Engle Realty: Louisiana Real Estate
Residential & Commercial Real Estate Sales and Rentals
This article compares living in Louisiana State University's dorm community with purchasing real estate. It is very detailed, so you may want to refer to the table at the bottom of this article that recaps all the information in a quicker and easier format.
In an effort to be conservative, we've used the least expensive dorm room available back in a few years ago. Please keep in mind that as housing and meal plans have increased and will continue to increase, it makes even more financial sense to purchase rather than to rent.
In this analysis, Jackson Hall (Pentagon Community), which is for $2,305 per semester. Since, LSU requires that on-campus students purchase a meal plan, we're using the cheapest meal plan available, the (100 meal plan) "Tiger Lite" meal plan for $1,377 per semester. Let's say that half of those meals are used (as most students don't use all their meals) at an estimated $7 per meal that would be $350. Lets deduct that from the plan, to give us an averaged $1000 for the additional meal expense. That totals $3,332 per semester. At two semesters per year it would total $6,664. If the student only takes the minimum four years, the total would be $29,456. To stay simple, lets round that figure off to $30,000.
Lets use this a sample property in a good location south of LSU's campus to compare that is currently on the market. It is walking distance to LSU and in a very good area. It's actually currently priced just under $90,000, but lets be simple and use a $100,000 sales tag for this one bedroom condo at a 6% interest rate for 30 years (using 0% down payment),
$599.95 + $70 in electricity + $120 in condo fees that includes insurance/water/sewer/garbage/lawn etc. + $0 in taxes using homestead exemption +46 for interior contents condo insurance. Per month that totals $835.95 a month. Over one year it is 10,031.04. Over four years it would be $40,125.60. To be simple, let's make that $40,000.
Okay, so from this standpoint you may be thinking, "It's cheaper to live in a dorm than to purchase." If we stopped here, then you'd be correct, as the dorm costs $30,000 over four years and the condo costs $40,000, which is a difference of $10,000. But if we stopped there then we wouldn't be looking at the whole equation.
You see, after the four years, you would owe $94,614.53 on the condo, a difference of $5385.47. That $5385.47 is the "principal" that you get to keep. When renting, the entire rent can be considered your "interest" payment and there is no "principal" when renting. So even if you bought it for $100,000 and sold it for the same exact price, then you'd still be selling off with roughly $5,000. So, let's see, $10,000-$5,000 is now $5,000.
But that isn't it. Real estate has its ups and downs in the economy. But when you buy right in the right location, your property will more than likely appreciate after the four years. Let's use a conservative $5,000 flat rate of appreciation per year (about 5%), which would be $5,000 per year... Do you start to see where this is going? After four long years in real estate time, the condo is now worth $120,000, leaving you about $12,000 net after real estate agent and closing costs. So, $5,000-$12,000, is now a $7,000 difference.
Even more, you can depreciate the property from taxes, which can offset any expenses the student may have when tax time comes.
That is being conservative. What would make the deal even nicer is if the condo was a two bedroom condo where the student rents out the other room to a friend who pays say $400 for the room. Lets be conservative and say that there is some vacancy down time and make that $300 a month over 4 years. That would be income of $3600 a year and $14,600 in rental income, which can be offset by depreciation and expenses incurred in maintaining the property.
$7,000 difference is now $21,600 difference.
So in conclusion, given all of these benefits when owning real estate, living in the dorm would cost $21,600 over the course of a four year period.
|Jackson Hall Dorm Room||Condo|
|Facility||2-Student, hall bath||1 bedroom, 1 bath, Private condo|
|Annual costs||$6,664 (including mandatory meal plan minus deduction)||$10,000|
|Total 4 year costs||-$30,000||-$40,000|
|Appreciation||N/A||+$7,000 after sales expenses|
|Rental Income||N/A||+$14,600 (rent extra room option)|
|Monthly rate may change?||YES (dorm fees could be increased at anytime during the 4 year period)||NO|
To add to this, investing in LSU real estate makes even more sense the longer the college period grows. Most students don't graduate in 4 years. The extra time will mean that, from an investment standpoint, the real estate should appreciate accordingly, any rental income received during that period would increase accordingly, etc.
From a purely economical analysis, as this article is, it makes much better sense to purchase a condo than to live in a dorm. There are more benefits to home ownership, apart from economical benefits that this article does not cover, however even just looking at it simply from the economic benefit of owning real estate, you'll should now see why ownership outperforms renting or dorms hands down.
Contact an Engle Realty agent today to get started in investing in LSU real estate.