Why pay for your child’s room and board when your child’s roommates can? Almost every college-bound young adult wants to be out on their own and not tied down to a dorm room or one of many in a rooming house in their freshman year. Although most colleges require a freshman to stay in university-provided housing, by their sophomore year, they are ready to be “set free!” So, why not make money on their freedom?

The National Association of Realtors found last year that 6 percent of investment buyers (read parents with college-bound children) purchased investment homes for use by their children attending college, a figure that involves about 169,000 properties. The association had not asked the question before, so a year-on-year comparison was not available.

One factor contributing to the rise in sales is that the price of campus housing has risen steadily. For 2004-2005, room and board amounted to $7,434 at four-year private colleges and $6,222 at four-year public colleges, according to the College Board. If a family has more than one child bound for the same college, "it's a no-brainer to buy versus rent or live in a dorm," said Nicole Persley, an agent at Real Estate of Florida. Using the above figures, and splitting the difference the average MONTHLY cost of housing for a school year is about $600 per month! If an off-campus residence with 4 bedrooms is purchased then your child’s three roommates will bring in over $1800 per month in rental income! It has been determined that the average off-campus home sells for $250,000 in the typical small college town. (Please note that this cost is obviously dependent upon the school and cost of the surrounding properties). With a 10% down payment, the monthly payment will run about $1400 per month. Therefore, instead of it costing the parent $600 they will make over $400 per month! That is a $1000 per month turn around. And using a conservative appreciation figure of 5% per year, the property should appreciate to about $300,000 after four years! This is a gross profit of $48,000 in rent plus savings on room and board and $50,000 in resale value. And the great news is that because this is an investment and not a personal home, a 1031 Exchange can be used to save from paying any taxes on the profits as long as all of the money is put back into another property that costs the same or more than the existing one!

"I'm seeing more people intrigued about doing it - more than ever," said David Gatheridge, general manager of the Wealth Enhancement Group's mortgage division in Minneapolis. "It has a lot to do with the fact that their own primary residences have increased so much in value."

This is not an investment for everyone, however. "It's not a get-rich-quick scheme," said Nancy Flint-Budde, a financial planner in Salem, New York. And while renting out the property for income is an option, it is recommended that an outside management company handle the rent collection and maintenance issues to keep the child of the parent-investor from becoming a “Landlord”.

If you are interested in this investment opportunity, you should begin your search when your child is still a senior in high school, but as soon as they are accepted.

For more information about 1031’s or this article, please email Doug@dougdavisson.com or call him at 678-248-2222