Sunday, November 8, 2009

Ashley Jordan has lived with her college roommate for most of her life, so not much changed when she moved into a College Park condo with her brother Kyle last fall — except their housing costs got a whole lot cheaper.

Miss Jordan’s parents bought a $185,000 condo where the siblings could live while they attend the University of Maryland. They decided it was the financially smart thing to do.

“In today’s economy, it literally costs less to buy this condo than put them on campus,” said their father, Troy. “We save money now. We potentially make money later. They’re in a better environment. There’s all upside, no downside to this.”

The Jordans are one of a growing number of families across the nation who are buying homes for their children to cope with the ever-climbing costs of a college education.

Rather than pay rent, some families collect it. And after graduation, many sell the home and make a profit, said P.L. “Skip” Singleton Jr., a D.C. Realtor.

“If you’re paying rent, you know it’s going out the door, all of it, every dollar is out the door,” said Mr. Singleton, who works for DC Living Real Estate.

Basic math is what pushes many students and parents into buying college real estate.

In the District, it’s increasingly difficult for students to find on-campus housing because dormitory space is limited, said Kimberly James, an agent with Long & Foster. Some schools, such as the University of Maryland at College Park, limit the number of upperclassmen who can live on campus.

Even if on-campus housing is available, dorm rooms aren’t exactly cheap. At four-year public colleges, the average annual cost for room and board jumped 5.4 percent to $8,193 this school year, according to a recent College Board survey. At some private schools in the District, students can pay nearly $50,000 to live on campus for four years.

The result is a college housing system that encourages large numbers of students to live off campus. As the housing market began to bottom out last summer, leaving some cities with houses that cost less than cars, students who used to rent rooms in group homes began to buy their own at bargain-basement prices and manage them for profit, real estate agents said.

The market is flooded with cheap real estate. A prolonged recession, a housing market collapse and an unemployment rate headed toward double-digit territory have produced a national avalanche of mortgage defaults and foreclosures. While many of these cases go straight to foreclosure, sometimes banks allow third parties to purchase a home for less than the balance on the mortgage. This process, called a short sale, allows the homeowner to avoid bankruptcy while guaranteeing the bank a sum of money it might not have collected from a foreclosure.

The federal government, meanwhile, is spurring demand for low-cost housing by offering an $8,000 tax credit to first-time home buyers. That program was set to expire Nov. 30, but Congress voted Thursday to extend the tax break until June 30 and expand it to include higher-income buyers who already own property.

All things considered, it is now cheaper for many families to buy rather than rent, real estate agents and buyers said.

“If you’re renting right now and you know you’re going to be here for five years, you should be buying,” said Ivan Katz of Fairfax Realty.

Family investment

Most parents who buy real estate for their college-age kids consider it an investment opportunity, said Andrew Riguzzi, a DC Real Estate agent.

Mr. Jordan purchased the College Park condo hoping its value will rise over the next few years. When his children graduate from college he might sell the property to cover their tuition bills.

That’s what Jim Pyle did in 2002. The Georgetown University law student and his mother, Kathy, bought a house on Capitol Hill that they sold after he graduated for nearly $200,000 more than they paid.

Ms. Pyle, a retired Chicago real estate agent, targeted an underpriced property in a desirable neighborhood that had the potential to escalate in value, she said.

“The whole game is to try to help your child and not lose money at the same time,” Ms. Pyle said.

This is a niche market for parents who are interested in real estate and also want to help their children, said Jeff Rosa, whose San Diego real estate company, Allen & Rosa, targets these families.

When Mr. Jordan bought the condo for his children, he felt it was more than just a place to live — it was an investment in their education. He worried that life on campus with “dorm pressures and temptations” would “eat into study time.”

Having their own home can offer students a welcome break from campus chaos, said Texas A&M senior Jenna Pine, who struggled with campus life as a freshman after finding herself surrounded by roommates who partied more than they studied.

Miss Pine’s parents bought a house near the College Station, Texas, campus where she could have more control over the environment and choose her own roommates. Her grades improved after that, she said.

“My mom decided that it got so bad that she decided just to buy the house and get me out of that situation,” Miss Pine said. “It’s a relief not having to worry.”

Finding the right living environment was important to the Pyles, as well. Ms. Pyle decided to upgrade her son’s surroundings by purchasing what she called a “charming” red-brick house with stained-glass windows and a deck.

“When people live in a comfortable environment, they have a better chance of succeeding,” she said. “If you go home and you hate where you live and you’re not comfortable, it doesn’t give you the energy and encouragement that a nice environment gives you.”

Moving into a condo allowed Miss Jordan to take a deep breath and “chillax,” she said.

As a freshman, she lived in a cramped dormitory with “horrible” roommates at a women’s college in Baltimore. Her paintings piled up in her car because her dorm room was too small to hang them up.

Now that she’s living in a condo, Miss Jordan enjoys the freedom to design her room however she likes. Her paintings adorn the living room walls.

But some students believe living in these off-campus homes can stifle a college community. Even Kyle Jordan admitted sometimes he wishes he could live on campus so he could better connect with his classmates.

“It’s inviting a pretentious atmosphere,” Nicole Hoegg wrote in a column that was published in the Battalion, Texas A&M’s student newspaper. “Even if the students living there aren’t actually snobs … there will be social judgments, stereotyping and a few class conflicts.”

Other critics point out that these parents make it too easy for their children who should be learning how to fend for themselves.

Many people are not comfortable with parents taking a risk on their children, arguing that most students can’t handle the responsibilities of homeownership.

For students who are living on their own, it all comes down to responsibility, Ms. Pyle said.

“Somebody that was a screw-up, this would not be a good thing to do,” she said. “You have to have a lot of faith in the person you are dealing with.”

Time to buy

In the Midwest, where it’s often cheaper to buy than rent, many students don’t need their parents’ help.

The housing market there is bloated with foreclosures and short sales, and direct sales to students are becoming commonplace.

Banks that want to rid themselves of foreclosed properties will sell them at break-even prices, and sometimes even at a loss, said Devin Patterson, a Michigan college student who owns two houses.

The senior at Grand Valley State University in Grand Rapids took advantage of a Michigan housing market that has opened its arms to student buyers. He purchased his first home with only 5 percent down, and the second with no down payment, thanks to timely payments on an old car loan that boosted his credit score.

In many cases, the federal government supplements down payments for first-time buyers, said Jesse Godzala, who works for Edina Realty in St. Cloud, Minn. Mr. Godzala is in the process of selling a house to a 17-year-old high school junior and her husband who are taking advantage of the U.S. Department of Agriculture’s Rural Development Housing and Community Facilities Program, which helps first-time buyers in communities with populations under 20,000 acquire properties with no down payments.

Other students discover opportunities in real estate without receiving any help from the government. After doing some research and plugging a few numbers into their calculators, they realize they can rent enough rooms to cover the mortgage. Anything left over can help pay for food, gas and books.

Grand Valley senior Joe Pohlen first thought of the idea a few years ago when Michigan’s housing market began to tank. The 22-year-old now owns 10 houses, which he rents to fellow Grand Rapids college students. His growing real estate empire is assessed at $1.3 million today.

Mr. Pohlen’s rental business started with a modest idea to buy one house where he could live and rent spare rooms to his classmates, but it has blossomed into a college community that he markets as “LakerTown,” after his school’s mascot.

Mr. Pohlen started the Seidman Real Estate Group several years ago to help other students who want to become homeowners. Its 16 members now own a collective 42 houses worth $4.87 million. They meet on Wednesday nights to offer tips to students who are looking to make smart buying decisions. The group also introduces students to prospective Realtors and property managers who specialize in student housing.

“Somebody once told me there are only three ways to get rich in life, and that’s either own a business, own real estate and I forget what the third is,” Mr. Patterson said.

Donny Irving, who graduated last summer from Cornerstone University in Grand Rapids, is planning to buy a foreclosure for less than $10,000, fix it up and rent to his former classmates starting early next year. He plans to charge each tenant only $750 rent for the entire semester. He expects to attract enough renters to cover his bills.

Empty rooms fill up quickly in college towns like Grand Rapids. When Mr. Patterson needs to fill a vacancy, he advertises on Facebook and Craigslist. His longest vacancy lasted just one month, and that was intentional, he said.

Niche market

Student buyers and their parents helped Mr. Godzala achieve unusual success in his first year as a full-time Realtor. He is on pace to sell more than $5 million worth of property this year, and 25 percent of his clients are college students, he said.

The 32-year-old agent taught high school history for more than a decade before switching to real estate. While he has watched many Realtors struggle in a depressed Midwest market, the rookie is having an excellent year thanks to his connections to former students who are now entering the real estate market for the first time, he said.

“I just blackmail them and say, ‘I’ll go back and change your grade if you don’t use me as your Realtor,’” he joked.

Realtors in other places are starting to latch onto this niche market.

Mr. Riguzzi said he sells as many as eight college homes a year to students attending Georgetown and George Washington universities.

On the West Coast, families of college students account for nearly 25 percent of Mr. Rosa’s business.

Mr. Godzala, Mr. Riguzzi and Mr. Rosa are all younger agents in their 20s and 30s, which helps them connect with their student market. They develop relationships with several students at local colleges and rely on word-of-mouth marketing to recruit new clients.

After the sale, many agents stay in touch with these college families because they are likely to buy or sell again, said Ms. James, of Long & Foster.

“These people are investors, so it’s not like they’re a one-time client that’s going to stay in their house for 30 years,” she said.

Do your homework

Mr. Patterson advises young buyers to count their costs carefully before committing themselves to a real estate purchase. Home buyers also need to invest time in the property they own.

A transaction that seems simple can quickly get complicated when insurance, taxes, utilities and upkeep are factored in. Students must be organized enough to keep up with the bills and be prepared for the unexpected, he said.

Some students buy these properties at fire-sale prices, hoping to flip them when the housing market improves. Some students use the profits on their first homes to trade up for a down payment on a dream home, Mr. Godzala said.

Other students form a bond with their first house, find a local job and decide to settle down in the city where they graduate.

“I envision a day when I’ll have kids, and if I can say, ‘Here’s a house you can live in,’ that’s a great gift,” said Fairfax Realty’s Mr. Katz.

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