. Is the local housing market crashing?
Think twice before buying in one of the states that have suffered the most from the mortgage crisis -- Florida, California, Arizona, Nevada, Michigan and Ohio.
An astounding number of foreclosures, double-digit declines in property values and way too many homes for sale will hurt those real estate markets for years to come.
Question 4. Will you send more than one kid to the same school?
Maybe you're a devoted alum. Or perhaps you've been investing in a 529 savings plan that guarantees your child's tuition will be fully covered at in-state colleges and universities.
Whatever the reason, buying a second home makes even more sense if you can use it for two or three kids and keep it for eight or nine years.
Question 5. Do you have enough cash for a down payment?
Lenders consider second homes to be riskier investments than primary residences. To swing a mortgage, don't be surprised if you need enough cash to cover 20% to 40% of the purchase price.
Question 6. Can you take advantage of the tax breaks?
Second homes qualify for many, if not all, of the tax deductions available on a primary residence. If you can put those deductions to full use, that's a big financial advantage to buying.
You're allowed to deduct the mortgage interest on two separate homes for up to a combined total of $1 million in mortgage debt. So, if you owe $500,000 on one and $500,000 on the other, you can write off all the interest payments.
If you owe $600,000 on both, you can still write off the interest on the first $1 million, but not on the remaining $200,000. If you happen to own three homes, you can write off the debt on only two of them, but you do get to choose which two.
You also get to write off your property taxes in the same way as you can for your primary residence.
Question 7. Can you find a great condo?
There's no rule against buying a single-family home. But do you want to be dealing with leaky roofs and faulty plumbing from hundreds of miles away? Can you count on your kids to mow the lawn and shovel the snow?
For most parents, those are headaches you can live without.
You need a condo where all of those repairs and routine maintenance are taken care of for you.
Look for a building or townhouse development that's in excellent condition and where most of the units are owner-occupied.
Question 8. Are you ready to be a landlord?
If you buy a two- or three-bedroom home, you can cover much of your mortgage by renting one or two of those rooms to other college students -- preferably students you know through your children or friends.
If you'll have two kids attending the same school but there's a substantial age difference between them, you might have to rent the entire home to other students for a couple of years.
Just make sure you're aware of the additional costs and hassles before making that a part of your plan.
You'll almost certainly need an accountant or tax adviser, just to help you cope with all the financial issues.
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