Brian and Laurie Chubb have three sons, all of whom always wanted to attend Texas A&M University. So in 2015, when the Chubbs' oldest son, Garrett, was a junior and their middle child, Ben, was a freshman at the school, they decided it was time to cut their housing costs.
"We realized it would be smarter to invest in a property instead of paying rent for all those years," said Brian Chubb, who works in pharmaceutical sales and lives in Spring Branch, Texas, with Laurie and their youngest son, Brady.
The Chubbs purchased a four-bedroom house in College Station, Texas, in December 2015, and their two older sons moved in the following school year, along with renters. Brady, 18, has been accepted to Texas A&M for next year, and will move into the house after completing a freshman-year stint in a dorm room.
Affordability favors buyers in the Texas A&M area, according to a study by Pro Teck Valuation Services, a real estate valuation firm. The study estimated that a mortgage on a 1,200-square-foot condo in College Station costs about $6,696 per year, comparing favorably with on-campus housing costs that Pro Teck estimated at $6,221 per year.
If your child attends the University of Washington in Seattle, however, consider those dorm fees a bargain. A mortgage on a typical 1,200-square-foot Seattle condo costs about $27,828 per year — assuming a 20 percent down payment — compared with Pro Teck's estimate of on-campus housing costs of $9,144 per year.
"It's not for everyone or for every market," said Tom O'Grady, chief executive officer of Pro Teck. "But it's worthwhile to look at the option of purchasing."
Average room and board fees at private four-year colleges were $10,304 during the 2016-2017 school year, an increase of 20 percent over the cost 10 years before, according to The College Board. Public colleges offered little in savings — average room and board fees were $9,767 in 2016-2017, up 28 percent in 10 years.
Parents who become landlords get to deduct for mortgage interest, property taxes, insurance, utilities that they pay and some repairs, said Michael Eisenberg, an accountant and member of the American Institute of CPAs' financial literacy commission.
If parents buy a property just for their child to live in, and don't receive rent, then they typically can't deduct for mortgage interest or property taxes unless the property meets the Internal Revenue Service's requirements for a second home, Eisenberg said. You might meet those requirements if you stay at the home periodically, and eventually plan to move there yourself, he said.
Such parental purchases are common in the Philadelphia area, said Heather Petrone-Shook, president of the Greater Philadelphia Association of Realtors. Typically, parents purchase the property themselves and take on additional renters. In other cases, she said, the child buys the property and the parents supply a loan in lieu of a mortgage.
"Instead of paying ABC bank, they're paying the bank of parental units," Petrone-Shook said.
Parents who buy a property as a gift for a child may need to file a gift tax return, Eisenberg said. A married couple may give a child up to $28,000 in 2017 without filing a gift tax return.
Parents who are likely to sell in four years when their child graduates should focus on selecting a property that will be easy to resell, said Wendy Flynn, a real estate agent in College Station. She advises parents to select a modest property in a convenient location.
"Don't buy the most luxurious property, and don't buy a foreclosure," Flynn said.
The annual influx of new students in a college town provides a steady stream of buyers, Flynn said, so it's typically easy to sell. Most parents break even or turn a modest profit when they sell, after accounting for closing costs and other expenses, she said.
Brian Chubb said he generally breaks even on a month-to-month basis on the family's property, which his sons dubbed "the Bro House." And owning has brought other perks. His older sons enjoyed living together for a year, for example. And although renting to college kids might terrify some property owners, he doesn't worry about his investment getting wrecked.
"They're laid back guys, and they're good students," he said. "They're not throwing keg parties every weekend."