parents who are helping their children through university or college, cost of
housing is a shockingly large addition to an already hefty tuition bill.
Residence costs can range from $6,000 without a meal plan to $15,000 all-in.
Off-campus rental properties can cost anywhere from $450 to $2,000-plus a
month. Together, the outlay for tuition and housing over a four-year university
degree can easily creep up to over $50,000.
some Canadians have decided to turn this financial burden into an opportunity.
It’s becoming more and more popular for parents to purchase property in college
and university towns, and enter the landlord business with their children as
their first clients.
Koven, a real estate agent in Kingston, Ont., says that between 10% and 20% of
all the sales he makes in the area around Queen’s University are to parents
purchasing property for their kids to live in. For the new condos sprouting up
around the city, that number is much higher. “I would say over half the ones
that I’ve bought or sold in [a condo building], there has been a student that
was occupying it through parents or a parent buying for a student.” As
developers look to cash in on the high demand for real estate nears campuses,
parents seem to be happy to buy.
the rent being paid on an annual basis for two children to attend the same
university can reach upwards of $16,000 and a five-bedroom investment property
could bring in approximately $24,000 [with additional student renters], it
seems like a no brainer,” says Alison Tigert, a real estate agent in Toronto.
“Now, after taxes have been paid and maintenance of the property, the profits
might not be as lucrative, but you’re saving the original $16,000 you’d
otherwise be paying a landlord and getting nothing back in return.”
you have enough money saved for a solid down payment, then the math makes
sense. You can rent out the extra rooms in the property while your child is at
school, earn enough rent to cover the mortgage—ideally with a little left
over—and sell the property at a higher price point either when your child
leaves school or when you’re ready to move on.
there are a lot of responsibilities that come with purchasing a property for
your child to live in, and whether
this makes sense for you and your family depends on many factors. Janet Gray, a
Fee for Service Financial Planner and Money Coach, says the most important
thing to keep in mind is cash flow. “If you’re paying rent of $1,500, you’re
pretty sure you’re only paying $1,500. If you are paying a $1,500 mortgage
payment for example, then you’re also paying property tax as well, you pay
maybe for a parking space in the building, you’re also paying for unexpected
repairs that might need to be done, condo fees if it’s a condo.”
are a lot of additional costs associated with owning a rental property that you
don’t need to worry about as a tenant, and if you’re not prepared for them,
they have put a lot of stress on your finances. “If it’s in the short term then
there’s liquidity challenges. You could have some of your cash tied up in real
estate assets that you might not have access to in the short term, so again it
relates to cash flow.” Do the math (or ask a financial advisor or accountant to
crunch the numbers on your behalf) to see whether you can comfortably cover the
regular costs associated with buying a property versus paying rent on behalf of
Additionally, buying a rental property comes with tax implications. As it will
not be your primary residence as the purchaser, you’ll be looking at forking
over capital gains tax—that’s calculated at your marginal rate on 50% of
any appreciation in the property’s value when you sell it. So, for example, if
you sell the property for $100,000 more than you paid, tax will be due on 50%
of that amount, or $50,000.
addition, there are ways to minimize that tax burden.
university or college accommodation for your child can be a hard purchase to
get right, but with the right planning, it can pay off. When it comes to the
property itself, Koven believes that, although it’s a little cliché, where you
buy is the most important factor. “Get to know the market, get to know the area
and how easy it is to rent. Everyone jokes, but it’s true, the top three things
in investment property are location, location, location.” Koven believes that
even if you can get a property for a steal, if you can’t rent it, you won’t be
making any kind of profit on it.
adds that almost as important as location is, “condition, condition,
condition”—what the property looks like and how well it’ been kept, matters.
“Landlords may think that students don’t have high standards,” she says, “but
in the long run, a house in better overall condition will rent faster, more
easily and get a higher rent than something that’s falling down.”
a regular cleaning service to a property rental is a trend that’s becoming more
popular and, Tigert thinks, quite savvy. Although it may marginally reduce
profits in the short run, it pays off over time, she says. Especially if you
live too far away to check on the property, regular visits from the cleaning
service provide “added security that rules are followed, and the property is
being maintained both from the tenant’s perspective and the landlord’s,” Tigert
it may be a smart investment decision, buying a property for your child isn’t
the easy way out. It’s key to ensure that your child is
ready to take on the responsibility of managing the property, and can be the
heavy when other renters step out of line. And it’s equally important that you
are prepared to service the property or cover the extra cost of property
management services to handle that for you. You need to be confident the
purchase works within your overall financial plan as an investment. If it does,
you may be saving tens of thousands of dollars in rent, and earning yourself a
pretty return after you sell the property.
Real Estate news in Money Sense by Ben Dinsdale