- The Washington Times - Thursday, July 14, 2005

Q: We have two boys, 11/2 years apart, who will both be attending the University of

Richmond. The older son enters college this fall, and his younger brother will follow a year later.

Instead of placing them in the dormitories and paying for room and board, my wife and I were thinking about buying a house near campus and having them live there, at the same time renting rooms to other students. It seems that this would be a wise investment.

Any thoughts?

A: There are advantages and disadvantages to all situations.

Another reader brought up this subject several years ago, and I pointed out one advantage. This fellow contacted his bank to finance a home to be occupied by his college-age children, and the bank insisted on treating the home as an investment property.

Loans secured by rental properties carry a higher rate. I spoke with a few experienced underwriters, who confirmed that as long as a relative was occupying the property, it should be treated as a second home rather than an investment. Mortgage loans secured by primary or second homes carry more favorable rates.

a home, regardless of whether it will be occupied by the owner or a renter, is an investment. With any luck, the property will appreciate over time and become more valuable.

From this standpoint, purchasing a home in Richmond could indeed be a wise investment. You already need to pay for your sons’ housing while they’re in college, so why not sink the money into an appreciable asset? Being able to obtain the more favorable mortgage rates is a plus.

However, there’s certainly a considerable downside.

You have to do your homework. Let me throw out a few questions that need to be answered.

• What’s the rental market like in the area near the university? I don’t know the Richmond area. Do many students live off campus?

What’s the going rate for a student to rent out a room?

• How expensive are the houses in relation to the rental rates?

You need to estimate accurately the gross rental income you expect to receive and compare it with the cost of the house.

• How much down payment are you willing to make? The size of the mortgage will greatly determine whether you will have to pay in every month to stay afloat.

• What are the maintenance costs? If you buy an older home, expect high costs to maintain the property.

Another thing to consider has nothing to do with the financial aspect.

Consider whether your sons will prefer to live off campus. In order to receive the full “college experience,” perhaps it would be better if they lived on campus for the first year or two.

Some universities, in fact, require on-campus living during the freshman year.

This is just a sampling of things to consider.

You have the remainder of the summer to decide your best course of action.

• Henry Savage is president of PMC Mortgage in Alexandria. Contact him by e-mail (henrysavage@


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