More parents choosing to buy homes for college-bound kids

Spring and early summer in college towns around the country are the times when students are scrambling to see where they will live the following school year and how they can avoid spending another year in a dormitory. Let's be honest. Living in an apartment or house off-campus sounds like a lot more fun to a college-age person than having someone looking over their shoulder in a dorm.

But a recent survey among real estate professionals in college towns around the country by Coldwell Banker Real Estate LLC discovered that many parents are taking off-campus living to another level by opting to purchase a home rather than spend money on either rent or dorm fees. Sixty-four percent of the real estate professionals surveyed around the country reported seeing a significant number of “parent investors” buying homes for their kids to live in while attending a university.

After graduation, they then plan to continue to rent the property to other college students; sell it; or move into it themselves, depending upon where the property is.

Since the Coldwell Banker College Home Listing Report only included four-bedroom, two-bath listings between April and September 2010 for markets that are home to the 120 Football Bowl Subdivision schools, the areas around Northwestern University in Evanston and around Northern Illinois University in DeKalb were the only Chicago area communities referenced on the Coldwell Banker report.

DeKalb ranked 61st out of 117 college communities nationally for home affordability, while Evanston came in at 108th out of 117.

Muncie, IN, home to Ball State University, was ranked the most affordable college market in the country while Palo Alto, CA, home to Stanford University, was the most expensive.

“Towns that are home to major universities have a special vibe you just don't find anywhere else,” said Jim Gillespie, chief executive officer, Coldwell Banker Real Estate and alumni of the Illinois Fighting Illini. “It's about more than just great sports and local flavor. College towns offer rich culture and most have steady economic bases oftentimes highlighted by outstanding medical and research facilities.”

While not all college towns are affordable, even the more expensive markets make great places to live, he said.

And while the Coldwell Banker survey found that the success of a college's sports teams can have an impact on the local real estate market, it seems that even smaller colleges and universities without notable sports teams can help the real estate market of their local communities.

Alan Schultz, a Realtor with Coldwell Banker Gold Coast in Chicago, recently sold a three-bedroom condominium in the South Loop to parents with two sons attending Columbia College. The unit is within walking distance of the school and their jobs, making it ideal for them.

“Parents with kids are doing the math and noticing that they can buy something right now and have their child find a roommate and that way it makes sense to buy a place instead of pay rent,” Schultz said. “With the current low prices and high rents, they can see this as an investment opportunity. Some may even choose to move in themselves once the kids graduate. Right now, with all of the foreclosures and short sales, you can get a two or three-bedroom condo in the South Loop for between $250,000 and $300,000.”

On the other hand, you can't find even a studio apartment to rent for less than $900 a month, Schultz said. And on a rental, there isn't even the potential for future appreciation.

The people who are buying are not looking for a frat house situation, either, he said. Usually the students they are buying for are “quieter, serious students.”

Alan May with Coldwell Banker Evanston has sold four or five two-bedroom condominiums to Northwestern University students and parents over the past five years –- mainly to graduate students.

“The parents purchase the condo and the kids get a roommate to cover the cost of utilities and assessments,” he said.

“Most graduate students are more comfortable being off campus and the properties are nicer. In addition, after three or four years of living there, you can probably sell it for a profit,” May said.

Even if you don't sell at a profit, the cost is probably less than the cost of student housing at Northwestern, he added.

Lance Thomas of RE/MAX Suburban in Wheaton has seen the same phenomenon with the properties surrounding Wheaton College.

“Out-of-town parents who have been blessed with the financial wherewithal see that the market is down and decide to buy a property, hold it for three to five years, and sell it when their child graduates,” Thomas said.

He sold a house to the parents of two boys on an athletic team in one case and to the parents of two girls in another situation.

“By pulling in a couple more students and renting to them, money can definitely be saved. If they have a mortgage payment of $2,000 to $2,500 a month and they are renting to four or five kids at $600 per month, those renters are underwriting the cost of the house,” Thomas said.

Out in DeKalb, Dan McClure of Century 21 Elsner Realty sees many sides of the college off-campus housing issue. An investor himself, he rents single rooms to students –- mainly graduate students -– in several houses that having rooming house permits.

But he has also been selling real estate in DeKalb for 34 years and has sold an average of one house close to campus per year to the parents of students.

“When the market it hot, they say, “I can't go wrong. Why pay rent?' and when the market is terrible they think, “How can I afford not to buy?” McClure explained. “Lots of those who buy are contractors or have rented property before, so they don't mind doing the work of being a landlord.”

“We have lost 30 percent of our home values in the last three years, so those buying homes now for their students should see a good return on their investment down the road,” he added.

“It is a good time to invest because the prices are so low. It makes a lot more sense now than it does when the prices are high,” McClure said.

The Coldwell Banker survey also found that college towns have continued to be a hot spot for real estate investing, regardless of the downturn in the economy.

“Our survey suggests two types of investors see value in college towns,” Gillespie said. “Long-term investors take advantage of the steady stream of renters, including students, professors and university officials. ‘Parent investors' buy homes for their child to live in while attending college. Roommates provide rental income for the mortgage, and the hope is that students care for the home and it appreciates over time.”

Jane Buckley, a new Realtor with Ryan Hill Realty in Naperville, is also a real estate investor. She currently owns three properties around the North Central College campus in Naperville, with a total of four separate units.

“I have been investing in real estate for about a year now. I was just waiting for the right time to come along and it did,” Buckley explained. “This is investor heaven right now for anyone who can see it.”

“I have done all the calculations and while there is some risk, I see the market going up from here, not down. So this is a great time to invest in rental real estate,” she said. And close to a college campus seems to be the perfect place to take that plunge.

<b>Affordable college towns</b>

How area colleges ranked for affordability in a recent Coldwell Banker survey:

1. Ball State University, Muncie, Ind.

11. Western Michigan University, Kalamazoo, Mich.

24. Central Michigan University, Mt. Pleasant, Mich.

28. University of Notre Dame, South Bend, Ind.

32. Purdue University, Lafayette, Ind.

36. Iowa State University, Ames, Iowa.

61. Northern Illinois University, DeKalb, Ill.

70. University of Illinois, Champaign, Ill.

71. Michigan State University, East Lansing, Mich.

81. University of Iowa, Iowa City, Iowa.

83. University of Michigan, Ann Arbor, Mich.

91. University of Wisconsin, Madison, Wis.

108. Northwestern University, Evanston, Ill.