If you have a college-bound student you’ve probably run a lot of numbers on what it will cost. You’ve factored for tuition, learning materials, computers, and room and board, plus extra spending money. The estimated cost for an in-state student to attend the University of Colorado Boulder is $30,0000 with half going toward education and half funneled to living expenses. That’s a big expense on both sides. Have you considered buying property for your student’s housing versus paying “rent” for dorm life? Financially an investment property may make sense to build equity, potentially gain a tax deduction, and have your student’s roommates pay a portion of the mortgage. Let’s crunch some hypothetical numbers.
Let’s lay out a scenario using “attached dwelling” statistics. These IRES MLS stats relate to townhomes, paired homes, and condos. For our purpose I’ll refer to our property as a condo. To start, is there anything available in this tight housing market? Happily, Boulder’s inventory has risen in 2018’s first quarter over the same periods of 2016 and 2017. What’s this going to cost? The median attached dwelling price three years ago was $338K. This year the median is $420K, a 24% increase.
For our example we’ll use an even $400K purchase price on a three bedroom condo. With 20% down ($80K) on a 30-year term at 4.75% interest, the remaining amount of $320K will be have a $1670 monthly mortgage bill. Use my mortgage calculator to estimate other financial options and outcomes. Now let’s say that the other two bedrooms are rented out and split the mortgage between the two.
Sound unfair? In 2017, the average one-bedroom rental price in Boulder was $1600, so paying rent at $900 sounds like a decent deal. Additionally, it’s right in line with CU dorm room costs. By not paying – or not paying much – of the mortgage you saved half of the expected cost of each year at CU. Multiply that by four years you saved about $60K in lodging. If you have multiple kids going to CU at staggered time frames, paying down the mortgage while equity increases just keeps on going. Depending on your situation, you could rent to non-family members after the kids graduate and keep investing more years toward home equity without paying monthly mortgage payments.
If we look at past history as an indicator for the future, the $400K condo you bought could be worth $500,000 in four years if appreciation continues at its current rate. Do we have a crystal ball that ensures increasing property value? Of course not. Looking back historically, the overall market in this area appreciates for a 4-5 year run, then levels out in a “correction,” then enjoys another 4-5 years of growth. During the recession home values were flatter longer than normal and consequently we currently have a longer run of increased valuation. Given that, we may – and I repeat may – have a normal adjustment of leveling out soon with a more balanced home value increase in the future. Yet, Boulder County real estate has proven to be a solid investment even at a slower valuation rate.
Boulder’s rising real estate costs shouldn’t deter you from believing in real estate as a sound investment. It’s impossible to know what the future of the market will bring, but historical markers indicate that Boulder is not in a real estate bubble that’s going to burst.
College is expensive, and this is one way to hold down costs and potentially have a good return on your real estate investment. Contact me as soon as the letter of college acceptance comes in the mail and I’ll begin a search for your new investment. This way you also have a HQ for CU Buff tailgating!
