> Homeowners' Advice
College-Bound Students Change Real Estate Needs
by Peter G. Miller
In homes throughout the country the mail is being watched with great care. Letters from colleges are arriving each day, many bearing news of acceptance to one institution or another. Parents, of course, are elated by such news -- at least until they see the tuition bills. No less important, in many households as children go off to college there is the real problem of too few residents and too much space: What is now a cozy nest will soon rival an airline terminal in terms of excess footage. For years homes have been growing in terms of square area while the number of occupants per household has been shrinking. The result is more square feet per occupant, a luxury when a home is filled with people but a costly excess when children leave. The unfolding issue for many households with college-bound children is this: Do you stay, sell or do something in-between? In the short-term parents need not make a quick decision because the children will come home if only for the cooking and excellent laundry facilities. But you can see that not far down the road visits will be less frequent while the need to dust scads of excess space will continue. The case for staying is strong: It's your home, it's where you raised the children, you're comfortable, you know the neighbors and the neighborhood and by staying you do not have to go through the physical and psychic trauma of moving. Moving to a new jurisdiction may impact the ability to obtain state awards and scholarships and to qualify for residential tuition rates. Also, by holding onto a larger home there will be room in the future for multi-generation living, an increasingly-common arrangement. Alternatively, if you move you're likely to have profits Uncle Sam will not tax. A smaller property will have a lower monthly cost and less maintenance. If you move to a new home you'll also get a better use of space and more modern features than found in older houses. Buried in the discussion of to sell or not to sell is another matter, one which is hard to ignore. The real estate market in many communities has been strong because the population keeps growing and the number of available building lots in desirable locations dwindles steadily. The result is that many households have an asset which appreciates with some regularity each year. In fact, for many families a home is their greatest single financial asset. "Households," says Federal Reserve Chairman Alan Greenspan, "own more than $14 trillion in real estate assets, almost twice the amount they own in mutual funds and directly hold in stocks. Over the past two years, significant increases in the value of real estate assets have, for some households, mitigated stock market losses and supported consumption." It's somewhat strange to consider, but at the rate some areas are appreciating property values may increase in four years by enough dollars to cover all college costs. This is not guaranteed, of course, but in given communities it's also not unreasonable. Thus the real conflict for the parents of college-bound children is excess space versus the potential for more appreciation. What to do? The way the tax rules are now constructed it may be worthwhile to consider a middle course: hold the property at least while the children are in college and then rent for two years. This way owners can benefit from the federal tax rule which says that in most cases to write off profits from the sale of a prime residence owners must have lived in the property for two of the past five years. For details, be sure to speak with a tax professional. The attraction of this approach is that as much as $500,000 in profits from the sale of a prime residence can be sheltered from taxes for married couples, and up to $250,000 for individual owners. But what happens if real estate prices stagnate or fall? Across the country, says the National Association of Realtors, home prices have increased on a cash basis each year since 1968, the first year records were kept. At the same time, it's also true that home prices have not increased equally in all locations and that in some areas prices have actually declined for given periods of time. So if your children have been accepted to college, congratulations. Now please open your blue books and complete this question: Given your needs and preferences, is it better to stay, sell or rent? There is no "right" answer and you will not be timed. Begin now. | 
