By this time of the year most college applications are in and students/parents are waiting to hear back on their fall destinations. Housing and in particular, housing costs, invariably comes up when talking about college! One suggestion I’ve been offering folks is to purchase a condo for the incoming freshman, near campus of course, while attending college. With low interest rates, stellar deals and a four/five year time horizon I think this option is too easily ignored by most people!
One way to finance such a purchase is through the FHA Kiddie Condo Program, a no down payment program. This is all possible because FHA allows non-occupant co-borrowers. This means parents can purchase a condo using their credit and their income but not be obligated to live in the premise (which parent would want to??). This property isn’t considered a second home and certainly is not an investment (where you receive income). Hence, the interest rate is the same as that for a primary residence. The co-signer, in this case the student has to live in the property and the property is classified as their primary residence.
An additional feature of the Kiddie Condo Program is that it allows the occupant to charge rent to roommates. This makes the monthly payment very affordable and could even make it possible for the kids to hire a cleaning service so the place doesn’t smell too much! 
The loan process is very simple and similar to any other mortgage application. I suggest obtaining approval before proceeding. That way once you have received an approval the only thing to do is look for the right properties.
This is where you can see even greater benefits. Let’s say you purchase a 2 bedroom condo near ASU campus for $150,000. Today the FHA interest rate on this (assuming steller credit) is just about 6.00%. Making your monthly payment $899. Add in $200 extra for HOA and taxes and we’re looking at $1099/month. If you split this three ways then it’s a very affordable $366 a month! A steal if you ask me.
Now, assuming a 5% annual appreciation in value after four years the condo will be worth almost $183,000. That is $32,000 in equity earned while going to college. (Don’t forget that the loan is being paid down during this time.) Let’s assume that this part of the equity is a wash to cover the cost during the time of sale. This is enough equity pay off any accumulated student debt or down payment for a “real” house after graduation! Taking it a step further, after graduation, you could re-finance the property and turn it into a rental unit.
I will admit it will take a special college student to pull this off. I know how irresponsible I was back in the day, but I have confidence that there are incoming freshmen who are savvy enough to execute this plan to perfection. I think as a parent you owe it to your child to at least explore this option and see if they would be interested in starting life with a positive equity position!
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on Jan 18th, 2008 at 11:04 am
Great points.
For the last 12-18 months it has been difficult to find properties with positive cash flow, but the “kiddie-condo” concept is ripe for a comeback. Even though it doesn’t cash flow in the literal sense, it will in marginal terms.. If your kid doesn’t live here she’ll have to pay rent somewhere else! This situation also teaches kids a great deal about home ownership, property maintenance/management, money & finances - skills that can give them a great headstart in life after college.
Good post - very timely.
on Jan 18th, 2008 at 2:31 pm
Shailesh, this is pure gold. In fact, I have the gist of this written into my living trust for my own kids, that’s how much I believe in it. I meet the occassional parent/student that understands just what your talking about, but for many, many, many folks, I think they are just too busy to realize how easy it actually is.
Hopefully, you’ll help make 1 more family a bit wealthier, after reading this.
on Mar 5th, 2008 at 1:08 pm
[...] Check out this post for more information. [...]
on Apr 12th, 2008 at 7:00 pm
While searching for housing for our son for next year, we are faced with the decision…why pay $10 - 12 grand for “Rental” for the next 3 years, when you can take advantage of a program like this. We live out of state, and were pondering, what happens when they graduate??? Can the parents use as vacation property, with the same stipulations…..???????
on Jul 4th, 2008 at 11:26 am
what are good areas for college students
on Jul 8th, 2008 at 7:22 am
Moncita,
As a lender we are really not in a position to dispense such advice. We only work the numbers so to speak. I suggest you speak with a qualified real estate agent who can work with you to identify the type of property which would best suit your needs.