Parents buying houses to rent to collegians

Investment: Low mortgage rates have induced many parents to buy second homes near campus to rent to young collegians.

April 25, 2004|By Daniel Taylor | Daniel Taylor,SUN STAFF

When Towson University sophomore Becca Gaylor had the opportunity to move out of her cramped dorm room to a townhouse with three bedrooms, she jumped at the chance.

"We had three people [in the dorm room] sharing a bunk bed and a single bed, along with three desks," said Gaylor, 20. "It was very, very tight."

Gaylor's parents bought a townhouse last year near campus to rent to their daughter and two friends. Gaylor and her two roommates - Kirby Brooks, 19, and Leah Balerno, 20 - expect to share the house at least until they graduate from college.

More parents are choosing to invest in their student's college housing by purchasing real estate, thanks to 45-year low mortgage interest rates. With new mortgage products offering adjustable-rate loans and parents who have refinanced their existing homes, these second houses have become affordable for some buyers weighing the costs of room and board.

Several university officials said they have seen more parents investing in off-campus housing during recent years for their children. Many experts predict the trend will continue.

"There is much more interest of students living in houses [that parents own]," said Carol Williamson, vice president of student affairs at Salisbury University. Many parents are looking at the investment from a financial and personal standpoint. Instead of spending their money for renting dorm space or an off-campus apartment, more parents are taking advantage of low interest rates to build equity while capitalizing on the growing value of their existing home to help pay for the second one. They also have a place for their children to live for several years.

"Depending on how the market is, it tends to be a good investment," said Chuck Bailey, a sales associate at Long & Foster Real Estate Inc. in College Park. "If the child is here all four years, and has two or three roommates that will pay the mortgage, the parents can sell after the kid graduates and do quite well."

But parents should make sure their son or daughter will be there long enough to build up equity, Bailey said.

"If the kid's only going to be there for a year, it's just going to be a lot of extra irritation," he said.

Experts said parents should weigh the investment carefully, noting that rising prices have made the practice more expensive in recent years.

Some also point out that becoming a landlord adds responsibilities and that many local governments have zoning restrictions limiting the number of people who can rent a residential dwelling.

"Parents need to make sure the house is as well taken care of as if they were living in it, which isn't always easy with students," said Carol Bliss, office manager at Coldwell Banker Roland Park-Stone Mill.

"That way, when they get ready to sell it, they may have repairs to do but they still have probably saved a lot of money, so it's worth the time and money to do it."

There are other things to take into consideration, such as proximity and ease of transportation. Internal Revenue Service officials said the homeowner is eligible for a tax break if the rental income from the house does not exceed the expenses needed to pay for and maintain it.

Students living in residential neighborhoods also can raise concerns among neighbors about things such as noise and traffic. Towson University officials said they have received complaints about students in off-campus housing disturbing neighbors and have worked to address the concerns. Most schools have liaisons who work with neighborhood groups to address problems such as parking and noise.

Dan Early, an office manager of Long & Foster in College Park, estimates that 18 percent to 20 percent of parents who are sending their children to the University of Maryland consider buying a house as an option. He said about a quarter of those usually follow through with a purchase.

Nationally, the average student pays $5,942 for room and board at a public university and $7,144 at a private school, according to CollegeBoard.org, a nonprofit group that helps students prepare for college.

Christopher and Christine Gaylor paid $137,000 for the townhouse within walking distance of Towson University. The three students split a $900 monthly mortgage payment. They paid about $1,500 a month on campus, not including boarding costs.

"It's not like renting a house," Christine Gaylor said. "It's yours, so if something breaks, it's not like you can just call the repairman at the dorm."

The Gaylors live in Sykesville. They stop by a few times a month to mow the lawn and help with maintenance. Becca Gaylor said neighbors complained to her parents about some parties at first, so she has since "toned it down."

Another issue is involvement in campus life. And as much as Becca Gaylor likes living in a townhouse, she said there is still something to be said for dorm life. "You don't have to drive anywhere," she said.

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