The idea came to Sally and Ray Kincaid in a flash. Instead of renting an offcampus room for their college student son, why not buy him an entire house?
It was spring 2001. Raymond Kincaid, now 23, had been attending Western Illinois University in Macomb, living as required for the first two years in oncampus student residence halls. Now he and his parents decided to check out local real estate.
"We found out a two-bedroom house would cost about $30,000 and a five- or six bedroom would cost about $80,000 or $90,000," says Sally Kincaid, who lives in Barrington. "We thought, if you can get five or six bedrooms and fill them with guys, the house will pay for itself."
There's nothing unusual about living off-campus, says Eddie Hull, dean of residence life at Duke University in Durham, N.C., and president of the Association of College and University Housing Officers International in Columbus, Ohio. Although the association keeps no statistics, Hull says more freshmen live on campus than off and the reverse is true for seniors.
What's different today is the trend that sees parents like the Kincaids buying houses and condominiums for their student offspring both in cities and small towns, says JohnKmiecik, president of the Illinois Association of Realtors and of Century 21 Kmiecik Realtors in Chicago.
Exact figures on the magnitude of this phenomenon are difficult to come by, says Walter Malony, spokesman for the National Association of Realtors in Washington, D.C. In the association's "2002 Profile of Second Home Owners," 2.5 percent of respondents said their second homes were occupied by children attending school, or about 166,000 units nationally.
Low interest rates are driving the trend, says Michael Haney, president of Newcastle Limited, a real estate advisory and development firm in Chicago. "Parents find that even after paying the mortgage, assessments and property taxes, and taking into account anticipated appreciation, they can look at saving a lot of money in three or four years," Haney says.
Tim McAvoy of Bloomington was thinking more of his daughter's safety and comfort when he signed a contract in February for a two-bedroom, one-bath condo at University Commons. The 900-unit development by Enterprise Companies in Chicago is situated in six terra-cotta-clad, three-story warehouse buildings that for 75 years served as the South Water Market.
Two-bedrooms condos ranging from 850 to 1,226 square feet sell for $220,000 to $350,000, says company principle Ron Shipka Jr. About a dozen parents have purchased units for undergraduate students, most of whom attend the University of Illinois at Chicago, Shipka says.
Similarly, at University Village, also in the UIC neighborhood, several of the 661 units have been bought by parents whose children will live in them while they attend Chicago schools, says Kathy Ryan, director of sales.
McAvoy's unit in University Commons will be available next spring. His daughter, Meghan, 19, will head to UIC in fall 2005, after completing two years at Heartland Community College in Normal. She hopes to share her apartment with a friend who also will attend UIC, McAvoy says.
"Meghan can walk to class and we also like the condo's proximity to Taylor Street, Greektown and the expressways," McAvoy says. "Meghan could very well end up working in Chicago, and if that is the case, I would imagine she would continue to live there. If she does not end up staying in the unit, my wife and I may use it as a second home."
Not everyone thinks buying a condo is a good idea. Celia Chen, director of housing economics at the economic consulting firm Economy.com in West Chester, Pa., says "A parent might want to wait a year or two to see what shakes out in the condo market," Chen says. "In the current environment, renting is a better bet. Vacancy rates have been very high, so rents are low and landlords are giving concessions."
For parents who nevertheless are considering buying a house or condo for a student, Patrick L. Doland, president of Reason Financial Advisors Inc. in Northbrook, suggests a number of questions they should ask themselves.
How satisfied is the student with the school? What is the likelihood he or she will finish college at the school? Is the student likely to graduate in the traditional four years or is it likely to be longer? Do the parents have another child who might have an interest in attending the same school? Is the property located in a community where the parents might want to maintain it for themselves after graduation? Will their child have roommates? Do they have experience managing rental property?
"For parents who have no experience in rental real estate, it can be difficult to purchase a property in another city or state," Doland says.
Pam Borowski, broker associate with Coldwell Banker Devonshire Realty in Champaign, is willing to help. She sold three houses to parents in July. Many are hoping to sell their real estate at a profit when the kids finish school, she says. Meanwhile, renting space to other students can pay the mortgage, meaning the child lives rent-free and saves the the housing portion of the $5,807 to $8,167 that the University of Illinois at Urbana-Champaign is charging for dorm room and board for 2004-05.
Jan Entwistle, broker/owner of Key Realtors/GMAC Real Estate in Macomb, suggests potential buyers select properties zoned multifamily so they can rent legally to several roommates. In her area, properties are priced as low as $30,000 and Entwistle estimates that over the last three years values rose 11 percent or 12 percent.
"People who buy houses often don't sell them when the student leaves," Entwistle says. "They hand them over to our management department and we rent them continuously to students. They bring a great return."
The FHA "Kiddie" Condo Loan Program can help parents fund their purchases. It allows someone with no income, i.e. the student, to obtain a home loan on a house or condominium with a non-occupying co-buyer, as long as the co-buyer is a relative, says A.W. Pickel, president of Leader Mortgage Co. in Lenexa, Kan., who has been handling this type of loan for more than 12 years.
The loan allows a down payment of as little as 3 percent; a lower, owner-occupied interest rate on the mortgage as compared to the higher investment property interest rate; and helps the new borrower (the student) establish a solid credit rating, according to the agency's Web site, www.fhainfo.com/kiddiecondos.htm.
Those parents also need to think about the amount of responsibility their student is willing and able to accept, Pickel says. Tasks such as finding renters for excess bedrooms, collecting rents, paying utility bills and keeping the property in good condition necessarily fall to the student.
Raymond Kincaid assigned chores to his renters, but there always was at least one who refused to cooperate, his mother says. Raymond wasn't particularly handy, so when plumbing problems arose he called her. A Macomb telephone book in Sally Kincaid's Barrington home gave her easy access to local repair people. She and her husband spent time in Macomb each summer doing yard work and attending to minor repairs.
"Buying the house was one of the best things we ever did," says Kincaid. "The taxes were very low and there was never a problem renting the rooms."
This article originally appeared in the August 29, 2004 issue of the Chicago Tribune