With interest rates still lingering at near-historic lows, it may make sense to refinance your current home to buy an investment property to help house your college student. This could potentially turn an expensive necessity – student housing – into a “kill-two-birds” solution. After all, you’ll likely be footing the bill for rent or room and board already, so it may be in your best interest to buy an investment property where they can live while they finish up their time at school.
Home prices are steadily on the rise across the country, which is a fair indicator that your college student won’t be purchasing a house solo. In order to buy an investment property like this, you might want to consider a refinance with cash out. A loanDepot licensed lending officer can help review your options. Call today for more information.
The cost of student housing
Student housing, particularly in areas with high concentrations of major universities, such as New York, Boston and Northern and Southern California also have extremely high housing costs with limited availability. The College Board reports that the average cost of room and board in 2016–2017 ranged from $10,440 at four-year public schools to $11,890 at private schools. Board includes meal plans, which are usually included with on-campus options. Living in a campus-adjacent apartment can save on “board,” but if the school is in a high-rental area, you can expect to see maximum prices. If you opt to purchase a condo, you can build equity, take care of your child’s housing needs and have most of the expenses offset by renting to other students.
Covering the monthly payments
One of the many benefits of owning a property close to campus is that you won’t have to deal with waiting lists or other red tape involved with getting your child into student housing. Not only will you be able to save money on monthly rent that you’d likely pay anyway, but you can help screen your child’s roommates. By bringing in other tenants, your child will have more of an opportunity to make live-in friends as well as help you establish an income flow that can help cover the bills. Another advantage is that your student will not have to move at the end of every school year or summer, as students do now. They can stay and work during the summer, travel or return to your home without having to move all their personal belongings.
Build wealth by investing equity
If you have equity in your home, you can access that capital for the down payment on the investment property. A home has equity when the market value of the property is higher than the amount you owe. By taking that extra cash out of your home and investing it in another, you can double the equity you are building with minimal monthly expense, while covering most of your child’s living expenses. This is an expense you’d have regardless. Keep in mind, the interest rates and terms will be different, as it won’t be your primary residence but the pros of buying an investment property generally outweigh the cons. This is especially true if you are in a region where the property will be continually leased and the market value will reliably increase, such as areas near major universities.
Be clear with the rules
Part of the college experience is learning to live on one’s own and manage personal responsibilities. Do not hesitate to lay down ground rules and have every tenant sign a lease and/or living agreement. Consult an attorney and study landlord laws in the state where you are purchasing. Hiring a management company to interface with tenants, enforce rules and assist with repairs and rental can help alleviate possible conflict and keep everything on a professional basis. Hopefully, this will abate the potential for family conflicts.
Lasting beyond graduation
Once your child graduates, you have the option of keeping the property as a steady flow of income or selling it to cash out the equity you’ve built. Properties near college or university campuses will almost always be in demand but selling the home in four to five years might not be enough to recoup the costs and still get a decent return. If this is the case, keep the property for a few more years and continue to rent it out each term. Or perhaps there is a second or third child waiting in the wings who is interested in attending the same school. If this is the case, the housing issue will already be solved.
While it might seem like a daunting task to be a landlord, overall it will be a great investment for your child now and for future college students who will need a safe place to live. To speak to a loanDepot licensed lending officer about options for a refinance with cash out, call now.
Published Aug. 28, 2017