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Ditching the dorm

Even in this market, some parents find it smart to buy homes for their college-age kids.

August 21, 2005|Dianne Klein | Special to The Times

AH, college. That vaunted institution of higher learning and ever-higher expenses, a watershed pit stop before Real Life officially begins. Parents hear it described as an investment in their child's future. But why just invest in the kid?

Instead of spending thousands to rent a cramped dorm room and experience the collegial Zen of, say, a coed bathroom, investment-savvy parents are laying down real estate roots in cities and college towns across the country.

And in exchange for a home -- or at least a room -- of their own, college students are turning into on-site property managers with a vested interest in seeing that their parents' trust is not misplaced.

As to whether this makes good financial or even familial sense, the answers depend on such vagaries as mortgage rates, taxes, resale values and a student's willingness to tell his roommate that anger management doesn't mean punching a hole in the wall.

Says veteran Realtor Edward Sourvell in Ann Arbor, Mich., where university students make up more than a quarter of the population, "The parents I've talked to are hoping to solve their student's problem and to make money. Can you make money? Yes. Is it a risky investment? Yes."

But faced with the prospect of paying typically $10,000 to $14,000 for nine months of dorm room and board, some parents are taking the leap.

"It's the story of my summer," says real estate agent Claire Black Slotton of Doug Arnold Coldwell Banker in Davis, home to 30,000 students at the University of California.

"The parents are always looking on the low end, from about $300,000 to $500,000," she says. "They are quite sophisticated investors. They own their own home and usually at least one other."

Such investors may be able to write off the mortgage interest and property taxes on a college-town property, and even utilities, maintenance, depreciation and advertising, if it's a rental. Instead of writing checks for dorm fees, parents can collect rents.

But accountant Ben Hunnicutt, of Hunnicutt, Okamoto & Associates in Calabasas, advises clients contemplating such a buy to let him run the numbers for them first.

"It really depends. Are you thinking of short term, of keeping it three or four years and then selling? That's the most risky because you have such a narrow window. It's usually not worth the effort."

And real estate and financial experts warn that property abuse is endemic to college towns. Which house on the street is full of college kids? Look for weeds, cracked windows and worse.

In Davis, at the city's Community Mediation Service, staffers spend most of their time on landlord-tenant and neighborhood disputes.

"It happens in every university community," says Program Director Elvia Garcia. Complaints are made about "the noise from parties, the garbage cans left out all week, the unmowed lawns, parking."

Says Ann Arbor's Sourvell, "Students are horrible, disgusting. Their rooms smell. They live together like rabbits in a warren. They eat and sleep together. They have beer fights, and they don't make their beds."

Although that, of course, applies only to everybody else's kids.

Debbie and Andy Breech, parents of four from Pacific Palisades, paid $675,000 in April for a Berkeley fixer-upper built in 1907 in which they plan to invest an additional $50,000.

Sons James, a junior at UC Berkeley, and older brother, Adam, a Cal alumnus, are set to take up residence in the four-bedroom house this month. They'll be joined by two male roommates who Debbie Breech says will each pay monthly rent of $700 or more.

"I trust James," she says. "I only mistrust his friends. I told him, 'I don't want this to be a place where your frat boys come and hang out.' You have to really know your child to do something like this, or else buy a property that's bulletproof."

As a backup, Breech says she's asked the neighbors to call her "if they see anything too bad going on."

Louis Lozano, a Monterey lawyer whose daughter attends Loyola Marymount University in West Los Angeles, calls himself "very lucky" to have found her a two-bedroom condo last year in Playa del Rey for $425,000. He secured a mortgage fixed at 5.1% for five years and she found a roommate who, like her, is "neat and tidy, almost fanatical about it."

"I have confidence in the real estate market along the coast there," Lozano says, adding that his confidence might soon extend to Seattle, where his son will enroll in the University of Washington this fall.

"The parents of my daughter's boyfriend are doing the same thing," he says. "They bought downtown, across from the Disney center. He's at USC, and his roommate is a friend from high school."

While such ventures in high-end real estate markets remain beyond the means of most, parents with students attending school in traditionally less-expensive areas are benefiting -- or hoping to benefit -- from still-low mortgage rates and a steady stream of college kids less concerned with a building's aesthetics than with cheap rent.

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