x Abu Dhabi, UAESaturday 22 July 2017

If your child is studying in the US, think about buying property

Buying an apartment can be a money-saver, especially as American real-estate prices are set to rise and there is no shortage of students seeking accommodation.

The South Carolina students Michael Pietras, right, and Zachary Woods prefer to live in an apartment rather than on campus. The State, Kim Kim Foster-Tobin / AP Photo
The South Carolina students Michael Pietras, right, and Zachary Woods prefer to live in an apartment rather than on campus. The State, Kim Kim Foster-Tobin / AP Photo

Buying an apartment can be a money-saver, especially as American real-estate prices are set to rise and there is no shortage of students seeking accommodation.

Like many people in the Middle East who send their children to American universities, friends of mine recently bought an apartment for their child to live in while he is at college.

Most people who live in the United States simply bite the bullet and pay for room and board, but my friends were able to save some money to buy a place for their son to live.

Several compelling reasons make this a good time to buy if you are facing hefty living costs in an American college town. There are still bargains in the country for long-term investors. Mortgage rates have risen in recent weeks and if the US economy heats up, rates will rise even more and property prices will follow, making it a good time to buyin the trough of the market.

The other main reason is that demographics are on your side in a college town. Generation Y in America, or "millennials" born since 1980, are 70 million strong - the largest generation since the baby boom. They show no signs of avoiding college, even if the overall economy remains sluggish.

If you buy a property, you will have the option to rent it or sell it and recoup your equity after your child graduates. Given that the US housing market is recovering, you might even make a profit.

Here is how the maths typically works. Let's say your child goes to the University of Michigan, one of the country's largest colleges. The institution lists its undergraduate room and board bill for the 2012-2013 academic year at US$9,752 (Dh35,819).

Using the Zillow real-estate search engine, I found a two-bedroom, two-bath apartment near the Ann Arbor campus that lists for $110,000.

As an investment, this is already a good deal since the selling price in 2003 was $140,000.You may even be able to get a better price in other locations, if the property has been on the market for a considerable time and the seller is willing to accept a lower price to make a sale.

Assuming you are not buying outright and you have excellent credit and can get a 30-year, fixed-rate mortgage at the ultra low rate of 3.45 per cent with a 20 per cent down payment, your monthly cost would be $610, which includes $393 for principal and interest on the mortgage; $159 for taxes and $59, according to Zillow, for homeowner's insurance.

Including the monthly apartment fee of $281, you would be paying $10,692 a year for the unit, or about $8,000 for nine months. If your child returns home for the summer or travels elsewhere, you can rent out the space to a summer school student. For further cost savings, if the place is big enough - and it's not hard to be, compared with the typical dorm room - you can defray costs with a roommate.

Of course, with property, you will also need to cover maintenance expenses, utilities and taxes. Most apartment fees cover some of that (exteriors and water bills), but it pays to look at the history of the complex. If the association at your block of apartments needs to raise its assessment to cover overdue or needed repairs, such as a roof, you will get hit with an additional fee.

Before you leap, look at the tax history of the unit. Has it been reassessed lately? In depressed housing markets, property taxes should drop, but not always. In the case of the Ann Arbor unit, tax assessments fell about 9 per cent last year and 16 per cent in 2009.

So that's the "room" part of the equation. What about the "board"?

Compared with on-campus living, the greatest savings are available if your student is frugal and cooks for himself.

For my friends, there is another factor: they like the idea of their son being in a comfortable apartment with plenty of room. Sometimes a parental return on investment can't be measured in dollars.