Wealthy families are buying out-of-state homes to snag tuition discounts at universities

Colleges have become so expensive that even wealthy families are looking for ways to save on tuition.

While this typically means trying to secure scholarships, another way of snagging lower tuition is becoming increasingly popular: buying property in the state your child will be attending college.

All 50 states offer tuition discounts to in-state residents, the reasoning being that residents pay taxes that should offset their costs of higher education—and the savings can be steep.

Public four-year undergraduate degrees have an average out-of-state tuition cost of $28,297 versus $9,750 for the same degree in-state, so these savings are not small by any stretch, according to Education Data Initiative.

Even the most expensive in-state tuition in the country—William and Mary College, running $26,456 for annual tuition and fees—still offers a significant shave off the out-of-state cost of $52,725 for the same degree.

Florida comes out tops for in-state discounts, with an average tuition of only $4,540. The University of Florida in Gainesville, for instance, costs $28,658 for out-of-staters but a mere $6,380 for residents, a whopping 77% discount.

The priciest state on the list is Connecticut, with an average $37,907 yearly tuition for out-of-staters. Become a resident, however, and watch that bank-busting tuition plunge to $15,763.

The state’s most famous university, Yale, does not offer in-state discounts, as it’s an Ivy League institution, but another top-tier school, UConn, does. Out-of-staters will cough up $39,678 per year compared with $17,010 for in-staters.

Texas, with a plethora of colleges with excellent reputations, will cost an average annual $24,743 for the out-of-stater but a mere $8,195 for the resident, a hefty 67% discount. (It should be noted that the state recently ended its in-state tuition discounts for persons without legal status.)

Now, add up those reductions up over the four years a child would typically attend college, and perhaps multiple children, and the savings can easily pay for the property purchased. (Keep in mind that properties come with their own costs—such as HOA fees, insurance, and maintenance. Run the numbers to make sure that it’s still worth it to buy.)

“It’s the No. 1 choice why my clients are moving here,” Houston-based real estate agent Erwin Nicholas, who specializes in high net worth buyers, tells Realtor.com®. “Pretty much all of my clients are moving to Texas with education-based decisions in mind.”

While the Lone Star State’s many tax benefits are a draw, as is the significantly lower price-per-square-foot home price tag, Nicholas, a former middle-school teacher, says the many excellent universities and the in-state tuition discounts are drawing buyers from pricier states such as California, Georgia, and South Carolina.

Furthermore, a property located near a university might not only appreciate more than the average, but also sell faster.

These properties “have a greater appreciation,” says Nicholas. “They are investment vehicles as well as places for your kids to stay.”

College adviser … and real estate agent?

This kind of savvy financial planning has led to the rise of university-knowledgable agents such as Nicholas becoming nearly as important to the college-bound student as a guidance counselor, college adviser, or SAT tutor.

“You want to get a Realtor® who is educated on these matters,” he says. “I would encourage parents to start thinking about their kids’ education not just from a scholarship standpoint and making good grades, but thinking about what states, like Texas, have in-state tuition discounts and what are the rules you should be aware of.”

But don’t wait until the last minute to snap up that in-state property.

Each state will have varying and strict requirements to qualify for cheaper tuition rates. Many, including Texas and Florida, require that a student live in-state for 12 consecutive months before qualifying.

And plenty of college-paying folks will have the same idea that you do. Properties near good schools sell at a premium and can get snapped up quickly.

Houston—a city that feeds into numerous top-ranked colleges such as Rice University, University of Texas, Texas A&M, and University of Houston—sees homes spend a median 46 days on the market, a 1.1% increase over last year, according to Realtor.com data, and much shorter than the median 71 days in 2017.

To snag that in-state property, you will be competing not only with out-of-staters but also people already living in the suburbs.

“It doesn’t make sense to drive an hour each way to school,” says Nicholas, who guides many suburbanites to buy a house inside the city limits. Here, the kids can live until graduation, and then the property can be used as an income generator.

“Long before the kid gets to college, parents should be thinking this way,” he says.

Is it fair?

As with anything where those with means have a significant advantage over those without, the question of equality arises.

After all, if a family has the funds to buy their kids a local property to live in while attending school, did the family really need that tuition discount?

“I wouldn’t say so,” admits Nicholas. “But it has more to do with strategy and savvy than fairness.”

Given all the financial advantages of establishing residency to get that tuition relief, are there any downsides to handing over your newly purchased home to your college-age kids—and perhaps a roommate or two?

“This can go one of two ways,” Los Angeles-based real estate investor Jameson Tyler Drew, of Anubis Properties, tells Realtor.com. “After two to four years, the house is either immaculate or it’s trashed.”