For personal finance expert Lynnette Khalfani-Cox, buying her children their first home was always in the plan. But, what started out as a promise to her kids turned into a money-saving plan that combats many of today's young adult struggles, like building credit, dealing with the rising costs of college, and coping with high housing costs in many cities.
"We made commitments to all three of our kids," Khalfani-Cox told Business Insider. "We've told them, essentially, 'Your job, first and foremost is be a good person and be a good student. If you hold up your end of the bargain and do the right things, this is what we're prepared to do for you: We will buy you your first house, and we will pay for your college.'"
But after going off to college at the University of Texas at Austin, Khalfani-Cox's daughter Aziza had a hard time adjusting, ultimately losing many of the scholarships that made it affordable for her to attend. Since Khalfani-Cox and her husband already planned to buy their daughter a home, they decided to do it it sooner rather than later, as owning a home would help Aziza establish residency and lower her tuition from the out-of-state rate of around $30,000 per year to the in-state rate of about $10,000 per year.
Khalfani-Cox put a lot of research into the plan before buying. "The state of Texas has their guidelines, and it's very specific," says Cox. And it won't just work for anyone — it's only legitimate if the student intends to live there for a while. "My daughter loved Austin from the very beginning, and I knew she wanted to stay," said Khalfani-Cox. And that's when they knew that the plan was a go.
The family found a two-bedroom condo in Austin for $210,000 just before Aziza's second year of college, and jumped at the opportunity to buy. "We put 10% down, or about $21,000, and we had about $4,000 in closing costs," says Khalfani-Cox. "We started encouraging her to do things to show that this is really a bonafide residence and that this is where she intended to make her abode."
After graduating, Aziza got a job in Austin, is now engaged, and plans to stay. Ultimately, Khalfani-Cox saved $40,000 in tuition alone over the two years her daughter officially had residency.The condo also provided a very affordable place for her daughter to live during college and beyond. Aziza lived with two roommates (she shared one of the two bedrooms with a friend) who paid a combined $1,400 in rent, which covered the mortgage. Room and board for the 2019 school year at UT Austin is $10,070, a cost Khalfani-Cox saved starting in Aziza's sophomore year of college. She says Aziza now intends to pay part or all of the mortgage each month.
In addition to having a stable home after graduation and the savings of about $30,000 a year in tuition and room and board, the strategy also helped Aziza build credit since her name is on the mortgage. "My daughter's credit score is in the high 700s, and that's rare for somebody right out of college," Khalfani-Cox says.
And, they plan to do it again. "Because it worked so beautifully, we said 'Let's do the same thing with our son,'" says Khalfani-Cox, who bought her son a townhome near North Carolina State University in Raleigh, North Carolina. She paid cash for the property, which was listed for $158,000. After a few renovations, they listed the two-bedroom property for roommates, and since there's no mortgage, Khalfani-Cox plans to get rental income for the property.
North Carolina State's difference between in-state and out-of-state student tuition is $10,000 a year. Additionally, room and board costs $6,075 per year. The family will then save on both of those expenses — about $16,000 combined— starting in her son's sophomore year."The savings is phenomenal. You're saving, you know, $25,000 to $35,000 per year," says Khalfani-Cox, citing her experience with her daughter. "Then putting a 10% down payment becomes less onerous."