When the kids (really really) need to move out…
There’s no mistaking that this has been a stranger than strange year, one that has tested familial bonds along with those of our communities and workplaces. Honestly, none of us will evolve from this COVID-year unscathed, or without an appreciation of personal space, dark humour, and lockable bathroom doors.
Those of you with University aged kids have made some big decisions regarding sending your delightful progeny off to survive dorm-room living, or opting to have them remain under your roof for a dastardly year of online lectures. I’ve heard complaints all around regarding which option provided the least amount of tension, turmoil, and binge eating. Apparently, the 'Freshman 15’ can also occur in a home-based environment, and is non-partisan with it’s effect upon both parents and students alike.
Whichever position you opted for last September, maybe now you’re frantically ready for young Tommy and Tina to be forcibly extracted from the nest. Heck, maybe at this point, Tommy and Tina are planning their own desperate escapes to the University of Guelph via underground tunnels and shady cash deals to cunning sophomores.
If you find yourself fantasizing about household harmony with a fridge full of food (and wine!), then you’re no doubt ready to start shopping for a student rental for your lovelies. Think of it as the gift that keeps on giving, in more ways than one. Young Tommy and Tina get to fly the proverbial coop in a safe manner, vacant rooms in the property can be tenanted in order to offset expenses, and the mortgage gets paid down by someone other than you. Perhaps the best takeaway is that your exit strategy could heartily endow your bank account with an extra $100,000 when you divest upon Tommy and Tina’s graduation in a few year's time.
Using a local Guelph realtor who has experience with student rentals will be invaluable for finding a sweet property in a prime area with ample amenities, thereby ensuring a super low vacancy rate. Proximity to campus and transit routes translate into higher rents, and allowing young Tommy and Tina to manage their tenant friends along with sharing household chores, is simply a life-skill win-win.
So, now I’ve got your attention, let’s break down some highly illuminating numbers:
Potential property Type A 4 Bedroom, 2.5 Bathroom, well maintained Condo Townhouse with low fees on Gordon St, 5 minute bus ride or 15 minute walk to campus. Many important amenities are within the immediate vicinity and the location is highly sought after by students. Three bedrooms are on the second floor along with a full bathroom, and the fourth (legal) bedroom can be found in the finished basement together with a private 3-piece bathroom. In-house laundry is also available.
* Mortgage 1.99% @ 30 year amortisation
In this particular instance, Tina will be living rent-free in exchange for being the property manager. So let’s consider the other 3 bedrooms, which will rent for at least $1850/ mth, and remember that all of the utilities will be paid directly by the tenants (gas, hydro, water, internet etc). Given this scenario, you will be paying approximately $306 out of your own pocket each month, or $3672/yr.
Over a 3 year tenure, this translates into an $11,016 expenditure.
Notably, if all 4 bedrooms are rented, cash flow would be approximately $344/mth, so perhaps darling Tina should be paying her own rent after all?
The average yearly appreciation experienced within this particular townhouse complex is consistently around $35,000/yr. As such, after 3 years of ownership, you can conservatively expect to have a passive appreciation of at least $100,000, more if you forcibly increase the market value through aesthetically targeted renovations such as updating the bathrooms and kitchen.
So, in essence, over 3 years, you’ll be out of pocket $11,016, for an investment that will return over $100,000. That’s not too shabby at all, especially when considering the principal recapture and continued positive outlook for the region. The math is a bit more convoluted when factoring in renovations, repairs, taxes and closing costs etc, but this does give a rather powerful overview of how to make your money work harder for you.
Now the opposite side of this same coin is simply finding a room for young Tommy to rent for his 3-year tenure at U of G.
That same room, at $650/mth x 12 months x 3 years = $23,400 of your hard-earned cashola being spent on something that provides no measurable return, except of course, for Tommy’s undying gratitude for this higher education opportunity.
Given these 2 scenarios, I sure know which one I’d be aiming for, given a favourable financial climate.
Keep in mind that different property types will award greater or lesser returns. How you decide to invest depends upon your particular situation and where your comfort lies. Condo townhouses are terrific investments if property-maintenance and distance are valid factors. A detached, freehold property, will definitely rack up a higher purchase price. However, saving on monthly condo fees may well result in a cashflow-positive investment. Building a legal secondary unit into an existing freehold property can optimise gross income and add hugely to the re-sale value. Honestly, the best way to figure out the what’s, how’s, and where’s, is to chat with your investment-focussed Guelph realtor, there may well be an opportunity that closely aligns with your criteria.
Most students start perusing rental ads in early January, and competition can become mighty fierce for a well-appointed rental within walking distance to the University. Guelph's move-in day is generally May 1st. This gives you ample time to find that perfect investment property and have it ready to rock n’ roll in time for a new cohort of students, ones who are more than excited to escape their COVID confinements and exercise their societal liberties.
Not to mention, how darned enticing would working from home become with no quibbling kids, no distractions, and everything just where it belongs? That's real-estate investment gold right there! Oh, and don’t forget the celebratory wine my dears, because you heartily deserve an extra-large glass for a job well done. Natch!