Going to college? Buy, don't rent; Alternative: Apartment rents in some areas have become so high that parents find it's cheaper to buy housing for their college students.

THE BALTIMORE SUN

After a day of apartment hunting with their college-bound children, many parents may reach the same conclusion as Nancy Coakley.

"For what they're asking for rent in downtown Baltimore, it's makes more sense to buy a condominium unit," she said.

That's exactly what Coakley and her son Gregg, a student at the University of Maryland dental school, did.

The monthly mortgage and taxes on the unit they purchased in Harborway East in Otterbein came to about half the rent for a two-bedroom apartment at the Inner Harbor.

A small but increasing number of parents are choosing to buy rather than rent when it comes to housing their kids when they go off to college. With rents in the city rising to $1,200 a month for apartments, and room and board in a college dormitory averaging $6,000 a year, a $100,000 condominium, financed with a 7.5 percent mortgage, amortized over 30 years, can seem like a bargain.

"Paying that much rent over the four years their kids are in college generates no equity," said Jim Lears, a certified public accountant with Clifton Gunderson LLC.

Aside from the thought of spending all that money on rent, parents buy condos for two other reasons -- the tax benefits and the long-term investment potential.

"They buy a unit as a second home so they can write off the mortgage interest and taxes," Lears said. "Then, after the kid is finished with school they can either sell the unit or rent it and make a profit."

Coakley was on his own when it came to finding shelter the summer before he started dental school at the University of Maryland, Baltimore in 1997. According to the university, students must rely solely on the private sector for housing.

The scarcity of apartments near the campus, along with the high rents, made his family decide to buy a two-bedroom unit on Andrew Place, just off South Charles Street and within easy walking distance of the campus.

Depending on the square footage, a one-bedroom apartment near the downtown campus can rent for between $750 to $1,000, while a two bedroom goes for $950 to $1,800.

"People start looking in May at apartments, then make the decision to buy," said Bob Fisher, an agent in the Federal Hill office of Long & Foster Real Estate Inc., who was Coakley's agent.

"They want to settle and move before the start of school in August or September," Fisher said. A typical sale would be a two-bedroom, two-bath condo in the $100,000 to $120,000 range, which is usually the parents' budget limit," he added.

Although Coakley lives by himself, roommates can play an important role in reducing the costs of condo living.

"A roommate can pay about $500 to $600 for their own bedroom and bath, which covers most of the mortgage payment," Fisher said. The more roommates, the more carrying costs are covered, including the $200 to $300 monthly maintenance charge on a condo.

Not every two-bedroom unit is taken up by a roommate. The second bedroom is sometimes used by the parents when they come to town to visit.

Although the mortgage, taxes and maintenance fees may be equal to or less than rent, there's still the problem of the down payment and closing costs.

Depending on the lender, the required down payment could be at least 10 percent. Settlement costs, ranging from 5 percent to 7 percent of the purchase price, must also be included, as well as any points paid to the lender.

A point is equal to 1 percent of the loan amount. Add that expense to tuition costs of up to $20,000 a year, and this type of real estate transaction becomes something only the well-off can afford.

Another reason parents prefer to buy, Fisher said, is that the quality and condition of a condominium unit many times is comparable to the suburban homes in which the children grew up.

"A lot of the apartments we saw were dumps," recalled Coakley, who said the view of trees and landscaping from his Andrew Place unit reminds him of his home in New Jersey. The Harborway East complex was built in the 1980s, but the design blends with the surrounding historic rowhouses in Otterbein.

When the student completes school, the parents must decide whether to sell the unit or hold it as a rental property. If they choose the latter, depending on their tax and income status, they can benefit from depreciation and the deductibility of the cost of repairs and common charges. But this choice is a double-edged sword: Along with the financial advantages comes the headache of being a landlord.

With some exceptions, most student buyers of condos are like Coakley; they attend the professional schools of the University of Maryland's Baltimore campus or are doing graduate work at other universities.

"About four out of five sales in this market that come across my desk are for graduate or professional students," said Jerry Sopher, an attorney with Continental Title Co.

According to Fisher and other agents, the market for college condos in Baltimore is limited to basically four neighborhoods: Federal Hill, Fells Point, Otterbein and Canton.

"The children's peers tell them that these are the hot spots in the city with lots of bars, restaurants and shops. That's where they want to live," Fisher said. This also influences the parents to buy there. Because the neighborhoods are so popular, they know there will be a good resale value on their investment.

The Coakleys already know Otterbein is one of the most desired places to live in the city because of its proximity to the Inner Harbor and Camden Yards. They saw the demand for housing in the neighborhood and, in July, bought another unit at Andrew Place right above the one they purchased in 1997.

Gregg Coakley moved into the upper unit and rented out the lower one. Rather than renting out the units after he has completed school, the Coakleys will probably sell them -- at a healthy profit given the rejuvenation of Baltimore's condo market.

The once moribund condominium market has rebounded. More than 900 condominiums were sold between 1996 and 1998 in the Inner Harbor and North Charles Street corridor with an average sales price of $122,000 in 1998, compared with $101,982 the year before, according to the Metropolitan Regional Information System.

The Coakleys bought at the right time. A condo such as theirs has the potential to yield a significant gain if they sell when Gregg Coakley graduates in 2001.

But while sales have accelerated, no new condominiums are being built, making the search for units far harder for student and nonstudent alike.

"The market is very, very tight for condos," Fisher said. "Many in the $100,000 price range are being gobbled up."

There have been some sales around Johns Hopkins University's Homewood campus in buildings such as The Colonnade, the St. James or the Villages of Homeland, according to Dan Cunningham of the Federal Hill office of O'Conor, Piper & Flynn ERA.

Still, many Hopkins students have opted for the Inner Harbor neighborhoods. For those attending Hopkins' medical school though, Fells Point is the natural location, especially with a shuttle service going up Broadway to the school.

Around the area's suburban college campuses, students usually rent.

"Parents don't buy in the suburbs," Fisher said. "There isn't the resale potential like there is downtown."

Condos are almost always preferred over a rowhouse, Fisher said, although he knows of a father who recently bought a house for his son in Ridgely's Delight near Camden Yards for $97,000. With three roommates, all the expenses were covered.

Many of the rowhouses for sale in the $100,000 price range in the most popular neighborhoods need repair work. "Parents don't want to get into renovation of a rowhouse; they want something that their kids can move into right away," Fisher said. "Plus, there's less maintenance with a condo."

Baltimore's college condominium market is tiny compared with campuses across the nation. There are reported to be more than 100 colleges with condominiums adjacent to their campuses that specifically target student users. The University of Texas at Austin and Tulane University in New Orleans have some of the most extensive developments.

Nancy Coakley would advise parents to look into the possibility of buying a condominium. "It was just a good idea," she explained, "and it was a safe investment."

When he graduates, Gregg Coakley plans to return to New Jersey to set up a dental practice.

"Instead of $48,000 in rent receipts, the equity from the sale of the condos will be the capital for my practice," he said.

To rent or buy?

A $100,000 two-bedroom condominium vs. a $1,200-a-month, two-bedroom apartment:

Condo purchase price: $100,000

Upfront costs: $13,250

Down payment (5%): $5,000

Points: $1,250

Settlement costs: $7,000

Monthly mortgage payment: $664 (30-year mortgage on $95,000 at 7.5%, paying 1.25 points)

Monthly property taxes: $208 (Estimated at $2,500 a year)

Estimated monthly maintenance fee * $300

Total monthly cost: $1,172

Estimated monthly deductible property tax and mortgage interest: $762

* Not a deductible item.

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