Anecdotes are always a risky basis upon which to infer a trend. So take the following observations with a grain of salt. That said: GM has observed that over the past six months two different homes on his block have sold for north of $1 million in all-cash deals to parents who intend the homes for their Georgetown University student children.
This would appear really to be two different (possible) trends coming together: the rise of all-cash deals and the rise in parents buying housing for their student children. The first one is definitely happening. With supply not remotely meeting demand, buyers have had to make all-cash offers if they can. This advantages the seller since it leads to quick closings with no pesky banks demanding appraisals.
To the average person, this is a striking and alarming trend. It puts buyers who don’t sit on a huge pile of money at a great disadvantage, even when they can afford the house. And it is all the more striking and alarming when that very real trend plays out with parents buying housing for their children.
It should be said that parents buying housing for their Georgetown University students is hardly a new phenomenon. Famously in 2006 Brian O’Neill bought a house on 35th St. for his son. And his eight friends. When neighbors objected to the noise and the fact that zoning prohibits so many unrelated people living together, the students declared that they were ‘The Apostles of O’Neill’, a religious community. (Religious communities are allowed to have up to 15 unrelated people living together). They lost. But the son of the father who bought the house remained.
The likely reasoning for parents buying houses for their children is that it at least allows the parents to make a little money instead of just sending money to a landlord for a couple years. In the Apostles of O’Neill case, however, this didn’t quite work out that way. O’Neill paid $2.4 million for the house in 2006 and sold it for $2.2 million in 2010 after years of listing and re-listing the property. (The younger O’Neill graduated in 2008). It would appear that O’Neill ended up “paying” over $200,000 (plus transaction costs) to house his son for two years.
But that may have just been spectacularly bad timing, what with the Great Recession and all. Nowadays it seems as if prices will keep spiking for a while. And rich people are always looking for places to stash their cash with good yields.
And there is certainly an advantage to housing your children in buildings that haven’t been used for off-campus housing. And there’s also an advantage to not having to deal with (an often negligent) landlord at all. So even if it’s not a money-gaining proposition, it has benefits to parent and child alike.
But this leaves the delicate question: What about the neighbors? The thing about off-campus housing that has been rented out for years is that non-students can generally know that ahead of time when they choose to move in next door. But off-campus housing can also move in next to you. And even high prices are not a deterrent. In fact they may be an incentive, in terms of getting more return on investment for the parents.
The answer to “what about the neighbors?” is likely “tough cookies”. Or in the case of one house on GM’s block: when the seller expressed a hope that the students getting their house wouldn’t throw parties, the buying parent said “well, call the cops then.”
Living in Georgetown (especially west Georgetown) has always involved some town-gown friction. And the situation has much improved after the adoption of a new campus plan in 2012. But friction still remains. And extremely rich parents splashing their cash around will almost certainly increase that friction.