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Buy vs Rent: Making the Smartest Housing Decision for Your CU Boulder Student


Buy vs Rent: Making the Smartest Housing Decision for Your CU Boulder Student

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The Strategic Case for Buying College Real Estate in Boulder, Colorado

Boulder, Colorado, is in the limelight more than ever, thanks to the arrival of Coach Prime in 2023. The city, already well-known for its breathtaking landscapes and the University of Colorado Boulder, is a buzzing hub of academia and athletics. As more eyes turn towards Boulder, it's worth considering another crucial aspect—student housing. With average rent costs per bedroom ranging from $1,500 to $2,000, the financial debate of whether to buy or rent in Boulder is heating up.

The Costly Cycle of Renting

Four years of renting a single bedroom can cost upwards of $96,000—a significant amount with no return on investment. And that estimate is not factoring in annual increases in rent, which have been significant in recent years or security deposit. This amount goes towards paying off someone else’s mortgage rather than building any equity for yourself. A shortage of available housing and increased demand has led to continually escalating rents.

In-state Residency

Owning a property in Boulder doesn't automatically qualify your student for in-state residency and the accompanying lower tuition rates. However, it could potentially be a contributing factor. Achieving in-state status is a challenging process, so we strongly recommend that you carefully review the university guidelines on residency if you're exploring this option for your student.

Owner-occupied Financing with Lower Down Payments

If you and your student decide to buy a property together as a first time buyer or "kiddie condo" property, you may be able to obtain owner-occupied financing programs that offer competitive terms and interest rates. There are several other financing programs that are available. We can help connect you with some of the best and most creative lenders in the industry to help guide you to a program that is best for your unique situation.

Building Family Wealth and Potential Tax Advantages

Owning real estate in Boulder not only allows you to build equity with each mortgage payment but also offers potential tax benefits such as mortgage interest and property tax deductions. Unlike rental payments, some of your ownership costs may be tax deductible (consult with your tax advisor). Furthermore, if your property has additional bedrooms, renting them out can serve as an income source to help offset mortgage payments. Many families opt to keep their student property long term to maximize potential appreciation and have rental income streams in the future.

A financial advantage of owning a property in lieu of renting lies in the tax deductions commonly available on costs such as interest, taxes, and homeowners' dues. If the property serves as a second home for your student, they may collect rent from a roommate and direct that income toward school-related expenses, thereby potentially making that income non-taxable for you. Simultaneously, the interest and tax payments could become deductible expenses without corresponding taxable income.

Alternatively, if the home or condo is treated as an investment property, your student and any roommates could pay you fair market rent. This may allow you to not only deduct standard expenses but also account for depreciation. This should not be considered tax advice. Your tax advisor can offer insights on how best to categorize the property—either as a second home or as an investment—based on your specific financial situation. Multiple variables can affect your decision to become a property owner. However, the potential for tax benefits presents a compelling argument against renting, which offers no such deductions.

In many cases, it may be the first property in a family's residential income property portfolio or it's considered their student's first home they own. According to the Federal Reserve Board's Survey of Consumer Finances, the net worth of homeowners is almost 40 times greater than that of renters. Purchasing a property serves as a forced savings account.

So why not start your college student on this path to financial security as early as possible during your child's college years? Owning a home isn't just a lifestyle choice but a cornerstone of American financial stability and long-term wealth creation.

Stability and Control: The Hidden Perks of Ownership

One significant advantage of owning property for your student is the greater control it offers over their living environment. You and your student determine the appropriate quality of housing that your student will be living in at CU. As an owner, you're not at the mercy of the rental market. In Boulder, where there is a shortage of available rentals near the campus, housing can be a stressful annual hunt. Owning a property not only adds stability but also makes expenses and budgets more predictable. You're spared the worries associated with rental housing—contentious relationships with landlords, poorly maintained properties, and the uncertainty of security deposit returns. When your student graduates, they'll have established credit as a homeowner and can use the property’s equity to purchase another home or keep it as an investment.

Owning a property offers invaluable life lessons for your student, serving as a practical education in responsibility. Having a stable "home away from home" can also enhance your student's academic focus while they're in Boulder.Student homeowners who reside in their own property often take great pride in their homes, maintaining them and may have a better chance of steering clear of the non-stop party lifestyle.

Boulder's Attraction and Market Resilience

Boulder real estate showed remarkable resilience during the Great Recession, largely due to its limited inventory that keeps demand steady even in a down market. This offers a level of recession-resistance that can be reassuring. Boulder is one of the most beautiful small cities in the country and continues to be a popular place to live for students, relocating companies and families who dream of living in Colorado. Building equity during the years your student is at CU has historically been a great investment for parents. Although there are no guarantees, because of limited supply and growth control, the area around the Boulder campus has steadily appreciated in value. Although you can never count on property price appreciation, historically, real estate in the city of Boulder has greatly increased in value.

The Investment Potential of Student Housing in Boulder

Owning student-oriented property in Boulder for the long-term comes with its own set of advantages, such as predictable cash flow from tenants who generally pre-lease months in advance of the school year. The continuing cycle of student renters and purchasers provide a stable market for your property when you decide to rent or sell it after graduation.

Why Buy in a Higher-Interest Rate Environment?

While buying may not seem like an immediate solution in a high-interest rate environment, there are potential workarounds, particularly in softer market periods like the winter of 2023. A softer market offers more room for negotiation, potentially allowing buyers to secure better prices and negotiate seller concessions for a 3-2-1 or 2-1 "buydown" to temporarily lower interest rates during the first few years you're paying the mortgage. In a robust seller's market characterized by low mortgage rates and high buyer demand—much like what we observed for the majority of 2020-2022, sellers frequently have the luxury of sticking to their asking prices and may even find themselves in the midst of a bidding war. Conversely, in a less favorable market for sellers, where interest rates are higher and demand dwindles, many potential buyers may feel priced out. This puts increased pressure on sellers to be more flexible in order to facilitate a sale.

Temporarily lowering interest rates through buydowns through negotiated seller concessions for the initial years of the mortgage can significantly lower the monthly payments during the buydown period. A 3-2-1 buy down allows you to have a monthly payment that is calculated at rate 3% lower than the actual rate the first year, a 2% lower rate than the actual rate the 2nd year and a 1% lower rate than the actual rate the 3rd year. Years 4+ your payment will be based on the note's permanent rate. This type of buydown can only be funded by the seller, not the lender or borrower. Terms and conditions will apply.

Rising Demand: The Coach Prime Effect

With Coach Prime's arrival and the idyllic Colorado lifestyle Boulder offers, there's an increasing demand for off-campus housing. This year all eyes are on Boulder and out of state applications to the university have increased dramatically. This demand makes the present moment a potentially ideal and exciting time to invest in Boulder's robust housing market.

The Big Picture

Though renting may seem convenient, buying real estate in Boulder could be a forward-thinking financial move. Given the city’s growing prominence in both the educational and athletic fields, coupled with favorable market conditions in winter 2023, choosing to buy is not just a prudent decision for your college student. It’s a foundational step toward long-term family wealth building and may help your student enjoy a more productive and happy college living experience.

Ready to learn more? Let's Connect.

If investing in Boulder's student housing market intrigues you, I'm here to help. I've assisted countless families in making sound decisions in Boulder and its surrounding areas. Whether you're ready to make a purchase or just curious about the possibilities, feel free to reach out. I'm more than happy to discuss your specific scenario, crunch some numbers and just be a resource to guide you through this exciting journey toward a prosperous financial future for your college student and your family.

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