We are thinking about purchasing a house for our two sons to live in while attending the same university. First, is this considered an investment or second home? What is the best way to finance? Should we take out a new mortgage or equity in our current home? We also own an investment property that has equity. The price of the new house will be approximately $185,000. The investment property has $180K in equity and our principal residence has $300,000 in equity.
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If you could afford a mortgage, then you can afford to pay rent on a place they can stay in. Keep your equity for your own retirement.
I agree. College is a time to start cutting the strings that tie child to parent and to let your kid start making big decisions, like where to live, on his own. Giving your kids a freebie house does none of the above. It only intermingles your "investment" with your kids living quarters. There's not much good that can come from this and a lot of bad. Don't do it.
In this housing environment, it's not the best idea to tie up your own equity in such a deal, even with the obvious tax advantages.
If you're set on the idea of doing this, take out a mortgage on the property, with 20% down, and hold your kids 100% responsible for paying the mortgage/expenses while they live there. The costs on a $180k house shouldn't exceed $1,000/month, once your 20% downpayment is factored in. If they can't pay $500 each, don't do the deal.
Set up a rental contract, and hold them to it. Teach them to be responsible. If they trash the place, make them pay for it. If they take care of it, let them share in the profit when it's sold.
Honestly do not do this. If you want to buy and investment rental in a college town fine but buying one to rent it to your kids is asking for problems. What if they no longer want to be roomates ? What ifone of them drops out of school?transfers? lives abraod a year? you would not feel good evicting your own kids.
Basically this sounds liek you are doing them a favor but you are not. Help then rent a place and know that they have to pay rent every month. Help them by giving them used furniture tomove in with (yup that crummy couch in the basement ect) even rent the uhaul but let them grow up. If it is your investment and rental you would be the one doing stuff to the house and you do not want to be the landlord of your kids.
Wow - I'm surprised that responses to my idea weren't more favorable considering the savings involved! I should have mentioned the following: 1.) We pay for our kids college expenses as long as they get good grades - if the grades aren't good, they come home; 2) the university kicks them off after the sophomore year (and for my second son, I believe they will kick him off after his freshman year; 3) My older son would act as landlord and be responsible for maintenance and collecting rent from roommates; 4) We could use a tax break. Does this information change your responses at all?
ifyouhavetoask said:In this housing environment, it's not the best idea to tie up your own equity in such a deal, even with the obvious tax advantages.
If you're set on the idea of doing this, take out a mortgage on the property, with 20% down, and hold your kids 100% responsible for paying the mortgage/expenses while they live there. The costs on a $180k house shouldn't exceed $1,000/month, once your 20% downpayment is factored in. If they can't pay $500 each, don't do the deal.
Set up a rental contract, and hold them to it. Teach them to be responsible. If they trash the place, make them pay for it. If they take care of it, let them share in the profit when it's sold.
This plan sounds good to me!
You should be able to get a loan as a 'second home' as long as your primary residence is 50+ miles away and you do not own any other real estate in the county the purchase would be in. Second home rates are ideal, about .25% above primary residence. Lending standards on second homes are tightening, but if you have 20% to put down (or pull out of another property to put down) you are likely good to go.
mtairymom said:Wow - I'm surprised that responses to my idea weren't more favorable considering the savings involved! I should have mentioned the following: 1.) We pay for our kids college expenses as long as they get good grades - if the grades aren't good, they come home; 2) the university kicks them off after the sophomore year (and for my second son, I believe they will kick him off after his freshman year; 3) My older son would act as landlord and be responsible for maintenance and collecting rent from roommates; 4) We could use a tax break. Does this information change your responses at all? No, this information changes nothing. Still a bad idea. Re-read the above posts to learn why.
Sounds like you are not really asking a question -- you are seeking cheerleaders to justify your bad decision. We're too honest to do that here.
ifyouhavetoask said:The costs on a $180k house shouldn't exceed $1,000/month, once your 20% downpayment is factored in.
I'm in the process of buying a 130k home, with 20% down. With a mortgage rate of about 6% (104k loan), PITI will be just a hair above $900 a month (about ~3k in taxes, don't know exactly yet). Check your math, and or be more realistic with a 180k home that includes probably more taxes and insurance than I would pay. I'd say $1,200 in PITI at the minimum with 20% down. Don't forget utilities.
also asking college aged boy to act as a landload to his friends is basically asking him to wreck his friendships or not collect the money. Not a good idea.
I agree with most posts above. This is the time they will learn about about responsibility, both financial and in general. My parents offered to pay for a lot of things, but I never let them. I bought both my first car ($750) when I was 14 and my (actually wanted) first real car ($4500) when I was 16. I had been working since I was 13. After high school, I found and paid for all my own (rented) places, and moved across the country for four years and then back all on my own. I also paid (or am paying for now) for all my college. I seriously think that learning to do things on my own was the best gift they could have given me.
I can't even imagine how naive I would be to everything in this world if everything was handed to me.
Kanosh said:mtairymom said:Wow - I'm surprised that responses to my idea weren't more favorable considering the savings involved! I should have mentioned the following: 1.) We pay for our kids college expenses as long as they get good grades - if the grades aren't good, they come home; 2) the university kicks them off after the sophomore year (and for my second son, I believe they will kick him off after his freshman year; 3) My older son would act as landlord and be responsible for maintenance and collecting rent from roommates; 4) We could use a tax break. Does this information change your responses at all? No, this information changes nothing. Still a bad idea. Re-read the above posts to learn why.
Sounds like you are not really asking a question -- you are seeking cheerleaders to justify your bad decision. We're too honest to do that here.
harsh, especially considering this is a widely used technique to reduce overall college expenses by parents who can afford to do this. In particular, I know many many Asian-American families who have chosen to do this with outstanding results.
If my parents had bought a home in Palo Alto when I went to Stanford, and sold it when I graduated, they would have more than paid for the total college expenses they spent on me anyway.
If my parents had bought a home in Palo Alto when my sister went to Stanford, and sold it when she graduated, they would have more than paid for the total college expenses they spent on her anyway.
They learned their lesson, and bought each of us a condo when we went to med school. The profit from those sales left me essentially debt-free after med school and my sister more than debt-free.
This discussion ties in to the other about whether you should pay for your kids' college.
If you are planning on paying tuition, room, and board for your children, then it is in your best interests to reduce the total cost as best you can. One way to do this is to reduce housing costs.
Having said all this... now may not be a good time to buy housing, even in a university town. Rents and prices are more stable than average, and occupancy rates tend to be high, but even towns like Ann Arbor, Palo Alto, and Austin are seeing softening housing markets. Tread carefully, because you can lose money as easily as make it.
mtairymom said:if the grades aren't good, they come home;
Much more difficult to do if you're tied to a mortgage on the home.
And if your parents tried to do that same thing last year or 2 they would now be in more debt and unlikely to even break even by the time college ended. Just because you won at the short term house buying then selling doesn't mean everyone will.
psychtobe said:Kanosh said:mtairymom said:Wow - I'm surprised that responses to my idea weren't more favorable considering the savings involved! I should have mentioned the following: 1.) We pay for our kids college expenses as long as they get good grades - if the grades aren't good, they come home; 2) the university kicks them off after the sophomore year (and for my second son, I believe they will kick him off after his freshman year; 3) My older son would act as landlord and be responsible for maintenance and collecting rent from roommates; 4) We could use a tax break. Does this information change your responses at all? No, this information changes nothing. Still a bad idea. Re-read the above posts to learn why.
Sounds like you are not really asking a question -- you are seeking cheerleaders to justify your bad decision. We're too honest to do that here.
harsh, especially considering this is a widely used technique to reduce overall college expenses by parents who can afford to do this. In particular, I know many many Asian-American families who have chosen to do this with outstanding results.
If my parents had bought a home in Palo Alto when I went to Stanford, and sold it when I graduated, they would have more than paid for the total college expenses they spent on me anyway.
If my parents had bought a home in Palo Alto when my sister went to Stanford, and sold it when she graduated, they would have more than paid for the total college expenses they spent on her anyway.
They learned their lesson, and bought each of us a condo when we went to med school. The profit from those sales left me essentially debt-free after med school and my sister more than debt-free.
This discussion ties in to the other about whether you should pay for your kids' college.
If you are planning on paying tuition, room, and board for your children, then it is in your best interests to reduce the total cost as best you can. One way to do this is to reduce housing costs.
Having said all this... now may not be a good time to buy housing, even in a university town. Rents and prices are more stable than average, and occupancy rates tend to be high, but even towns like Ann Arbor, Palo Alto, and Austin are seeing softening housing markets. Tread carefully, because you can lose money as easily as make it.
When my son went to college we thought about buying a condo. Based on a monthly mortgage payment and food costs, it would have been cheaper for us to buy the condo then to pay for a dorm and required full meal plan. I'm glad I did not make the purchase. At the time the housing market was beginning to soften and I didn't want to get stuck owning a condo in an area I would not want to visit had my son not been there. I also had no interest in being a landlord in a college town should the condo not sell. Now that the housing market has tanked in that area, I'm very fortunate to not be holding a property where the market is unlikely to recover by the time he graduates. Right now he's looking for an apartment. It will be cheaper than a dorm/meal plan and he won't have to take time off from work and fly home every time the dorm closes for break. Being an out of state student, the costs of flights can add up and it makes employment more complex.
mtairymom said:We are thinking about purchasing a house for our two sons to live in while attending the same university. First, is this considered an investment or second home? What is the best way to finance? Should we take out a new mortgage or equity in our current home? We also own an investment property that has equity. The price of the new house will be approximately $185,000. The investment property has $180K in equity and our principal residence has $300,000 in equity.
As others have already pointed out there are risks involved, much depends upon how responsible your sons are and how stable RE prices are in the city where the University is located. I can't believe no one asked where this house is located, so where is it? It may be best to just rent. Are you going to be renting to other college students or just your sons? IMHO your kids need have their financal skin in the game in some way.
You have plenty of equity, penfend has a HEL at 4.99%, but its a 10 year loan for that rate. If you need 30 year loan then put 20% down like others have suggested.
Kanosh said:mtairymom said:Wow - I'm surprised that responses to my idea weren't more favorable considering the savings involved! I should have mentioned the following: 1.) We pay for our kids college expenses as long as they get good grades - if the grades aren't good, they come home; 2) the university kicks them off after the sophomore year (and for my second son, I believe they will kick him off after his freshman year; 3) My older son would act as landlord and be responsible for maintenance and collecting rent from roommates; 4) We could use a tax break. Does this information change your responses at all? No, this information changes nothing. Still a bad idea. Re-read the above posts to learn why.
Sounds like you are not really asking a question -- you are seeking cheerleaders to justify your bad decision. We're too honest to do that here.
Actually, as intelligent as the posters on this forum are, I thought I would get lots of good suggestions, and I have. I honestly thought everyone would think this is a good idea and was seeking for direction on the financial end of things such as which type of loan to get, whether to take home equity, and so on. Thanks for your advice.
mhesidence said:mtairymom said:We are thinking about purchasing a house for our two sons to live in while attending the same university. First, is this considered an investment or second home? What is the best way to finance? Should we take out a new mortgage or equity in our current home? We also own an investment property that has equity. The price of the new house will be approximately $185,000. The investment property has $180K in equity and our principal residence has $300,000 in equity.
As others have already pointed out there are risks involved, much depends upon how responsible your sons are and how stable RE prices are in the city where the University is located. I can't believe no one asked where this house is located, so where is it? It may be best to just rent. Are you going to be renting to other college students or just your sons? IMHO your kids need have their financal skin in the game in some way.
You have plenty of equity, penfend has a HEL at 4.99%, but its a 10 year loan for that rate. If you need 30 year loan then put 20% down like others have suggested.
The university is in Maryland on the eastern shore. We would get a four bedroom and rent to two other students, and possibly keep it after they graduate. We are not looking to make a profit, just ease the burden of the $14,000 room and board fee for two for four years. Thank you for your advice.
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