It can really be any piece of property; a condo, townhome, detached home or apartment. Where you can gain the most benefit from is purchasing with your student on the lease and the title, here's why.
1) Better Interest Rates
If you were just buying a home for your son or daughter and their friends to live in during the college years, and have them pay you rent, technically you would not be occupying the residence. That being said, your property is classified as an investment, rather than owner occupied. Investment homes typically carry a higher interest rate than owner occupied, typically .375% to .5% higher. That can really add up over a 30 year term. Getting your student on the title and loan will keep it in "owner occupied" status, which will lock in that better interest rate, even if you charge rent for a few roommates.
2) Building Credit
Let's face it, good credit can be tough to come by with college students. Some get buried in debt, either consumer debt or student loans, and have to spend the majority of their twenties digging themselves out. Credit is not easy to build with bad debt, so keeping your student on the loan and title of their college condo could be the best thing to help establish good, reliable credit. Once they're done with school they'll be off to a great start with great credit.
3) Tax Advantages
Just like getting better interest rates, having an owner occupied home has tax advantages at the eventual sale. Primary residences are exempt from taxes (up to $250k single/$500k married). What that means for you is if the home appreciates, you and your student will be free from paying taxes on the gains, which wouldn't be the case if you had purhcased as an investment. Maybe as a graduation gift, the student could use that gain on a downpayment of their very own home, or at lease backpack around Europe for a few months...
These are just a few advantages of getting your sophomore on the title when it comes times to get out of the dorms. If you have any questions please feel free to contact me!
Jared Reimer is a real estate broker with Prudential Rocky Mountain Realtors in Northern Colorado. Real estate is his passion and he always wants to connect with like-minded and savvy real estate fans. For more information or to get in touch with Jared, please visit his website at www.ReimerRE.com or email him at JaredReimer@ReimerRE.com