College loans for buying property?

March 26, 2015 12:43 PM

Does anyone have experience using college loans for buying property to live in while attending school? I'm looking at buying a 2-5 acres for about $25,000 to $40,000, putting up a DIY cabin shed in lieu of throwing all my money at rent over the next 3 years.

I'm attending school in rural South so these are legit prices, many properties actually have a mobile home, well, garage, stables etc. for that price. I already have a BA in liberal arts (yeah, I know) returning to get degree in medical-related field. I just want to hear your experiences, particularly for when requesting extra loan amounts to cover living expenses and whether in the end, buying was worth it. Thanks.

posted by caveatz to Work & Money (11 answers total)

Money aside, the best part about renting while in school is that when something goes wrong, I call somebody else and they take care of it. I can't imagine having to maintain a property at the same time as classes. Also there's the benefit of when I graduate, I have the flexibility to pick up my life as needed; owning a home would tie you to the location.
posted by DoubleLune at 12:55 PM on March 26, 2015 [3 favorites]

In addition to what stoneweaver says, the interest rates on student loans right now are at least 3 points higher than on mortgages, assuming you'd qualify. Seems like a waste of money to pay a higher interest rate, on a loan that has a shorter repayment schedule, and which can't be discharged if your life falls apart.
posted by trivia genius at 12:56 PM on March 26, 2015 [13 favorites]

All the people I've known in university who bought houses instead of renting took out a mortgage. Most mortgage rates are considerably lower than most student loan rates (especially a 10-year mortgage, those are ridiculously cheap in terms of interest costs), so getting a mortgage is a much better idea.

I mention 10-year mortgages specifically because the people I've known who bought houses also planned to live in them for at least a decade. If you're only in school 3 years and planning to move I would seriously consider renting, selling property is difficult and time-consuming.

Could you rent a plot of land instead of buying one? You could move or sell your DIY shed when you're done with it.
posted by Ndwright at 1:05 PM on March 26, 2015 [2 favorites]

You signed a promissory note that says that your loan will only be used for approved educational expenses. Buying property and buying materials to construct a home does not qualify as an "educational expense."

While the HEA does allow for "room and board" expenses, that most certainly does not include purchasing a property. As soon as you do this, you'll be in violation of the promissory note and the loans will become immediately due. For the record, investing with the money or gambling is also a violation of the promissory note.
posted by Karaage at 1:19 PM on March 26, 2015 [10 favorites]

I purchased a home in the town I attended law school because owning was considerably cheaper on a month-to-month basis than renting was. Then the housing market collapsed and I took a bath on the house because I needed to sell it or become an absentee landlord in a town I didn't want to return to. So, I don't recommend it.
posted by craven_morhead at 1:38 PM on March 26, 2015 [1 favorite]

Additionally, there is no school that would give you enough in loan to result in a $25k+ refund to use to purchase this land outright. They are limited to covering your tuition plus an additional budget to cover housing expenses, calculated based on average cost of living in your area. Depending on the economic circumstances of your region, the maximum amount you're looking at in a refund for marked for living expenses is probably less than $6k a semester. This includes private student loans.

Plus with the interest, I don't see how this would make any financial sense.
posted by Think_Long at 2:05 PM on March 26, 2015 [3 favorites]

I strongly suspect that people are right about this being a misuse of the funds. I will also second that if you don't plan to live there very long, buying real estate tends to be a poor investment. I bought a house in my twenties. My husband was career military. He got orders less than 3 years later and our options were 1) sell at a loss or 2) rent it out. I managed to rent it out and sell it later and we managed to not lose our shirts, but real estate is generally not a good short term investment (unless you are one of a small subset of people good at buying fixers, fixing them up for not much, then "flipping" them at a profit).

I'm looking at buying a 2-5 acres for about $25,000 to $40,000, putting up a DIY cabin shed

Have you ever owned real estate before? Have you ever built a DIY cabin shed before? Have you ever lived in a DIY cabin shed before? Do you have any first hand experience with how much maintenance, taxes, and other issues can be a headache for the owner (in contrast to rents who call the landlord and now it's their problem)?

Real estate investment is serious work. Creating capital by buying a piece of crap land and improving it is not only a lot of work but takes serious know-how. I will suggest that this probably conflicts with the expectation that getting a degree requires you to focus on your studies.

I once read an article where a guy tried to train for a race and ALSO coach someone else who was training for the same race. He eventually had to pick one. He couldn't do both at the same time. I think what you are considering doing amounts to the same thing: It creates a conflict. You probably can't do both successfully. You need to pick one: Either go into real estate development (which can be lucrative) or pursue your degree. Doing both -- especially if you have never done anything like this before (which it sounds like you haven't) -- is likely a recipe for failure.
posted by Michele in California at 2:26 PM on March 26, 2015 [1 favorite]

This is purely anecdata, and it's 25+ years old, but: A college classmate of mine did exactly this, and two years after college the government came after him and demanded repayment, with hefty interest and penalties, for fraudulent misuse of funds.

If you decide to do this, which you should probably not: be very, very careful.
posted by pdb at 2:51 PM on March 26, 2015 [4 favorites]

Is there a specific reason you're trying to do it this way? Would a bank/CU/etc not give you a normal mortgage? Is it because you want to put off payments until you're out of school?

The fact that they're not letting you do this the normal way, if they aren't, is probably a good sign that you just shouldn't be doing this.

There's got to be some crappy place you can rent that would be cheaper, probably a LOT cheaper than this over the same period of time. Even in my incredibly overpriced city people manage to rustle up ridiculously cheap rent in shared places or weird armpit buildings/basements/etc. Especially if it's in an easily accessible to school if you have a car but otherwise odd location.

Why not rent someone elses trailer?
posted by emptythought at 3:12 PM on March 26, 2015

particularly for when requesting extra loan amounts to cover living expenses

I managed one year to get a small bit extra to replace a computer that died suddenly, I think it was my senior year of undergrad, it's been a bit. I had to make the purchase and then submit the receipt and hope they approved the excess, even though it was still under the max for the subsidized loans for that year. I don't see any way you could get a lump sum like that.
posted by Sequence at 3:40 PM on March 26, 2015 [1 favorite]

I've worked in three financial aid offices. It is very, very difficult to get additional loan money over the cost of attendance and it incredibly unlikely that you will be able to get a school to give you another $25K. Every request I've ever seen for additional money for living expenses has been denied. The school legitimately tries to calculate a number that accurately represents what you need for rent/bills both on and off campus and financial aid officers know it.
posted by vakker at 11:41 AM on March 27, 2015