The House Lawyer

The House Lawyer: Consider buying a home rather than paying dorm rent

Sisters Meghan, center, and Moira, right, Esson move in to their dorm rooms at American University with help from their big sister Kaitlin, left.
Sisters Meghan, center, and Moira, right, Esson move in to their dorm rooms at American University with help from their big sister Kaitlin, left. (Bill O'leary/the Washington Post)
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By Harvey S. Jacobs
Saturday, August 21, 2010

With the cost of an undergraduate education at some private institutions exceeding $200,000, parents should be looking for any way possible to take the sting out of sending a child to college. In addition to tuition, one significant component of total college cost is the room portion of room and board. This is especially true for colleges and universities with notorious housing shortages.

At George Washington University in the District, for example, housing costs for the academic year run $840 a month for one-quarter to one-half of a dorm room. If that money were to be applied to the purchase of a large one-bedroom or small two-bedroom apartment within walking distance (liberally defined) of campus, a parent might be able to locate equivalent shelter while getting tax and financial benefits. By buying a place and taking out a mortgage, non-deductible dorm rents can be converted into tax-deductible mortgage interest payments.

Parents also benefit from tax deductions for real property taxes, depreciation and the costs of repairs and replacements, as well as travel expenses to locate, acquire and periodically inspect the investment property. The parents' tax burden might also be lessened by the capitalization and amortization of capital improvements made to the residence.

A pure financial comparison would have to account for the fact that, with dorms, parents could have to find and pay for other shelter for three or four months of the year if Junior opts not to move home each summer, and perhaps during extended winter and spring breaks, when many dorms are closed. If students can keep their belongings in the investment property year-round, parents stand to save the hassle and expense of hauling all their children's possessions between home and college twice a year.

Of course, when making a decision, parents should factor in the cost of furnishings, vacancies, repairs, wear and tear, replacements and utilities. Transactional cost of buying and eventually selling (including sales commissions, transfer and recordation taxes and lender's fees) must also be counted in total cost of ownership.

Condo units in Foggy Bottom or Georgetown, of course, carry significant monthly maintenance fees. And parents should always confirm before buying a condo that there is no restriction on renting to students.

But condos are not the only option. Single-family homes near the University of Maryland in College Park or row houses near Catholic University of America or Howard University would probably not involve condo fees and association rules.

Parents also stand to benefit if the investment appreciates in price. Although the opposite has occurred in recent years, prices will eventually rise, and well-located properties near campus -- with a never-ending source of new tenants -- will benefit.

Depending on the number of bedrooms in the apartment and the entrepreneurial nature of the student, it might be possible for Junior's roommates to pay all of the costs of principal, interest, taxes, insurance and utilities, allowing Junior to live rent-free for four or more years. During this time, the tenants are helping to pay off the mortgage. Parents might also have peace of mind knowing that their children are, hopefully, not living in squalor and that they can visit their college-age kids under the guise of inspecting their real estate investment.

However, a decision to purchase a dorm-room equivalent involves more than just dollars and cents.

If the student is responsible enough to manage the property, he or she will be learning valuable lessons about advertising, marketing, business management, psychology and, perhaps, even physics and engineering, assuming there are toilets to unclog from time to time.

But there is also the very real possibility that the student will not like his or her first school choice and leave the college -- voluntarily or otherwise -- leaving parents as absentee landlords with a nonliquid property investment full of someone else's kids.

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