UofG Parent Math – The 2018 Edition

parentmath_2018

If your son or daughter is attending the University of Guelph next school year, surely there must be one thing on your mind; “Where are they going to live!?”

When it comes to student housing in Guelph, there are essentially two options for you. You can either:

1.    Rent a room in a house, residence, or apartment just for them during this time,

Or

2.    Purchase a student investment property in which they will live and rent out the other rooms. 

With the first option there are some pros and cons. Honestly, it will be less work and responsibility for you, and essentially worry free for the most part. You pay the rent to the landlord and they do the rest. The headache factor should be low and it will require minimal effort on your part as the parent. However, all the money that you give to the landlord over the course of your child’s University education goes directly into their pocket never to be seen by you or your family ever again.

The second option will require more work and responsibility on your part. You are responsible for the entire investment property, maintenance, tenants, bills, taxes, and everything else a typical homeowner could expect. This isn’t the end of the world, nor does it mean you will have to quit your day job in order to run it, just that it’s a little more hands on than renting a room. The major bonus here is that a large portion of the money you would be paying for your child’s rent to someone else can now be redirected into your own pocket. The other tenants pay down your mortgage and you get the benefits of any appreciation in the property’s value going up, assuming the real estate market is on the rise.

So let’s assume your child is attending the University of Guelph for the next 4 years and take a look at the financials for each option.

Option 1 – Rent a room

Total Monthly Expenses = $550 (all inclusive)

Total Monthly Income = $0

Total Housing Expense over 4 years = $26,400 ($550 x 48 months)

Total Equity built up over 4 year term = $0

Unfortunately, there’s no getting around the fact that with this option, all of the rent money that will be paid over the 4-year course will be a straight $26,400 loss.

Option 2 – Purchase a home

(Let’s assume you are buying a 4-bedroom condo townhome for $400,000 with a fixed mortgage rate of 3.26%, compounded semi-annually, for a 4 year term, amortized over 30 years with a 20% down payment)

Purchase Price – $400,000

Down Payment – $80,000

Additional funds required on closing– approximately $6,625 (Land Transfer Tax, Lawyer fees, home inspection, and title insurance)

Mortgage Amount – $320,000

Monthly Mortgage Payment – $1395

Monthly Property Taxes – $283

(MPAC Assessment of $282,500 x 1.201948% 2017 Guelph Mill Rate)

Monthly Home Insurance – $60

Monthly Condo Fee – $250

Monthly Utilities – $250

Total Monthly Expenses = $2,238

Total Monthly Income = $1,650 (3 rooms x $550)

Your child’s monthly rent = $588 (Monthly Expenses $2238 – Monthly Income $1650)

Total Housing Expense over 4 years = $28,224

So, first off, you will notice the overall housing expense is slightly more with purchasing a home over the 4-year course, $1824 more expensive to be exact.

But here’s the kicker!

Over that 4-year term, your mortgage gets paid down by just under $27,000 and, assuming even a very modest figure of a 2% property value increase per year, your investment property would appreciate an additional $32,000 in value!

Total Equity built up over 4 year term = $59,000

So if you take your total equity of $59,000 built up in your investment property over the 4 years, minus the $28,224 in housing expenses, you are actually sitting at just over $30,000 in positive equity.

If you consider that renting a room over the 4-year course results in a loss of $26,400, and that purchasing a property (given the scenario above) results in an approximate $30,000 positive gain in equity, you would effectively be $56,400-better-off by purchasing the home versus renting!

In fact, even if you were to go through the entire 4 years and, after all was said and done including the sale of the home, commissions, capital gains tax, lawyers fees, etc., only broke even at $0 gained or lost in equity, you’d still be ahead $26,400 compared to renting a room and losing that amount of money over the 4 year term.

Of course, the hope would be that you could manage to walk away with at least some proceeds after the sale of the property, but managing to simply eradicate a $26,400 loss over their 4-year stay would be a pretty impressive accomplishment all on it’s own as well.

Also, if you don’t happen to have a lump sum of cash just lying around for a down payment on such an investment, you could consider re-financing your current home or borrowing on a line of credit to come up with the necessary funds. You will have to pay a little bit more per month in interest, but it will still likely be much more profitable than renting in the long run.

Now, before you go jumping into your car and driving down to Guelph to visit some of the open houses and find your child their next home , there are still many things to consider when buying a student investment property in Guelph such as:

  • When is the best time of year to buy?
  • How do I advertise to other students?
  • How do I arrange the leases?
  • Are they all on one lease, or are they all on separate leases?
  • Do I go for an 8-month lease, or a 12-month lease?
  • Do I have the lease start in May or start in September?
  • What about the summer months when no one is living there?
  • Do I ask for first and last months rent, or only charge first months rent because they are university students?
  • How do I qualify the tenants?
  • Should I have their parents co-sign?
  • Is it worth buying a condo or should I go freehold?
  • What is the maximum number of rooms I can legally rent in the City of Guelph without needing a special designation?
  • Are there any rental restrictions or landlord licensing programs that I need to be aware of?

For the inexperienced University of Guelph parent investor, the list can go on and on.

Fortunately, all of these questions and more can be answered by finding a local, knowledgeable and professional Realtor that not only knows the Guelph real estate market and investment properties, but also understands the Guelph student rental market as well and can help you find the best investment property that suits your needs.

Combine this with a willingness to take on just a bit more responsibility than renting a room and you have yourself an amazing opportunity to build equity for yourself and your family, diversify your investment portfolio, and teach your son or daughter some valuable life-lessons about home ownership before they’ve even graduated University.

For many of the University of Guelph parents that have been patient enough to see this plan through to the very end, they have looked back on their decision to purchase their son or daughter a home in Guelph and they wouldn’t have done it any other way!

Until next time, Happy Investing!

Kyle

Kyle Woods

About Kyle Woods

For nearly a decade, Kyle has been personally investing in the Guelph real estate market by buying homes, renting them out, and amassing his equity in order to purchase further homes and fulfill his dreams. His experience in the rental market is highly valuable, not only from a buying perspective but also from that of being a landlord. With his experience in property management and dealing with tenants, he is well equipped to guide his clients and first time investors through all of the trials and tribulations of the Real Estate investment market. He is also able to help out first time buyers and family home purchasers find the house that best fits their needs. To top this all off, he really is just a super nice guy.