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University kids – to rent or not to rent?

Are your children heading to the University?  If so, you should consider a housing option that could create a free living arrangement for your son/daughter while they’re away at school and could potentially refund the full cost of their education upon graduation!
Example: Let’s take a detached 5-bedroom home purchased for $299,900 with 20% down payment and at a conservative interest rate of 3.5% for five years and amortized over 25 years. *Although the Guelph Real Estate market has being appreciating around 5%-8% per year over the past many years, I always encourage investors to use a very conservative 2% appreciation rate when calculating their return. This is what 5-year calculation of Total Income would look like:

Purchase price $299,900.00 with a 2% annual appreciation rate:

  • Year 1 = $5,998.00
  • Year 2 = $6,117.96
  • Year 3 = $6,240.32
  • Year 4 = $6,365.13
  • Year 5 = $6,492.43
  • $31,213.84 Total Appreciation Value over 5 years

Now here’s the fun part! For the purpose of this article, I’ve calculated the Positive Cashflow and Mortgage Balance Paid over the course of 5 years on external spreadsheets, taking in account property taxes, rents, insurance, etc. to aid in our Total Income calculation below.

  • Positive Cashflow = $27,919.00
  • Total Appreciation Value = $31,213.84
  • Mortgage Balance Paid = $32,820.09
  • TOTAL INCOME = $91,952.93

Here are some more great points to consider:

  • All or most of your mortgage and utility expenses on your investment property would be covered by the rent payments collected from your son/daughter’s roommates.
  • By living in the investment property, your son/daughter would learn the responsibility of maintaining a property, collecting rent payments, etc. and would also get to enjoy the house while it appreciates!
  • Investing in a property with a net positive cash flow would provide you with extra money in your pocket each month. This positive cash flow combined with a profitable resale upon graduation, could potentially refund the entire cost of your child’s education!

A fundamental analysis of real estate and economic trends can allow the investors and homeowners to use market intelligence to purchase properties that have above-average potential for investment returns. For market updates and/or access to excellent investment calculation tools, please contact me at mivy@trilliumwest.com .

4 Responses
  • Alan Mason
    Alan Mason
    December 8, 2014

    Very well done Michelle. Using a very attainable appreciation figures keeps things realistic for any investor. Your comprehension and experience with investment properties in Guelph is something any investor would be lucky to have at their side.

  • Irene Szabo
    December 31, 2014

    I agree with most of Michelle’s numbers and feel that investing in a student home is a great idea. My question would be where in Guelph would you find a 5 bedroom detached home for $299,900?

  • Michelle Ivy
    Michelle Ivy
    January 10, 2015

    Thanks for your interest in this article, Irene! There have been several 5-bedroom detached homes under $300,000k that have sold throughout the city in the last year, with sale prices as low as $259,000, however the area known as ‘The Ward’ is often on my radar. The homes in that neighbourhood are rich in heritage, very affordable, and are in close proximity to both the downtown core and the University.

  • Michelle Ivy
    Michelle Ivy
    January 10, 2015

    Thanks Alan! Stay tuned for more related articles…

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