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Buying a Student Rental: Why Wait?

For University of Guelph students’ parents, after a first year perhaps in residence, it becomes time to ponder the next step when it comes to living arrangements. And, looking ahead to three or more years of helping their kids with rent and moving expenses, often the numbers add up to a logical conclusion: it probably would make more sense to buy than to rent. If you can find a way to manage the purchase of an investment home, it’s a smart move. Buy something modest and have the mortgage covered by rents, while year over year the property gains equity.

For parents wondering what the student rental market is like in Guelph … well, it’s pretty predictable, year over year. In Guelph, the overwhelming majority of students lease on a 12-month basis, from May to May. As a result, students are out in full force early every January and into the end of February in pursuit of a place to live. Our vacancy rate for rentals is extremely low in Guelph, so these earnest students are wise to get a jump on the home search – or take what they can get later on in the year.

So, because January and February are months when the students are out in large numbers looking for housing, it’s also the period during which the market for these properties booms. It’s about a two-month ‘blip’ in home values for properties that are ideally suited for students, and it pretty much happens every January and February. Competition is very fierce, values spike sharply, and many of us sit back and marvel at how much people are spending on these properties which – even a month or two before – typically sold for quite a lot less.

In the course of working with many parent investors over the years, I’ve perhaps most enjoyed the times when we have been on the hunt for the perfect property outside of this peak season. Last year, I helped a client buy a semi-detached home for his son that closed in January. It meant some months of floating the property without rental income, but he knew that the competition in the high season might price him out of the market. This home needed some improvements, anyway, so he bought in December and closed in January. Within 30 days, virtually identical properties were selling for as much as $40,000 more than his. Before he’d even started to fix up the place, he had significant equity gains.

His experience is far from unique. There can be a lot of merit to buying in advance (orĀ after) the investor-season madness. Longer closes when purchased before – or fast closes when purchased after the season has come and gone… these are among the strategies that I used to help my clients secure a great investment at a fair price.

So the real question is… why wait? Why wait for the competitions and soaring prices – when you can buy in a balanced market and achieve the same outcome: a great place for your kid to live, and a smart financial investment for you. Because, let’s remember, as a real estate investor you make your money on the purchase. If you over-spend on the front end, you’ll always be playing catch-up when it comes to equity gains. Overpaying can lead to serious disappointments when, three or four years later, you’re looking to sell the property and your profits are considerably less than you’d hoped. For that reason as well, buying at an off-peak time can make a lot of sense.

Of course, on the flip side, the goal is to take advantage of those ‘blips’ and high periods. So if your property is going to be widely-appealing to parent investors, often that early new year rush is the optimal time to sell. Buy outside of a wild market, but do your darndest to sell within it!