Eight semesters at the local university, including room and board, costs approximately $140,000. With such high expenses, parents are seeking creative ways to come out flush, or at least not broke, at the end of their child’s college education.
By Rick Wallace/Special to The Malibu Times
When Barry and Amanda Pfeiffer brought their son Luke to his dorm room for his freshman year at Pepperdine University in 1996, boy and parents were about to experience different sensations.
For Luke, it meant the beginning of four years of education, ocean-view inspiration and college fun. For the folks, it meant $90,000 in reduced net worth.
That would be for tuition only, room and board not included.
One year later, the Pfeiffer’s (not their real names) took an aggressive step toward reducing their son’s educational costs. They bought a condo in the Malibu Canyon Village, near campus, and a whole new financial structure emerged. The two-bedroom unit cost $150,000 in the summer of 1997. For three years, Luke lived in the condo with a roommate, who paid rent. This summer, it was sold for $265,000.
It is a rite of summer in the Malibu condo market: A new crop of Pepperdine parents search for the least expensive housing to purchase, wishing to offset weighty tuition with real estate appreciation.
For eight semesters at Pepperdine, $105,120 is today’s cost, (subject to future increases, of course). The fee for room and board on campus is nearly $4,200 per semester. A freshman entering school this week confers to their parents a reckoning of nearly $140,000.
The Pfeiffer’s put down 20 percent that summer, or about $30,000. They purchased the lowest priced unit in the complex, already known for having high rental occupancy with local students. When the final sale proceeds arrived this summer, there was a net of $126,000 to enjoy after selling costs and loan payoff. (Capital gains were deferred when the Pfeiffer’s purchased a replacement investment property near their Riverside home.)
There is no guarantee that a $150,000 purchase will grow to $265,000 in five years, an increase of more than 75 percent. As long as Malibu real estate is on the rise, however, some parents aim to offset the tuition, room and board costs with local property appreciation.
Earlier this year it was rumored that a $2 million home purchase was earmarked as living quarters for a son during his four-year Pepperdine visit.
The ballpark cost for a student room rental in Malibu is $600 per month. A two-bedroom condo will often have three students, paying about $1,800. For the parent renting to two unrelated students, that is $1,200 per month, or more than $14,000 rental income during the year, which practically covers the interest cost of the loan to buy the unit.
There are pitfalls and risks to this plan, of course. A parent must have the funds to make the acquisition, and not need that cash for years to come. The parent must pay homeowners dues, (which can be about $400 per month in many Malibu complexes), and property taxes. As a homeowner, they are at the mercy of the association where special assessments or legal entanglements can deplete capital. And, again, there is no guarantee of any appreciation.
Any investor can place their money in any number of places, but the cornerstone in this case is to provide a place for the student to live while attending college. Food and supply costs are still extra. (An apartment with a kitchen on campus, without cafeteria privileges, costs $3,100 for four months.) Living off campus, in a guarded complex with a nearby parking garage, pool and tennis court, is generally less expensive than campus living.
In the Malibu Canyon Village on Civic Center Way, out of 104 current owners, approximately 15 percent have purchased with this scheme in mind. Other locales farther away from campus get their share of parents, also. The very scheme itself drives the market, particularly each summer, and helps propel prices upward. Combined with the fact that lower-priced condo construction is seemingly infeasible and essentially disallowed by the city, the local market is perpetually fueled with consistent demand on limited supply.
Condo prices are up as much as 20 percent in Malibu already this year. Sometimes, one Pepperdine parent sells to another.
With 7,000 students attending Pepperdine, the housing demands upon Malibu are robust. Additional students arriving for the Drescher Graduate Campus and School of Public Policy, under construction in the upper hills, may further heat demand.
After Luke graduated in 2000, the Pfeiffer’s kept the unit for two more years, collecting rent as the market increased. The occupants changed. Law students took possession, but the rent money kept rolling in.
What was the net four-year expense for the Pfeiffer’s to own a residence in Malibu and have their son attend one of America’s top 50 universities (according to U.S. News & World Report)?
- Tuition and school-related costs were about $110,000, including a year living on campus.
- Out-of-pocket living expenses, including the down payment to buy the condo, interest expense over five years, homeowners dues and property taxes were also approximately $110,000.
- Gain from the sale, minus expenses, as well as rent received over five years added up to about $160,000.
- Approximate net cost to the Pfeiffer’s: $60,000. A Pepperdine education at half the price.
Rick Wallace of the Coldwell Banker Company (and a 1979 graduate of Pepperdine), has been a Realtor in Malibu for 15 years. He can be reached at RICKMALIBUrealestate.com