Thursday, January 7, 2010

Foreign / Overseas parents of New York University, Columbia students. Buy Manhattan property?

For affluent parents of students attending NYU or Columbia, a common question is whether to buy a condo investment property in Manhattan for their child to live in.  Of course, there is no right answer.  Here are high level pointers:

* Staying at the dorm is more expensive than renting an apartment outside.  The dorms, along with the meal plans are revenue streams for the universities.  Columbia and NYU are major landlords and own many properties, land and buildings.  They understand the benefit of owning.

* Renting is the lowest cashflow option.  It's cheaper than staying at the dorm and does not require the large capital outlay associated with buying.

* Buying a condo or building is obviously the long term wealth building strategy.  In this market (because prices have depressed enough).  However, Manhattan property requires tying up at least 40 percent down to break even with rent.  This is capital that may be more productive in another investment. 

Hence questions to parents include whether they have money to park and their outlook on Manhattan New York property.  Assuming tying up the downpayment is not an issue and they plan to hold for more than 5 years, then buying is a good option.   But if availability of resources is an issue, then they should consider having their child either rent or stay at the dorm.

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