CU Parents: Dollars and Sense

by Osman Parvez

I just came across an interesting listing, one of which could be a good fit for parents.

Let's say you're helping Junior pay rent (off or on-campus housing) while attending CU in Boulder. Does it make more sense to buy instead of rent? Given the bubblicious hoopla and sky is falling news articles about real estate recently, you're probably thinking renting is a smarter way to go.

As one of my favorite finance professors used to say, "The answer is... it depends." If you're thinking about buying, know that we're now entering the pre-leasing season. It's time to get serious.

To rent a bedroom in a 3BR house/apartment with couple of friends here in Boulder typically costs each tenant $500 to $600 per month, not including utilities. In some cases, bargains can be found for slightly less but $500 to $600 is more typical. (Legally, the city of Boulder does not allow more than 3 unrelated individuals to live together. Naturally, rent is lower when students illegally pile into an apartment.)

In the following situation, buying may indeed save you money. Using my handy Buy Vs. Rent model (available on request), plug in parameters for a potential property and your assumptions.
Here's a current example: a 2BD, 2BA condo at 3240 Iris. It just had a price reduction this week and is now listed at $149,900. Assuming you can swing a downpayment and have credit to qualify for typical rates, you can get a fixed rate mortgage for around 6% (or better). This property has an HOA of $193/month and annual taxes of $877 (last year). Note: All of these assumptions can be changed to suit your specific situation in the model.

According to my calculations, if you rent out the other bedroom and Junior stays here in Boulder for 4 years - the property must appreciate at 2.3% (or better) for it to make better financial sense than renting. That includes an allowance of $1000/year for maintenance, the HOA fees, and getting $500/month from one of Jr's friends for rent.

Oh, but Junior is done in 3 years (so you think)? Ok, according to the model the property has to appreciate at 3% or better to make more sense than renting.

What about the commissions for the realtors? I included that. The numbers above assume a full 6% commission to the realtor(s). I also bumped the taxes to $1,000/year.

Note: The calculation doesn't include the tax advantages from the mortgage interest and those can be substantial in the first few years of ownership. Consult your tax advisor.

How likely are attached dwellings in Boulder to appreciate at 2 to 3% annually? In my opinion, it's a conservative risk given the attractiveness of this market and the long term drivers of value for Boulder real estate (for owners).

But it's a dump, right? Surprise! This property isn't a dump. It features all new windows, faces the foothills, has newer carpet, custom paint, and Maple cabinets. It also has new bathroom lighting, faucets and sinks, and a new dishwasher. There's a fireplace, the seller promises more new light fixtures, and the condo complex even allows Junior to have a cat. The building also has security features, an indoor pool, exercise room, a community house, and even tennis courts.

More Details? Ready to check it out? Contact us for a showing appointment or if you'd like a copy of our buy vs. rent financial model. You can also call me at 303.746.6896.

Like this analysis?    Subscribe to our client research report.     
Want to get blog updates via email?  Click HERE.       
Ready to buy or sell?  Schedule an appointment or call 303.746.6896. 
You can also like our Facebook page or follow us on Twitter.

As always, your referrals are deeply appreciated.  

The ideas and strategies described in this blog are the opinion of the writer and subject to business, economic, and competitive uncertainties.   We strongly recommend conducting rigorous due diligence and obtaining professional advice before buying or selling real estate. 

Please Note

This document contains forward-looking statements. You are strongly cautioned that investment results are subject to business, economic and other uncertainties. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time. Always consult your financial advisor before making an investment decision.