Is buying real estate in your kid’s college town a smart investment?

It’s no secret that the cost of higher education is sky-high. The average cost of college in the U.S. has more than doubled in the 21st century, according to a 2024 study by the Education Data Initiative. And the expenses associated with housing make up a significant portion of the price tag: Room and board at a four-year institution now averages $12,917 a year, the study reports.

With prices that steep, it’s natural to wonder about more cost-effective housing options. Buying a house or apartment near your child’s school may be a better investment than footing the bill for four years of dorms and dining halls. In addition, you’ll build equity through homeownership, and real estate can provide a source of rental income over the long term. But it’s also important to be aware of the work and challenges that may be involved. For parents who can afford to, is it a smarter financial move to buy a property near campus for their child to live in?

Tuition is expensive, but so is room and board

Dorm life can have benefits, including bonding with other students and being conveniently close to classes and campus amenities. But the cost is considerable: Between 1963 and 2021, the cost of college room and board increased dramatically, nearly doubling from $6,764 to $12,595, according to a study by BestColleges.com. The cost increased by 44 percent just between 2000 and 2021.

In addition to the price tag, dorms may have other drawbacks, such as a lack of privacy and constant noise and distractions. They also typically have fairly restrictive policies: Residents often cannot cook for themselves, for example, and in some cases are not allowed to keep a car.

For the price of room and board in many places around the country, it may be possible to buy a home instead. It’s an option that may be far more valuable over the long run, allowing for accumulation of equity and potentially a tidy profit on resale. There’s also potential to make money by renting out extra bedrooms to other students, or to keep it as an investment property even after your child has graduated.

“Having roommates that pay rent to offset the mortgage can basically allow your child to live rent-free,” says Mason Whitehead, branch manager with Churchill Mortgage in Dallas, who has had several clients purchase property in their children’s college towns. “In many cases, it can even provide additional cash flow beyond that to offset other expenses,” he says.

In addition to financial benefits, there’s also a measure of satisfaction that comes with homeownership. Despite today’s tough housing market, Bankrate’s Home Affordability Report found that 69 percent of U.S. homeowners, if they had to do it over again, would still buy their current home.

Note: Percentages are among U.S. homeowners.
Source: Bankrate survey, April 15-17, 2024

Buying property in a college town for your child to live in

Having your child live in a home you own during college can offer parents peace of mind, knowing they have a secure place to call home for as long as they need it.

In Syracuse, New York, home to Syracuse University, eXp Realty agent McKenzie Kelly helps a few clients each year purchase a home for children who are attending the university. Often, she says, these families only hold on to the home for four years and don’t necessarily view the purchase as a source of income or profit. For them, it’s simply a better housing option than a dorm or a rental.

“A lot of parents aren’t interested in making money off it,” says Kelly. “The parents that do this would rather lose $2,000 or $10,000 on a house they own than rent something for their child and lose money on renting. This way, they know that their child is in a home, and they’re not worrying about dorms or apartment buildings or safety concerns.”

In addition, says Kelly, these buyers like knowing that the house will be easy to resell when the time comes, because there’s always a new wave of students moving into town.

But, of course, these parents are also signing on for all the costs and responsibilities that come with homeownership. Here are some of the pros and cons of buying a home for your child to live in during college.

Buying in a college town as an investment

Even if you don’t have a child attending the school, owning a home in a college town can be a valuable investment over time. “The odds of success are more in your favor over the long-term, as potential price appreciation and a growing stream of rental income can offset expenses and the significant transaction costs,” says Greg McBride, Bankrate’s chief financial analyst.

Drawbacks of buying real estate in a college town

Owning a property in a college town may not be entirely smooth sailing. “As attractive as the prospect of renting out additional rooms and generating income to offset the cost of your own kid’s college may appear, it is no slam dunk over the short-term,” says McBride. “There are significant transaction costs from buying and then turning around and selling just a few years later, plus ongoing maintenance, repairs and carrying costs such as property taxes and insurance.”

It’s important to be sure you’ve accounted for all of these expenses and still have a high degree of confidence that the purchase will be profitable, if profit is what you’re after.

There are also factors unique to owning a rental property in a college town that are important to consider. Everything from vetting prospective renters to maintenance and upkeep are likely to be more time consuming. The tenant demand will also be seasonal, aligned with the school year, potentially leaving you without tenants during the summer.

In addition, says Whitehead, the financial success of your rental may be linked to the fortunes of the university. “If it’s not a major school and you’re depending on students for tenants, then your property cash flow and financial success is tied to the success and enrollment of the school,” he says. “Also, some smaller colleges require on-campus living for the first year or two, in which case your tenant pool is smaller.”

Bottom line

Like many of the other expenses associated with attending college, the cost of room and board has skyrocketed over the past few decades. Faced with such expenses, some families are opting to purchase a home in their child’s college town to provide housing rather than foot the bill for a dorm. This can be a smart move, but be sure to crunch the numbers and make sure you’re prepared for all of the expenses and work that are likely to come along with owning a home in a college town. And if you’re ready to start looking, seek out an experienced real estate agent in the area who knows the ins and outs of the town.

BestColleges.com is owned by Bankrate’s parent company, Red Ventures.