Rent vs Buy in Portland, College Edition
Portland is home to a lot of great colleges — Portland Community College, Reed, Lewis and Clark, University of Portland, Concordia, Warner Pacific – to name just a few. Students from across the country will be moving to Portland this fall, and if you’re looking at this Portland real estate blog, chances are you’re a parent wondering if it makes sense to buy a home, condo, or townhome for them to live in.
You probably already know that Portland is a great city to invest in, and that the rental market is tough. If you have the financial ability to help your child, you may be thinking — why not buy and save my student the hassle of renting while they’re in school? Or perhaps the cost of room and board is so high that a long term investment makes more sense.
As a Portland real estate agent, I advise people on the rent vs. buy question all the time. The answer depends on a lot of things — how long you’ll want to own the home, the value is of the home, and of course what rents are compared to mortgage payments. Let’s look at the rent piece first.
Portland Rental Market
Rents have been going up in Portland — and across the country — for years. While some gains have been made in the areas of affordable housing, low inventory in Portland continues to make the rental market very tight, driving up rents.
According to data from apartment industry association Multifamily NW, Portland rents rose 7.9% since spring of 2016. However, Zillow has also surveyed Portland rents and come up with a 3.8% increase year-over-year. Still, this is significantly more than the national rate of rent increase, just 0.7%.
The average Portland rent is now $1,116 for a one-bedroom apartment, with a 4% vacancy rate, according to Multifamily NW.
If the student’s plan is to live off-campus, buying a home or a condo in Portland can start to make sense in the light of the fact that while rents will likely continue to rise sharply in Portland, locking into a mortgage rate now means that housing costs will be relatively flat for the next four — or more — years.
On the other hand, if your student’s college is outside of Portland, or if they don’t mind commuting, renting can be affordable in certain outlying areas. The Multifamily NW report also found that rents actually fell in Hillsboro (6% over the past year) and Northwest Portland and Beaverton (both down 4%).
However, there’s still the basic reality of renting: You’re helping someone else make their mortgage payment, instead of building equity in a piece of real estate you own.
Plan to Rent Beyond College
In fact, while Portland home values are climbing, mortgage rates are still at historic lows. Perhaps that’s why the Zillow report gives a “break even” horizon for Portland renters of right around three years. That’s the number of years you must live in a home before owning it becomes more financially advantageous than renting that same home.
Most college students are going to need a place to live for at least three years, so if everything goes according to the numbers, selling it at that point will put the home buyer only slightly financially ahead. The longer you hang onto and rent out the home (perhaps as an investment or perhaps your child stays in town for a while after their degree), the further ahead you’ll get.
Portland Home Values up 12%
Getting a good return on your investment in a home depends not just on a strong rental market, but also on home values in Portland actually going up. Let’s take a look at those numbers.
According to the April RMLS report, the most recent available, the median home price in Portland over the past twelve months was $355,500. This represents an 11.6% increase over last year. In other words, if you would have purchased a median-priced home in April 2016, it would now be worth almost 12% more!
That’s a pretty good return on investment, and it holds throughout Portland neighborhoods that are populated by college students.
The Student Factor
According to US News, as many as 1 in 3 students may end up dropping out or transferring in their first year of school. In addition, many students will want to spend their first year in college living on campus, assuming that it’s an option. That’s why many parents who buy their students homes or condos in Portland do it after their student’s first year.
Know your student, and keep in mind that the way they take care of their car and other high dollar items is likely the same way they will take care of a house! As with all home purchases, the mortgage payment is not the only expense to think about. Buying your student a home in Portland will also come with the associated costs of home ownership — more if the student is not able to take care of basic maintenance. Consider an easy maintenance condo if they’re not excited about shoveling snow, mowing the lawn and weeding the driveway.
On the other hand, parents have reported great results by having their students invest in the home with them, even if it’s a token amount. Owning a home is a great learning experience, and before your student goes to their first class they will already have taken Investment 101! Not only that, but learning about the responsibilities that go along with property ownership as they’re in school will set them up for success down the road.
So, should you rent or buy for your college student? If you’re thinking of buying, start by finding a top local buyer’s agent that can help you locate the right property. Portland has a very strong real estate market right now and out of any city in the US, it’s a good place to invest in a home.
