Buy vs Rent

Why buying makes sense

First, I will say that buying is not always an option.  My parents struggled to pay the bills each month so a down payment and a second mortgage were not even a consideration.  However, for those parents with financial flexibility, buying a property for your son or daughter makes a lot more sense than renting a dorm or apartment.

According to College Board statistics, average room and board at a four-year private school is close to $12,000 per year. That’s roughly $48,000 to put a roof over your child’s head. What’s your financial return from this “investment”?  Nada. Zip. Zero.

For this analysis, let’s take a figure of $100,000 to use as a 25% down payment on a $350,000 property.

Annual Mortgage = $22,000

Annual Prop Tax = $9,000

Insurance = $1,000

TOTAL INVESTMENT = $32,000 per year

Next, let’s assume that your son or daughter has two roommates and each of them pays rent of $1,000 per month (this is often cheaper than it would typically cost for them to live in a dorm or apartment) or $24,000 per year. This means your out of pocket housing costs would be about $8,000 PER YEAR!

Compare this with spending anywhere from $1,000 – $1,500 per month for your son or daughter to live in a dorm/apartment and the savings become clear. Let’s assume you pay $1,200 per month for 12 months ($14,400 per year) in housing costs by renting or living in a dorm versus $8,000 per year buying a property.

That equals $6,400 per year in savings and $12,800 over two years for rent savings alone. Add in a conservative 5% annual appreciation and the property value has increased $41,000 (plus a couple thousand in additional paid-down equity). Factoring in closing costs, your total return over 2 years could be somewhere in the range of $50,000.

Investment: $24,000+
Return: $0
Investment: $100,000
Return: $50,000 (after $100K investment)

It doesn’t make sense financially for every parent but there is a compelling case to be made for purchasing a property for your son and daughter while they attend college.  Contact Us today for a more detailed analysis in your market.

Note: These figures are for illustrative purposes and will vary depending on market factors.