Rent or Buy for a College Student?
We get phone calls from parents of college students wondering if buying a home for their college student is a good investment. So we did the math to settle this question using conservative numbers for four different scenarios.
First, our assumptions:
Rents vary based on location, condition, SQFT, and bedroom count, therefore we determined $700/month/per bedroom as a good average number for the cost to rent and what can be charged per room for a property you own. If you plan to spend more than $700/month for your student’s rental, your ROI will be more favorable to buy. If you want us to run your specific scenario email us at adamf@kw.com
We are analyzing homes for sale and rent East of I-49 & West of College Ave. Utilities and parking costs are withheld as we consider them close to equal whether renting or buying
We are not accounting for the tax benefits of owning a home and the write offs for repairs, interest paid, etc. as everyone’s tax situation is different
Our numbers are based on a three year hold, if your student stays longer then the ROI become more favorable
Washington County averages around 4% appreciation each year. The 72701 zip code averaged 7% appreciation per SQFT in 2024. For our purposes we show ROI at 2% (very conservative) and 4% (current average) to show a safe ROI range. Markets could adjust downwards, however given Fayetteville’s net migration is 3.54% in 2024 and is consistently ranked in the top 25 Best Places to Live by US News & World Report we expect positive appreciation to continue
The average home price used for the 3 bedroom and 4 bedroom scenarios are based on these recent sales:
And now for the results ranked by best return with only a 2% rate of annual appreciation:
The highest return is 4 bedroom with 20% down payment.
Second highest return is 3 bedroom with a 20% down payment.
Paying $75k extra for a 4th bedroom pays off even with only a 3% down payment.
The lowest cost option is a 3 bedroom with 3% down payment still shows a solid savings over 3 years compared with renting.
We are not accounting for repairs and vacancy. However, if the savings are this strong with only a 2% annual appreciate rate then there is plenty of upside if historic 4% appreciation holds for three years.
The 3% First Time Home Buyer down payment option requires the student to be the buyer/owner with the parent acting as cosigners. This strategy builds the credit score of the student.
Other benefits include having control over the property versus dealing with a landlord, the ability to use for multiple children, accommodating parents on visits, making great memories, and the tremendous value if a student decides to stay in Fayetteville following graduation.
Where do parents come up with a 3% - 20% downpayment for the investment property? Many 401K plans allow you to borrow up to $50,000 and you pay yourself back with interest. Self-directed IRAs are also able to invest in real estate. A HELOC on your primary residence could be a good option as well.
Many families recognize the benefit of owning a house for college so the local market is very hot starting in April. We recommend starting the search in early Spring and working with our team to move on new listings quickly. We secured this 3 bedroom on Garland for $269k by making an offer within 48 hours of it listing. We also send unsolicited mailers for our clients which resulted in securing this off-market 4 bedroom on the bike trail .
Want to run your own scenario? Download the ROI calculator.
To start your house hunt call our team at 479-435-5353. Go Hogs!
