Buy a College condo for your kid and skip the Dorm
Saturday Mar 30th, 2019
When Alex & Marriot's daughter went to college in another state, the idea of shelling out more than $80,000 for rent in four years, had the couple deep in apprehension. They determined that it was a needless financial sinkhole; something they had better find an alternative to. So, the duo did what they deemed a prudent financial move. They bought a condo for their away-from-home daughter near the university she was studying at. While this would have many gaping at horror at the outright enormity of the move, this has become a phenomenon among parents of international students. However, it is not just limited to offshore families. While the mere notion of parents buying apartments for their college going kids seems like the epitome of coddling, we have an ever-growing cadre of parents with kids at universities all across Canada, especially Toronto, who are deciding that buying is way better than investing an arm and a leg in renting.
Here a bonus; imagine how much the cost of the condo could go up in four years, helping to alleviate the financial burdens of your finding a place to live. By giving them a leg up, you can set your kid up for success, helping them establish yourself and teaching them to become more responsible. Since a condo is the best first step into the world of home-ownership, buying a condo for your child could have far-reaching implications. However, if you are seriously thinking of going down this path, here are a few things to keep in mind when looking for Lofts for sale in Toronto:
Before putting all your money in buying a property for your child's college years, why not sit back and look over all the non-financial concerns. Your child’s maturity and a willingness to perhaps play a landlord for rent-paying roommates and maintain a home all by themselves. Next, consider your own motivation. What are your long-term plans for the property? Do you aspire to keep it maintained as an investment after your kid leaves the nest, hold on to it for a younger kid, or sell it as soon as your kid graduates? What purpose are you fulfilling with the investment? Size of the condo and its location also play a vital role in this case. For instance, if your child does not drive, avoid a building in any locality with limited pedestrian activity. If they drive, ensure the building offers parking, either as an added feature or at a cost.
State and Federal tax implications vary depending on how you fund, finance, and own monthly expenditures for your college condo property. For instance, maintaining a condo in another state may impose state income taxes that the kid has to bear. Furthermore, if your kid is sharing the condo with roommates, all rental income may be subject to state and federal tax. Depending on whether you are buying the condo as a personal residence or an investment, the benefits you enjoy, and federal tax deductions are calculated depending on your ownership of the property. Do you want deductions to flow through your child’s return or your own? Not to mention, there are limitations on how deductions can be reported and who can claim them. They may not generate a current tax benefit. Also, the manner of your ownership has far-reaching implications on the tax consequences of the sale.
The decision-making process for parents comes down to the cash flow: what is more affordable; buying or renting. And by how much? While acquiring the college condo property, you will have to pay up up-front costs such as the closing costs, down payment, and the appraisal fee. Other significant expenses needed to maintain the property include:
- living expenses such as the cost of utilities, garbage collection, electricity, heating and cooling, and cable fee.
- Property taxes
- Replacements and repairs
- Insurance on the contents and structure
- homeowner dues for the property
- Interest and principal payments on the mortgage
If your kid decides to share the condo with roommates, can they be counted on to pay their rent on time, and how are you planning to charge them? In addition, consider if the property will stay occupied all through the years or will your kid come home during vacations? If so, perhaps the property could be rented out during that period.
Next, consider the potential liabilities in case of loss of personal possessions by the roommate in a fire or robbery, or if someone is hurt on premises. For this you need to be adequately insured. In addition to the case flow considerations, have your appraised your property to see if it would increase or decrease in value over the years? With such fluctuating property prices in most markets, property values are hard-pressed to appreciate significant over relatively short periods of time. If you are planning to sell soon after your kid graduates, you will have to factor in the closing costs and commissions as they will reduce any profit you might be getting. Are you financially prepared for a loss in value, even if it still wins over the costs of living in a rental?