About CREStudent HousingResourcesRealtor CenterPressCollege Housing GuideCRE BlogContact Us

Area News

Investing In 'Kiddie Condos'

By Dan Wright, Daily News-Record

Parents Of JMU Students Turn To Buying Real Estate For Kids

Ray White thinks the worst he can do is provide free rooms for his kids while they finish college.

And pocketing a few extra bucks in the process never hurts.

White bought two 4-bedroom units at Hunterís Ridge in Harrisonburg and only wishes he had done it sooner.

"I save $3,000 a year easy over a dorm or rental apartment," White said. And thatís per child.

White is among a growing number of parents buying kiddie condos ó second homes or investment properties for their children to use while they attend college.

Instead of writing checks for rent or dorm fees ó and ending up with nothing but a stack of receipts after four years ó parents who buy real estate in a college town have a number of options after their student graduates. They can sell, rent it through a property management agency or hold on for a longer-term investment.

Interest rates, still near 30-year lows, have made the math dramatically different.

"It used to be you could break even," said David Rao, branch manager for the Harrisonburg office of Raymond James Financial Services. "Now itís cash flow positive from minute one."

White, who bought two units at Hunterís Ridge for $96,000, got the immediate positive cash flow. "And I didnít have to charge a lot of rent to make money," he said.

In Harrisonburg, with the growth of James Madison University and the rising cost of tuition, buying a second home is an attractive option for many parents, according to Norma Gardner, an associate broker with Coldwell Banker Funkhouser & Associates of Harrisonburg.

"Itís partly low interest rates," she said. "But people have a good feeling about real estate as an investment."

Gardner recently sold three units at the new Gables townhouse development ó all three to families of students.

"Itís a very popular thing to do right now," said Ken Hensley, also with Coldwell anker Funkhouser & Associates. "It fills two needs: housing and investment."

Hensley was Whiteís agent.

The practice may have an added benefit of giving a child the real-world experience of being responsible for property and, if the studentís name can appear on the contract, establishing credit.

A Caution

But parents who expect to turn an easy profit after four years should be cautious. A little research can determine if the properties are appreciating.

As an example, apartments at University Place on South Avenue that sold for $70,000 in the early 1990s are now going for around $50,000. And students are veering away from those units toward newer facilities.

The upside of the kiddie condo market is free or low-cost housing for the student, the tax advantages of ownership and the chance of turning a profit on the resale.

The downside is the possibility of losing money by investing in property that could lose value over the next decade.