Checklist as your teenager heads off to college: Don't forget to: a) pay the tuition; b) have the safe-sex talk; c) have the drinking-and-driving talk; and d) buy your student a house or condo.

Pardon the whiplash on that last one, but the fact is, many parents who are financially able to do so are choosing to invest in real estate close to campus for their college-bound offspring. In many cases, it's preferable to shelling out dormitory fees or apartment rent.

Statistician Walter Molony of the National Association of Realtors, or NAR, estimates there are about 3 million campus houses and condos in America today, properties that were purchased primarily for the owners' college-bound students. That represents about 8 percent of the nation's 37.4 million investment properties, but excludes 6.8 million vacation homes, which don't tend to be near college campuses.

Although NAR doesn't track campus-area housing prices per se, Phillip Filardi, a real estate agent with Keller Williams Realty who specializes in properties near the University of Texas at Austin, will attest that Longhorns with their own digs are living large.

"It's amazing the number of parents who are able to come in and buy a $200,000 or $300,000 condominium, or even a $400,000 or $500,000 house for their children right around campus," he says. "I've had any number of parents tell me, 'If I'm going to spend this kind of money every month to house my children, I might as well buy an investment property and get some return.'"

For students, a campus house or condo can offer greater freedom, a choice of roommates and more amenities, including a full kitchen, private bath, deck and hot tub, cable and Internet connectivity, and covered or enclosed parking.

For parents, it offers a chance to not only recoup some of the skyrocketing cost of the aptly named higher education but, if approached correctly, can even launch their baby birds into the world with something college can't provide: a good credit history. Even parents of limited means can derive many of the same benefits by co-owning a campus house with other parents.

One additional bonus: That campus crib might keep the kids from "boomeranging" back home, as nearly half of this year's college graduates plan to do, according to a survey by online career resource MonsterTrak.

Pooling parental resources
Sirkin says some parents choose to share the cost, risk and, ultimately, the reward by co-owning a college house with other parents. In cases where more than one child will be attending school in the area, this can extend the time horizon on their investment and still meet the residency requirement to avoid capital gains tax when they sell.

"They would expose themselves to lower costs and fewer risks than if they bought the house by themselves, because they would be investing less," he notes.

Although some parents may be tempted to form a business entity such as a limited liability company with their child or partner(s) to isolate their personal assets from the rental property, Sirkin advises against it. A garden-variety LLC as a business entity cannot claim the capital gains exclusion on the sale, nor execute a 1031 exchange for like property, such as a rental home near a different campus.

"The most important thing we're doing is establishing co-ownership with the child, because that's what is generating the benefits," Sirkin says.

Has buying a campus home worked well for Sirkin's clients?

"Yes, because of the truism that real estate tends to increase in value over a reasonable period of time," he says. "In a university town, that's probably even slightly more likely than average. I think it works out well for people compared to renting, for the most part."

Graduation present: sound credit
In retrospect, Sheehan says, he should have put his daughter on the deed as a co-owner. "That's the one mistake I did make, that I didn't buy it with her. It would have helped, although it didn't slow her down."

Sheehan's not alone in that oversight. Few parents think of buying a home with their student instead of for them. But that choice pays several benefits, according to real estate attorney Andy Sirkin of Sirkin Paul Associates in San Francisco.

"With their name on the title, it creates a credit history for them. If the student is working and generating taxable income, then some tax benefits would accrue to them that they wouldn't have if they were paying rent. And they might be able to exempt the capital gain on the resale if the student lives there for two of the past five years before they sell it," Sirkin says.

Kyle Krull, an estate planning attorney in Overland Park, Kan., says co-owning their own college home gives students a jump-start in the Monopoly game of life.

"The more hard assets you have on your financial statement, the more you have the ability to seek financing for your own business ventures, your own personal financing for a home or other investment property," he says. "The parents can then sell the remaining interest to the kids over time, and now the kids have one or two properties in a college town that are income-producing. In addition to their graduate degree, they're now landlords."

Do your homework
Sheehan says the trick is to size up the campus community first before taking the plunge. You want a property you can afford that won't be hard -- or costly -- to sell after graduation.

"You have to find out what the colleges and universities are doing in the area. If they have a big construction program themselves, you have to be careful," he says.

On the plus side, colleges are increasingly getting out of the dorm-building business, content to let private developers build and manage student housing near or on campus. Unfortunately, that same private development can make houses near campus scarce and sky-high in price.

"The question is, how much growth is there in the community?" says Sheehan. "The ideal situation is a relatively new university in a small town where the student population is growing. That's almost a no-brainer to look for a place to buy."

A quick glance at price appreciation in five major university cities around the country shows that four-year appreciation through the first quarter of 2006 averaged between a low of 23 percent (Austin, Texas) and a high of 103 percent (Miami). Actual appreciation in the campus neighborhoods likely varied due to supply and demand.

Sheehan notes that even in campus locations with little or no appreciation, a house you own and can keep full still beats paying thousands each year for student housing. You also may be able to deduct the mortgage interest, property taxes and a percentage of utilities and maintenance (if you collect rents) on your income tax.

"You don't want to get into a situation that, in the long run, you're going to worry about appreciation," Sheehan says. "If that's your primary goal, then don't invest."

Fear factor
As the owner of a campus house, your goals are similar to those of any landlord. You want a property that you can keep fully occupied and that will produce rental income to at least cover your costs (mortgage, taxes, insurance). You also want to be sure you have signed leases and security deposits from every renter.

What scares many parents -- and keeps the dorms full -- are the unknowns. What if I can't rent it? What if my kid drops out? What if the housing market suddenly flatlines? What if? What if? What if?

After all, not only is that campus home often their first rental property, likely located in another town or state, but that four-or five-year time horizon can prove uncomfortably tight for appreciation purposes.

Robert Sheehan, consulting economist for the National Apartment Association, had a good experience. He bought an old four-bedroom Victorian in a reviving neighborhood of Richmond, Va., for his daughter to live in while attending Virginia Commonwealth University. He never had to make a payment for an errant roomie, and after graduation, sold his daughter the house with easy terms. She and her husband now own 14 high-end properties.

But Sheehan didn't repeat the process when his son enrolled in Carnegie Mellon in Pittsburgh. Why? Carnegie Mellon provided better digs less expensively than he could have purchased.

"He lived in a two-bedroom apartment on campus that was 1,600 square feet," Sheehan says. "Where he was in Pittsburgh, where you have five universities in a several-block area, it was tough to find places that you could buy that easily."