For parents with investment dollars to spare in deflated college-area real estate markets, there’s never been a better time to invest in condos or single-family homes to house a student during their undergraduate or graduate years while providing tax breaks and potential investment appreciation for the folks.

But, it’s very important to consider pros and cons because the potential rewards of buying housing for a student carries many risks. Over the past decade, the once-galloping real estate market made condo and home purchases in college areas attractive to parents looking for an actual return on the room and board expenses they would otherwise throw away to their kids’ schools. With the double-digit home appreciation of the 1990s, parents looked at buying property as a way to essentially house their kids for free.

Today, in most markets, home values have fallen, which makes for a better investment proposition. But it’s critical to talk to tax and financial experts such as a CERTIFIED FINANCIAL PLANNER™ professional. As a starting point, parents need to consider the following:

How responsible is your kid?

If your kid thinks you’re buying them a crash pad or party palace, you’re already in trouble. He or she will have to be responsible enough to act as an onsite landlord making sure the interior and exterior of the property stay in livable and salable condition. That’s not a job that every child can handle, so unless you can afford housekeeping and maintenance help, any doubts on your part should dissuade you from such a purchase. Also, if you have ANY suspicions that your child might drop out, take a break or transfer from her chosen school, do you want to risk becoming a landlord yourself or paying for an empty property?

How’s your cash flow?

If you are already a homeowner, you know what owning a home costs – mortgage payments, property taxes, insurance, homeowners or condo association dues, maintenance costs – can you cover these things in a remote residence (including emergencies) without batting an eye? And keep in mind those costs are going to be considerably higher for your kid’s property in downtown Chicago than they would be in Omaha. Also, keep in mind that it will cost considerably more to insure this property because even though it’s your kid, you’ll essentially need to be insured as a landlord based on the damage that can occur in rental properties.

When would you have to sell?

Most people think in terms of owning a kiddie condo for four years – the term of a standard degree. A decade ago, that was a relatively easy commitment to make as housing prices were skyrocketing and buyers always seemed to be circling. Today, however, owners have to consider that it may take them considerably longer to sell the property at a profit with necessary investments in maintenance along the way, and a big 5 to 6 percent slice off the top to pay a selling broker.

Location, location, location:

Buying a property in the immediate vicinity of campus might be great for your kid who rolls out of bed late for class, but bad for you if you’re expecting your property to appreciate. In most markets, on-campus real estate is notoriously low on appreciation (think how you’d feel buying next door to Animal House). This is why investors do better buying in established, off-campus residential areas or developments that are near but not on campus. Your child will have to miss the experience of living with their peers, though, and that’s a big consideration.

Can the property do double duty?

Students are pretty possessive about their space and privacy in college, which is why you don’t see many parents crashing in their kids’ dorm rooms for the weekend. But if you have regular business or vacation plans in the city where your kid goes to school, see if that might be one more incentive to invest as long as it doesn’t cramp your style or your kid’s.

Might your investment become your kid’s investment?

Again, this requires sensible planning and the full cooperation of a responsible child, but if your child is planning to stay in the city where they’ve graduated, parents might consider a plan to sell the property to their kids at graduation. This could give the grad a great start on their finances during their first earning years.

November 2009 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Martin V Higgins, CFP, CLU, AEP, a local member of FPA.

In the seven months since it recorded its panic low close of 676, the S&P 500 has risen over 60%, and stands substantially higher than it did a year ago.No one seems to want to believe it.

Set aside for a moment the economic backdrop of this remarkable and even historic recovery (which, like the crash that preceded it, has no precedent since the 1930s). That discussion will get us nowhere, since no one can agree on what the economic backdrop is, much less on an economic forecast. Concentrate, if you will, on equities themselves, on the fortunes of the companies they represent…and on the rather odd response of investors to this marvelous upsurge in equity prices.

It would take a heap of skepticism to regard a 60% rise in stock prices as anything other than a new bull market, however one defines that term. And such skepticism certainly appears to be in bounteous supply. Consider cash, for example.

It will be forever remarked upon by future market historians (who will shake their heads in wonder that anyone could have missed this signal) that for several months surrounding the panic lows, the sum of cash in bank savings accounts and money market funds exceeded the total market capitalization of the Wilshire 5000. That is, Americans could have reached out and, using only their cash on hand, bought the American equity market in its entirety. This, however, they declined to do, as they had become convinced that the world was coming to an end.

When the world once again stubbornly refused to end, and instead the buds of spring returned to its trees, this wall of cash began to crumble. Indeed, something like $400 billion dollars has exited money market funds over these seven months. Surely this one-time surge is behind the equity market’s wild runup, say the skeptics; surely cash has shot its bolt.

This argument is extremely compelling, right up until you discover where the money actually went. Because it seems largely to have gone not into equities at all, but into bonds. Indeed, the well-regarded research firm Strategas recently noted that over the last three months eleven dollars in net inflows have gone into bond funds for every net dollar into equity funds.

This just makes sense. You may conclude—as apparently most people have—that the world is not ending without going so far as to actually become, in any real sense, optimistic. You just think the radiation levels have declined sufficiently that you can get out of near-zero-yielding cash equivalents, and inch your way cautiously up the yield curve. But that’s still money which hasn’t entered the equity market…yet.

Nor—and in the long run this may turn out to be an even more important point—is the individual investor’s cash the only cash around. Far from it. For as JPMorgan Global Wealth Management’s chief investment officer Michael Cembalest recently noted, “Cash and liquid securities on corporate balance sheets are at the highest levels since 1951.”

He went on to say that another measure of corporate cash flow net of capital spending and inventories has only been higher on a few occasions in the last half century. The recent spate of merger and acquisition activity—Abbott/Solvay, Unilever/Sara Lee, Dell/Perot Systems—may be the opening round in a major strategic deployment of this corporate cash hoard. For it is too easily overlooked that, even as the financial sector went into the recent crisis hideously overleveraged, the rest of corporate America (ex-autos) was keeping its powder bone dry.

And, as economic activity cratered, companies moved aggressively to protect those assets, through production shutdowns, inventory runoffs, and (most notably) layoffs. Mr. Cembalest at JPMorgan estimates that for every dollar of reduced revenue in the recent cataclysm, S&P 500 companies cut expenses by 88 cents. That’s precisely where the huge spike in unemployment came from.

But it’s also why just about every earnings report you’ve heard so far in the third quarter has been ritually prefaced with the phrase “better than expected.” It’s operating leverage, and we may see a lot more of it as production recovers. So much so that the emerging consensus earnings estimate for the S&P of $75 in 2010 looks a bit less far-fetched with each passing day—and each earnings report.

And still, no one seems to want to believe it. This is perfectly understandable if one panicked out of the market on the way down, and is still out. With the S&P 500 at 1100, everybody who fled the market since the first week in October of last year—when the $700 billion bailout bill finally passed, and global markets crashed to new lows in celebration—is under water. Can’t blame them for wanting to believe that this recovery is unsustainable: it’s about the only hope they’ve got left.

But of late one has begun to hear of people who stayed the course, suffered through the worst decline in our lifetimes, participated in the greatest rally—and now want to fly into cash and gold. Dow 10,000 has become for these people, in some mysterious way, the financial equivalent of the sound barrier. And one is hearing those stories a lot.

It is axiomatic, in Wall Street lore, that a bull market climbs a wall of worry. But this bull market is something special. It’s climbing a wall of sheer, systematic, single-minded and impenetrable disbelief.

Which, for some of us, becomes just one more powerful reason to believe.

© 2009 Nick Murray. All rights reserved. Used by permission.