Buying a Condo in Irvine CA. fo use as UCI student housing can be a great alternative to renting. Let’s take a look at an example to see how the numbers work.
A typical 1 bedroom rental apartment on UCI campus property rents for about $1,000 per month and will be about 600 square feet in size with a kitchen and bathroom. This $1,000 monthly expense is mostly not Tax deductible and after 4 years of College education, you’ll have nothing to show for it.
As an alternative, one (student or parents) can purchase a 2 bedroom Condo in Irvine within a 12 minute drive to UCI. There are currently 4 Condos for sale in Irvine ranging in price from $355,000 on up to $400,000, that have 2 bedrooms, 1 bath with about 900 square feet of living area.
Let’s use a nominal figure of $400,000 for this example as the purchase price. The parents invest a down payment of 20%, leaving a loan amount of $320,000. There are many loan options today, but let’s assume a fixed interest rate of 6% amortized over 30 years, which yields a principal and interest payment of $1,919 per month. The Taxes are an additional $383 per month (No Mello-Roos) and the association dues are nominally $250 per month. The fire insurance is built into the association dues.
Adding up all of these monthly expenses, yields a total monthly cost of $2,552 per month. The next step in this example is to rent the extra bedroom to another student. This 1 bedroom can easily rent for $750 per month which is $250 less than on Campus housing due to the fact that the rental Condo is off Campus and the bathroom is shared. Subtracting the $750 income minus the $2,522 expense, yields a net monthly cost of $1,802. Now the typical family putting their sibling through college at UCI is probably in the 35% Federal Tax bracket and let’s assume another 5% in State Taxes. This results in an approximate $750 per month Tax Deduction. Subtracting this $750 Tax Deduction from the actual net expense of $1,802, yields an effective $1,082 monthly cost for your College student. To summarize, the $1,000 per month student rental cost, is about the same net cost of $1,082 per month for the purchased 2 bedrom condo.
There’s more. Let’s assume a very conservative 3% per year rate of appreciation for real estate for the next 4 years. Using the $400,000 initial purchase price, and after 4 years of College, your 2 bedroom Condo is now worth $450,204. Now you can keep this Condo and continue to rent to College students or you can sell it using a 1031 Tax exchange in order to avoid Taxes on your capital gains, and buy another rental home in some other City or State.
The results above could be slightly improved if one purchases a 3 bedroom, 2 bath Condo and rented out 2 bedrooms to 2 other students. Or, if one uses a lower interest payment loan such as a 5 year lower fixed interest rate, which then rolls into an adjustable rate loan after 5 years, with the assumption that the Condo would be sold after 4 years of College.
To view all Irvine Condos for Sale, visit our website at Irvine Real Estate. If you would like to discuss this program in further detail, please feel free to contact the author.
