Buy condo for student? Consider pros, cons

BOULDER — Although it’s not uncommon for parents to have an investment strategy to pay for their children’s college education, some think even further ahead and plan to help their children get into their first home.

Some parents purchase a second home for their children to live in during college or to use as a rental property until their children are old enough to move into it. This idea has its advantages and disadvantages, according to financial planners and Realtors.

Steve Arrington, a licensed Realtor with RE/MAX, said he feels purchasing a home is a good way for parents to save for their children’s future.

“I think it’d be a smashing idea,” he said.

Parents who purchase homes as an investment need to be able to handle managing a rental property and have enough time to allow the value of the home to appreciate, Arrington said.

“It’d be a good five-year plan,” he said, adding parents either could sell the home for profit or give their children the opportunity to purchase it later.

Mark Butler, a financial adviser with Butler Financial Services, said a downside to parents purchasing a home for their children is the children may not want to live there.

“If the kids suddenly move to California, then you have a house,” he said.

Also, he said, because the housing market has such a large cycle, parents may get caught in a down market. “For example, between 1980 and 1992 it was not a great market and then suddenly there was a boom,” he said.

Butler has a neighbor who purchased a house for her daughter in Colorado, and her daughter ended up not living in Colorado, he said. “It was a headache for her,” he said. “You have to make sure it works for you.”

There are other means besides investing in real estate to help one’s children purchase a home, Butler said.

These include investing in a Roth IRA, mutual funds and blue chip stocks, he said. Parents should be careful not to purchase high-risk stocks, Butler said, especially if they have a short time frame to plan for their children’s futures.

Elyse D. Foster a certified financial planner, also said it is important for parents to have sufficient time if they consider investing in a house.

“We like real estate, but real estate takes time,” she said.

Some parents choose to purchase a condominium for their children to live in during college instead of having them live in dorms or rent an apartment, she said.

“There is a convenience and stability factor,” she said. “The kids have a nice place to live and are not out on the street looking for a place every year.”

After the child graduates from college, the parents can then either give him or her the condominium or use the profit from it to help their child start their own business or purchase another home, Foster added.

Although she feels buying children a condo while they are in college is a good idea, Foster said, she would not recommend purchasing real estate to pay for college unless the parents start when their child is a baby.

Marcia and Tommy Davenport, a couple from Colorado Springs, purchased a condominium in Boulder for their children while they attended the University of Colorado.

The Davenports have three daughters and one son. A couple of years ago, their oldest daughter, Chrissy, who was a senior, lived in a sorority house at CU, said Marcia Davenport. At that time, their middle daughter, Mary Beth, then a sophomore at CU, started looking for a place to rent, Davenport said, and she was surprised by how high the rent was.

“I was shocked at the cost,” she said. “I weighed the cost of mortgage vs. rent. Rent is just money out the window.”

After looking around Boulder, the Davenports purchased a condo right across the street from campus, she said.

“We ended up with an end unit with a private balcony,” she said. “The location is just wonderful.”

Another bonus, Davenport added, is the condo is not on the hill, where rent is very expensive. “We looked at one house and thought, ?It’s $1,200 for this dump?'” she said.

Having the condo removes the hassle of her kids having to look for a new place to live every year, Davenport said. Another advantage of the condo, she said, is she and her husband enjoy coming to Boulder.

“We do the Bolder Boulder every year and have a place to spend the night,” she said.

Mary Beth and Chrissy shared the condo for one semester during Chrissy’s last semester of college, Davenport said. Mary Beth, now a senior, lives there with one of her friends, who is renting it for a reasonable rate.

“We’ve always rented it for less than most kids pay,” Davenport said. “They have been my daughter’s friends, and we don’t mind giving them a break.”

As for the Davenport’s other children, their son is at Regis University and may transfer to CU. If he does, he likely will live in the condo, Davenport said. Their youngest daughter is thinking of going to college in Chicago, she added.

Davenport and her husband have no intention of selling the condo any time soon, she said. They may keep it and rent it out to college students or, if any of their kids decide to live in Boulder after college, they may sell it to them or rent it to them, she said.

“My oldest daughter is getting married,” Davenport said. “I may rent it to them at a reasonable price.”

The condo has been a good investment., Davenport said. “It has already appreciated quite a bit,” she said. “That makes you feel good.”

Mary Beth Davenport said she has enjoyed living in the condo. “Its perfect,” she said. “It’s really close to campus.”

Davenport enjoys the feeling of independence the condo gives her, she said, and she enjoys not having to move around and renew leases every year. Also, she said, it is easy for her to find a roommate because her Mom charges a reasonable rent.

Although Davenport plans to leave Boulder for awhile after graduation, she may return one day and if she does, she would consider living in the condo, she said. “My parents will hold onto it,” she said.

Arnold Turner, vice president of Turner Realty in Longmont, said he feels homes are a good investment.

“It’s been my feeling for the last five years the best thing to buy in Boulder County is single family homes,” he said.

Turner has seen farmers sell their land to Boulder County as a conservation easement and then turn around and invest the profits in homes for their children, he said.

One farmer, for example, sold his land for $1 million. He had four kids and avoided taxes by purchasing residential properties and using them as income by renting them to his children.

“They bought houses,” he said. “They can lease or sell them to their children or gift them to them at $10,000 a year, which is what the government allows them to gift.”

Even if the real estate market goes into a slump, Turner said, people who have purchased single-family homes usually can ride it out. “Single-family homes are generally the first thing to go into a slump and the first thing to come out of a slump,” he said.

Also, Turner said, Boulder County homeowners usually do not have trouble renting a home.

Buildings like warehouses, shopping centers and apartment complexes are a much riskier investment than single family homes, he added.

Turner has found a different form of real estate that he says makes a good investment: post offices. “Ten years ago I bought a U.S. Post Office,” he said. “I leased it to the federal government.”

All post offices are privately owned, Turner explained, and the owner gets an eight to nine percent return and the taxes and insurance are paid by the U.S. Postal Service. “A lot of people like it because they just get a check every month and no one calls them and tells them the toilet’s stopped up,” he said.

There are brokers that deal exclusively in post offices, Turner added.

“It’s an odd little niche I’ve found,” he said.

on Facebook on LinkedIn