Your Finance: Buying a condo can lower college living costs

Most people simply bite the bullet and pay for room and board when their son or daughter goes off to college. But some are finding they can save money by buying a condo.

Several compelling reasons make this a good time to buy if you're facing hefty living costs in a college town.

There still are plenty of bargains out there for long-term investors. And while mortgage rates have climbed a bit lately, they'll go even higher if the economy heats up. And property prices would follow, making now a good time to buy real estate in the trough of the market.

The other main reason is that demographics are on your side in a college town. Generation Y, or "millennials" born since 1980, are 70 million strong -- the largest generation since the baby boom. They show no signs of avoiding college, even if the overall economy remains sluggish.

If you buy a property, you will have the option to rent it or sell it and recoup your equity after your child graduates. Given that the housing market is recovering, you might even make a profit.

Here's how the math typically works:

Let's say your child goes to the University of Michigan, one of the country's largest public colleges. The institution lists its undergraduate room and board bill for the 2012-2013 academic year at $9,752. That's in addition to roughly $13,000 for tuition for freshmen -- if you're a Michigan resident.

Using the Zillow real estate search engine, a two-bedroom, two-bath condo near the Ann Arbor campus lists for $110,000. The original 2003 selling price was $140,000.

With excellent credit, you can get a 30-year, fixed-rate mortgage at 3.45 percent with a 20 percent down payment. The monthly bill would be $610, which includes $393 for principal and interest on the mortgage; $159 for taxes and $59 for homeowner's insurance, according to Zillow.

Including the monthly condo fee of $281, you'd be paying $10,692 a year, or roughly $8,000 for nine months.

If your kid returns home for the summer or travels elsewhere, you can rent out the space to a summer school student. For further savings, if the place is big enough -- and it's not hard to be when compared with the typical dorm room -- you can defray costs with a roommate. You'd also be able to reap a mortgage-interest deduction and write off the taxes in some instances.

Of course, with property, you'll also need to cover ongoing maintenance expenses, utilities and taxes. Most condo fees cover some of that, but it pays to look at the history of the complex. If the condo association needs to raise its assessment to cover overdue or needed repairs -- such as a roof -- you'll get hit with an additional fee.

Before you leap, look at the tax history of the unit. Has it been reassessed lately? In depressed housing markets, property taxes should drop, but not always. In the case of the Ann Arbor unit, tax assessments fell about 9 percent last year and 16 percent in 2009.

So that's the "room" part of the equation. What about the "board?" Compared with on-campus living, the greatest savings are available if your student is fairly frugal, cooks for him or herself and doesn't buy a meal plan from the college.

In the final tally, you need to look at the after-tax costs of ownership for your income bracket and project them over four years. If you're relying solely on the property appreciating for the investment to make sense, it may not work for you.

There is another factor: Your student living in a comfortable condo with plenty of room. Sometimes a parental return on investment can't be measured in dollars.