The Dorm Alternative

A college education comes at a steep price, but some parents hope to turn the expense into a profit by purchasing housing for their student. In fact, real estate professionals have even coined the term “kiddie condo” to describe this phenomenon (which is somewhat of a misnomer because parents buy the homes).

With the housing downturn, the “kiddie condo” trend also has slowed because parents find it more difficult to finance the purchase, notes Collin Bray, with Century 21 Cityside in Boston.

“A lot of parents used to pull equity out of their [primary] home to use as a down payment,” says Bray. “They don’t have as much ability to do that anymore.”

Also, lending rules have become stricter. For instance, in the past, to obtain a government-insured FHA mortgage, the college student could be listed as a co-borrower but didn’t need verifiable income or a credit score. But now, students will need these credentials, explains Lemar Wooley, spokesman for the FHA.

If parents are the only borrowers, the property is considered an investment purchase, needing at least a 20 percent down payment, adds Jeff McGee, vice president of Watson Group Financial in Waterford, Mi.

Still, the price downturn has served to entice some parents into purchasing, rather than writing checks for room and board to the school, notes Corey Schwartz, a RE/MAX agent in Coral Gables, Fla., home of the University of Miami. “Parents are examining [the merits] of buying as opposed to renting. And, some parents buy places large enough to collect rent from other students, often friends of their child, Schwartz explains.

When families have more than one child who will be attending college and/or graduate school in the same town, they are more prone to purchase, says Bray. “They might have one child use a place for four years and then a sibling use it. The longer time frame lets them worry less about the value when they sell.”

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