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Compare the costs: Rent, buy or live in a dorm
By Michael
D. Larson • Bankrate.com
Our comparison below of the cost
of buying a property near campus, renting a comparable apartment
or living in the dorms is based on a number of assumptions. All
figures are based on costs from July 2001.
We chose a three-year term because many colleges
and universities restrict freshmen from living off campus. Also,
our student is coming from a family with an adjusted gross income
of $90,000 a year, which falls in the 28 percent federal tax bracket.
The college is the University of Illinois at Urbana-Champaign.
The ownership calculations are based on a $75,000
two-bedroom house in Champaign that is 10 years old. The buyer put
20 percent down and has a $60,000, 3/1 adjustable rate mortgage
with an annual percentage rate of 6.82 percent from Bankrate.com's
average rate for Illinois.
Closing costs come to about 3.5 percent of the
loan or $2,100.
Homeowner's insurance on such a property would
be $304 a year, says Mary Vail's State Farm Insurance office in
Champaign. Yearly property taxes, based on Champaign's 7.6463 percent
rate and a 1/3 assessment, would be $1,909. The maintenance figure
comes from the National Association of Home Builders, which estimates
costs based on government census data and other information.
Rent is calculated based on the student paying
$400 a month to a landlord, or a $400 rent payment from the roommate
in the case of the parent-owned property.
Rental property costs are based on a sampling
of area listings. Renter's insurance costs were provided by Statefarm.com,
which has branches in that area. Rent increases were not factored
into the equation.
Dorm rates for the 2001/02 school year come
from the University of Illinois' public affairs and housing information
offices. Dorm costs represent a median cost for a room with double
occupancy and minimum meals.
| Buy |
| Expenses |
Principal payments
(after 20 percent, $15,000 down payment) |
$2,137 |
| Closing costs |
$2,100 |
| Interest payments |
$12,081 |
| Property taxes |
$5,729 |
| Homeowner's insurance |
$912 |
| Routine maintenance |
$1,473 |
| Total expenses over three years: |
$24,432 |
| Tax
deductible items |
Interest |
$12,081 |
| Property Taxes |
$5,729 |
| Total deductions |
$17,810 |
| Income |
Rent from roommate |
$14,400 |
| Total income |
$14,400 |
| Basis
for tax deduction |
$3,410 |
| Total
tax saving |
$955 |
| Total
expenses |
$9,077 |
If the home were sold at the end
of the three-year period for the same price paid at purchase,
the parents would have $16,365 left after paying off the mortgage,
allowing them to recoup the $15,000 down payment. Unfortunately,
there is no profit, as housing expenses of $9,077 must be deducted.
But, all total this type of student housing cost the family
only $7,712 or about $2,750 per year. These calculations assume
that the house did not appreciate. If it did, the costs would
go down and the family may even enjoy a profit.
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| Rent |
| Expenses |
Rent |
$14,400 |
| Renter's Insurance |
$480 |
| Total
expenses |
$14,880 |
| Dormitory |
| Expenses |
Rent |
$16,998 |
| Total
expenses |
$16,998 |
| But dorm expenses cover only 9 months
of living each year (27 total months). To allow for an even
comparison with the 12-month costs of renting and buying, we
extend the dorm costs out for another 3 months each year (or
9 months tot al) and we find that the bill for 36 full months
in a dorm would be $22,664. |
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