Using Housing to Pay for College


The Numbers

The cost of getting a college education is not only tuition but also room/board, books, furniture, school supplies, etc. As students start to accept invitations to enroll at a university towards the end of summer, parents should start preparing for the payment plan for what schooling will cost. At a school like the University of Washington (UW), attending can cost $26,000 per year for in-state, and $50,000 out-of-state. That is $104,000 for an in-state four-year degree. A portion of that cost is living in a campus dorm which can cost upwards of $12,000 per year.

With those numbers in mind, parents may want to seriously consider purchasing an investment property instead of having their child live on campus. First, as a place for their child to live, and second, as an investment over the course of the 4+ years their child will be attending school. Considering the cost of tuition and on campus living, by making a smart investment parents could not only pay for housing but also pay off their child’s student loans and debts after the course of the 4-year period.

Let’s take UW for example. The average sales price of a one bedroom/one bath condo over the course of the last 12 months in and around the University District has been $360,785*. With 20% down, homeowner’s dues of roughly $350, current interest rates of 4%, and annual taxes at $2,500, your total payment would be $2,000 a month or $24,000 a year.

Appreciation and Cashing Out

Since 2007 the average appreciation year-over-year for one bedroom/one bath condo units has been 5.4%*. If the trend continues at 5.4% year-over-year, assuming you bought a unit for $360,785 this year, the home would appreciate to roughly $445,000 by 2021. After four years, you will have paid down the mortgage to roughly $267,000. If you list and sell the home at $445,000, after commissions, title fees, escrow fees, and taxes, you would net roughly $141,000.

As mentioned at the beginning of this blog, a four-year college degree would cost $104,000. You would not only be able to pay off your student’s school debt completely, but walk away with $37,000. Maybe buy a new car or go on a family trip or maybe another investment property!?

An additional option would to have your student share the space with a friend and collect rent from them. If you rented the space to a friend for just $500 a month, you would be looking at $24,000 in rental income over the course of 4 years. Not only would they be getting a steal on rent, you would be adding to your bottom line.

A Real-Life Example

In August 2010, a unit at 2901 NE Blakeley St (#232), just blocks away from the UW campus, was sold for $250,000. In October 2016, it sold for $425,000*. Under the assumption that 20% was the down-payment and interest rates were around 4.5% (August 2010), the seller cashed out around $215,000. More than enough to support a college education and potentially other educational endeavors.

If you have a student that is about to enter college and are interested in doing something like this. I would be happy to sit down and discuss your options. Feel free to shoot me an email at cyrusfiene@cbbain.com or call me at 425.299.7557.

*Numbers found through NWMLS Statistics*

© 2015 by Cyrus Fiene, Coldwell Banker Bain